Download old and new concerns about free trade in lac

From Commodity Booms to
the Knowledge Economy
Center for Hemispheric Policy, May 2008
W. F. Maloney
Office of the LAC Chief Economist
Latin America and the Caribbean Region
The World Bank
The commodity boom has been kind to Latin
America
Commodity Indexes
Soybean
Crude Oil (WTI)
Raw Sugar
Coffee
Wheat
400
350
300
250
200
150
100
50
Jan/01 Jun/01 Nov/01 Apr/02 Sep/02 Feb/03 Jul/03 Dec/03 May/04 Oct/04 Mar/05 Aug/05 Jan/06 Jun/06 Nov/06 Apr/07 Sep/07 Feb/08
Source: Bloomberg - Dow Jones-AIG Agriculture, Energy & Prec. Metals Sub-Indexes are quoted in USD.
And a large share of the recent high growth
rates are due to this “good luck”
Long Run Cumulative Growth- Actual and Predicted
% variation 2002/06
Actual
35%
Predicted
30%
25%
20%
15%
10%
5%
0%
VEN
ARG
PER
BRA
BOL
ECU
COL
URY
MEX
PRY
PAN
DOM
GTM
SLV
HND
NIC
LAC
-5%
Source:WDI - Regression: dlog(gdp)=f(dlog(ToT),dlog(Ind.Prod.G7),dlog(US5Y),dlog(HighYield));1991-2002. Predicted: setting external factors to zero
The question: Can Latin America turn
this luck into sustained growth?
Productivity Growth
1. 5
1
0. 5
r owt h
0
-0. 5
Latin America
OECD
East Asia
-1
-1. 5
1970s
-2
Source: Calderon, Fajnzylber y Loayza (2002)
1980s
1990s
..And are we back to Prebisch’s
concerns with our economic structure?
 The “resource curse” is probably a myth…but
LA underperforms in all sectors
 Forestry:

remains a dynamic sector in Sweden, and
Finland. ..but Brazil or Chile?

1944 Haig report “Chile tremendous forestry
potential” didn’t appear
LA under-performs
 Minerals: can lead to dynamic industries
 Norway shows US petroleum based success
replicable…



Discovers petroleum in 1969, now exports platforms;
“Norwegian school of thought” in oil exploration.
Australia-exports more mining expertise than wine
But LA stagnated
 Brazil, Peru “mining underperformers” Wright (2001).
 Chile: Australia’s BHP discovered “la Escondida”
 Agriculture: TFP growth faster in agriculture than
manufacturing.. But LA underperforms in both…
…including “high tech” goods
Comparative Advantage in Innovation
Brazil and Mexico: IRCA in Aircraft and Computing Equipment
1.4
Brazil Aircrafts
Mexico Office Computing & Acctg.
Brazil: Airplanes
3.5!!!
RCA Index in SIC 372 (18-yr MA)
1.2
1
0.8
Taiwan: Computers
0.6
0.4
Mexico: Computers
0.2
0
1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000
Year
Innovation is Central: Forestry remains a
dynamic sector in Sweden, Finland
Nokia: Site of an early
pulp mill in Finland
Learn how to learn
It’s not so much what we produce, but
that we’re not producing at world class
levels.. Why?
Deep historical roots: We started
behind in literacy…
1870
1925
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
i
az
r
B
l
m
Ja
ca
ai
ile
h
C
.
o
ia
da
l
en
ca
U
na
c
i
i
i
a
t
a
d
U
x
r
R
e
e
an
E.
st
en
a
w
t
u
g
M
E
C
r
s
S
A
A
Co
Sources : Mariscal and Sokoloff 2000, and Meredith 1995, Maloney 2007
… and valued poetry over engineering
Density of Engineers at the Turn of the 20th
Century
Country
Australia
Year
1920
Engineers per
100,000 workers
47
Chile
1930
6
Colombia
1887
8
Sweden
1890
84
United States
1920
128
Sources : Maloney 2007
We continue to under perform in
education quality
550
HongKong,China Finland
Netherlands
Japan
M acao-China
AustraliaBelgium Switzerland
New Zealand
Czech Republic
IcelandDenmark
France
Sweden
Ireland
Austria
Germany
Slovak Republic
Norway
Hungary
Latvia
Spain
United States
2003 PISA Math Score (Mean)
500
Poland
Portugal Italy
450
Greece
Turkey
Uruguay
Thailand
400
Argentina
Indonesia
Mexico
Chile
Brazil
Tunisia
10
15
350
300
0
5
20
25
30
35
2001 Expenditure per student, primary (% of GDP per capita)
40
LAC “underperforms in R&D
5.0%
Predicted & Observed R&D/GDP
4.5%
4.0%
Israel
3.5%
Finland
3.0%
2.5%
Korea
2.0%
1.5%
China
1.0%
India
0.5%
Argentina
Mexico
0.0%
4
5
6
7
8
9
Log GDP per Capita
Source: Lederman and Maloney 2002 “ R&D and Development”
10
11
And what we invest generates little
knowledge or growth
20.00%
Patents = B1R&D + Bp Country*R&D
15.00%
10.00%
-5.00%
Bosch, Lederman and Maloney (2007)
NOR
FIN
ISR
KOR
TWN
VEN
URY
PER
CRI
COL
CHL
BRA
ARG
0.00%
MEX
5.00%
Partly because of low academic quality and
weak collaboration between university and firm
(interviews with entrepreneurs: scale 1-7)
7.0
6.5
6.0
5.5
5.0
4.5
4.0
3.5
3.0
2.5
2.0
Arg
Bra
Chi
Col
CR
Mex
Chn
Qual of Scientific Inst.
Source: World Economic Forum
Esp
Cor
Ind
Irl
Collab. U-firms
Aus
Sw e
Isr
Fin
EUA
Latin Students Abroad: Still
Condemned to Solitude?
Students Abroad per Million Tertiary Enrolled
Br
az
il
N
ew Ch
Ze ile
al
an
d
C
hi
Vi na
et
na
C
ol m
om
bi
M a
ex
ic
o
In
M dia
al
ay
si
Ta a
iw
an
Ko
re
a
C
an
ad
a
Au
st
ra
lia
1800
1600
1400
1200
1000
800
600
400
200
0
Challenges to Reform
 Lack of consensus on importance


Chile, yes
Mex, Col, Br- noise but not yet coherent
 Consensus, but difficult political economy


Chile- all agreed on macro, but micro haunted
by the ghosts of ‘73
Mex-balkanized policy making
 US-LA post 08: An Alliance for Productivity?
End