UNU-MERIT CONFERENCE
26-28 November 2014.
Macro and micro lessons from the Latin American natural resource-based growth process.
JORGE KATZ
[email protected] or [email protected]
FEN,University of Chile
Topics to be examined
• 1.‘Stylized facts’ . • 2.Aggregate convergence has not taken place, independently
of the macroeconomic policy regime countries have adopted. We have developed into 1/3 - 2/3 societies.
• 3.Convergence is taking place, however, in natural resource based activities, but associated to episodes of Dutch Disease, and of Tragedy of the Commons.
• 4.Four major current sources of concern: I. How to deal with the Chinese threat . II. Volatility of the world economy. III. The global fiscal balance of the economy and the need for public goods. IV Environmental sustainability and social inclusiveness.
‘Stylized facts’ descring the Latin American scenario
• 1.Per capita GDP has not ´converged´ to OCDE levels.(12 and 35 thousand
U$S) Convergence is taking place in natural resource based industries due to the ‘China effect’ and the new GM technological paradigm.
• 2. Much higher structural heterogeneity prevails. The ratio of GDP per capita between upper to lower quintile is 20-25 times in LA as against 6-8 times in OECD. The upper 30% lives better than the average european
• 3.The rate of capital formation has fallen vis a vis the 1970’s. • 4.Macroeconomic volatility is higher than in the 1970´s. • 5.The economy has restructured into natural resource based sectors &
services. Manufacturing is no longer the locus of modernity • 6.Terms of trade have improved due to the ‘China effect’, but low and
medium tech local industries can not compete with Chinese products. • 7. Imports of K goods have increased but domestic R&D efforts have not. • 8. The new growth regime involves the expansion of the natural resource
exploitation frontier but with frail institutions for environmental protection and for social inclusion.
GDP Per Capita Relative to the United States (PPP at current prices)
0
10
20
30
40
50
60
70
80
Taiwan
Korea
Chile Argentina
Brasil
Source: Penn Tables. A.Heston et.al. Univ. of Penn.
Income per capita ´lags behind´ OECD countries
0
5000
10000
15000
20000
25000
30000
35000
40000
45000
50000
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
curr
ent i
nter
natio
nal d
olla
rs
year
Argentina
Brazil
Chile
Mexico
Denmark
Finland
Ireland
Korea, Republic of
Source: Astorga & Katz, in Dutrenit and Sutz.
Average income per capita top quitile and lower quitile Heymann,Ramos)
Pib/habit. Top quitile Low quint. Argentina 11.775 45.749 1.832 Brasil 7.679 35.981 920 Chile 10.631 49.915 1.769 Mexico 9.046 39.021 1.383 Paises G7 29.015 71.051 11.354 Anglosaj. 30.473 82.880 9.321 EU-Japon 28.285 65.434 12.277
7
Fuente: Basado en datos de CEPAL.
15
17
19
21
23
25
27
1971
19
72
1973
19
74
1975
19
76
1977
19
78
1979
19
80
1981
19
82
1983
19
84
1985
19
86
1987
19
88
1989
19
90
1991
19
92
1993
19
94
1995
19
96
1997
19
98
1999
20
00
2001
20
02
2003
20
04
2005
20
06
2007
20
08
2009
20
10
2011
Latin America: Gross capital formation , 1970-2011 (En porcentaje del PIB)
23,5
17,6
18,5
17,6
21,3
Gross capital formation in LA 1970-2011
Source:R.french davis
TPF in Latin American . (Aravena et.al. Cepal, 2006)
-3
-2
-1
0
1
2
3
4
5
1950 1953 1956 1959 1962 1965 1968 1971 1974 1977 1980 1983 1986 1989 1992 1995 1998 2001 2004
PTF sin ajustar PTF ajustada
Differences in TPF across LA countries. (Aravena et.al. ECLAC, 2006)
0
1
2
3
4
5
6
Argentina Bolivia Brasil Chile Colombia Costa Rica Ecuador Mexico Peru Venezuela
1950 - 2005
Capital Trabajo PTF
The average regional scenario as ilustraste by the case of Chile
Productivity growth is very low
Latin American macro volatility. (Macro volatility induces a ´defensive´micro of low I and R&D expenditure)
Figure I.2Latin America (19): GDP and aggregate demand, 1990-2004
(annual growth rates, %)
-4
-2
0
2
4
6
8
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
GDP growthAggregate demand growth
Source: R.Ffrench Davis
CHANGES IN INDUSTRIAL STRUCTURE RESULTING FROM TRADE LIBERALIZACION AND MARKET DE-REGULATION
POLICIES.
Argentina Brasil Chile Colombia México1970 1996 1970 1996 1970 1996 1970 1996 1970 1996
I 15.6 13.1 18.8 22.8 14.9 10.2 10.7 10.5 13.3 13.9
II 9.9 12.1 9.9 8.7 7.7 2.0 2.9 6.5 5.5 10.8
III+IV 36.2 45.7 35.8 42.4 43.2 56.2 45.7 51.2 46.8 46.5
V 38.2 29.0 35.5 26.1 34.2 31.6 40.7 31.8 34.4 28.8
I Industria metalmecánica (excluyendo automóviles, CIIU 381,382,383,385);II Equipo de transporte (CIIU 384)III+IV Alimentos, bebidas y tabaco (CIIU 311,313,314); (en el caso chileno, CIIU 372 ha sido excluido);
y IV Industrias procesadoras de recursos naturales (CIIU, 341, 351, 354, 355, 356, 371, 372)V Industrias “tradicionales” intensivas en mano de obra (CIIU 321, 322, 323, 324, 331, 332, 342,
352, 361, 362, 369, 390.
Metalworking activities. (Machinery and equipment) Vehicles Natural resource processing industries Foodstuffs, forestry, mining, acuaculture, horti and fruticulture, gas and oil, etc. Low skilled labour intensive industries. (Shoes, clothing, etc.)
Source: ECLAC, UN
Commodity prices 2000-2011 (Is China a ´bubble´ or a new model of the world economy?)
0
50
100
150
200
250
I 00
III 0
0
I 01
III 0
1
I 02
III 0
2
I 03
III 0
3
I 04
III 0
4
I 05
III 0
5
I 06
III 0
6
I 07
III 0
7
I 08
III 0
8
I 09
III 0
9
I 10
III 1
0
I 11
-60%
-40%
-20%
0%
20%
40%
60%
80%
Var. interanual (eje derecho)
Índice
Source: R.Jenkings
Unit labor costs 100=2000
Argentina
Brasil
Chile
Colombia
Perú
Uruguay
25.0
50.0
75.0
100.0
125.0
150.0
175.0
200.0
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
Argentina Brasil Chile Colombia Perú Uruguay
Source: R.Frenkel and M.Rapetti.
The Real exchange rate vis a vis US. has worsened
Argentina
Brasil
Chile
Colombia Perú
Uruguay
25.0
50.0
75.0
100.0
125.0
150.0
175.0
200.0
225.0
250.0
275.019
90
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
Argentina Brasil Chile Colombia Perú Uruguay
Source: (R.Frenkel and M.Rapetti, 2011)
Low R&D expenditure as a % of GDP, and scarce incidence upon domestic productivity growth.
0.43 0.69 1.14 1.34 2.68
3.95
0
1
2
3
4
Different macroeconomic policy regimes have failed
to induce ´catching up´.
• Brazil and Chile opted for an ´inflation targeting´ regime in the
2000´s. Argentina instead opted for a high and competitive real exchange rate (RER) regime.
• Brazil y Chile suffered the appreciation of the exchange rate and increasing commoditization of industrial output and exports. Argentina expanded growth and employment across the board,but could not keep inflation at bay. X’s came from ‘old’ plants, without much new investment.
• None of the three managed to close the relative productivity gap with the international frontier. Macro policies seem to be a necessary, but not a sufficient condition for that.
Argentina: exchange rate management after the 2002 devaluation.
Source: Katz & Bernat,2011
The expansion of Exports. (Argentina, Brasil Chile)
138,4
132,2
159,4
119,0
134,6
125,4 125,4
138,2
128,7
120,8
105,0
123,2
100,0
138,1
141,6
134,9
129,6
131,8
133,1
116,3
124,2121,0
90
100
110
120
130
140
150
160
170
2003 2004 2005 2006 2007 2008 2009 2010e
Argentina Brazil Chile
Source: Katz & Bernat, 2011
Annual inflation rate, Argentina, Brazil and Chile.
12,3%
9,8%
13,0%
22,0%
13,8%
23,1%
5,7%
3,1%4,3%
5,6%
7,8%7,1%
-1,4%
2,5%
6,1%
3,7%4,5%
5,9%
7,6%
9,3%
2,6%3,7%
2,4%1,1%
-5%
0%
5%
10%
15%
20%
25%
2003 2004 2005 2006 2007 2008 2009 2010e
Argentina Brazil Chile
After 2006 Argentina could not avoid moving into an inflationary regime and could not substain its previous exchange rate policy
Neither Argentina, nor Brazil or Chile, managed to close the relative productivity gap in manufacturing
10
20
30
40
50
60
70 72 74 76 78 80 82 84 86 88 90 92 94 96 98
ARG BRA MEX COL PER CHI
But convergence is taking place in natural resource based sectors
1. Agricultural products : Soybean, wheat, maize.(Argentina, Brazil, Bolivia, Paraguay, Uruguay) 2. Mining activities. (Chile, Bolivia). 3. Oil and gas.(Ecuador, Colombia). 4. Aquaculture. (Chile) 5. Forestry products (Chile, Brazil, Uruguay). 6. Horto, fruticulture & wine.(Argentina, Chile, Uruguay), show :
New ´state of the art´ facilities have been erected featuring new process and production organization technologies. Subcontracting activities and KIBS have expanded and sophisticated natural resource based ´clusters´ are rapidly growing.
Soybean production (Tons) and productivity (Tons/acre).
Comparative perspective 1995-1996 2006-2007
Argentina Brazil China India EEUU
Producction Tons
Harvested Area . Acre
Argentina Brazil China India EEUU
Yield per acre.
Argentina Brazil China India EEUU
12.480 24.150 13.500 4.476 59.174
5.980 10.950 8.127 4.817 24.900
2.087 2.205 1.661 0.929 2.376
46.500 59.000 16.200 7.690 86.770
15.900 20.700 9.300 8.100 30.190
2.925 2.850 1.742 0.947 2.874
Source: USDA
Expanding the natural resource exploitation frontier has resulted in major environmental consequences
Salmon farming in Chile as an example.
0
100
200
300
400
500
600
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002
000
roun
d to
ns
Norway Chile UK Canada Faroe Island Australia
Negative environmental effects reflect a negative response from the ecology.
Main policy issues now facing Latin America. I will mention just four:
1. How to deal with the Chinese threat?. . China is today the major source of demand for natural resource based industrial commodities. It affects world prices and terms of trade. . China is today a major source of supply of low and medium tech industrial goods. The trade balance has become strongly negative. . China is now aggresively entering energy, mining, agricultural and capital markets, taking agricultural land on lease, exploring gas and oil reserves, and offering financial help. How should the region deal with this? . How to negotiate with China in a ‘beauty context’ scenario?. . What impact should different countries expect from changes in the Chinese domestic policy scenarios.
II. How to deal with a more volatile world environment. Trade and FDI. III How to reconcile short term financial equilibrium and long term structural issues? IV. How to deal with the problems of a natural resource based growth model
1. Trade liberalization forced the return to natural comparative advantages
leaving less space for macroeconomic policies aiming at ´catching up´. 2. The ´inflation targeting´ regime –adopted out of ´fear of inflation´ and to
attract FDI – does not care for structural change and social inclusion. 3. The apreciation of the exchange rate has deteriorated the competitive
position of emerging nations. 4. Capital goods imports have substituted for local machinery prodution
and also for R&D efforts. 5. Environmental protection has deteriorated due to overexploitation of
natural resources 6. Manufacturing activities have lost share in GDP and the expansion of the
natural resource exploitation frontier with scarce provision of public goods is having negative consequences upon the environment and also upon social inclusivness.
Monetary, fiscal and exchange rate policies are needed
to sustain the RER, but financing is also required for ‘industrial’ and social policies.
• A competitive RER is needed for growth but it affects the rate of inflation.
• For such reason fiscal and monetary interventions are needed to keep inflation at bay.
• These interventions should aim at maintaining the global balance of the economy, but considering that resources are needed to build up of local technological capabilities and competitiveness, and also to improve social equity.
• This demands coordination between short and long term policies sustaining the global balance of the economy but financing the building up of domestic technical capabilities and improving social inclusion.
Industrial and social policies are required to improve competitiveness and social inclusion.
• There is a widely accepted view that industrial and natural resource based growth are somewhat incompatible.
• However, natural resources demand ´location specific´specialized equipment and knowledge intensive services which can not be brought from abroad.
• Natural resources – soil, water, the bio-sphere - are in constant change and transformation in response to an increasing rate of exploitation. The dialogue between economics an the ecology demands collective understanding, regulation and public goods.
• The expansion in the rate of exploitation of natural resources with inadequate supply of public goods produces environmental degradation and welfare loses at the community level.
The current Chilean macro/micro policy package as an option to deal with the situation, but denigrated
by the international press.
1. The current Chilean policy appears as a valuable attempt to bring together macro stability and social reforms : a tax reform collecting 3% of GDP to be used to improve Education.
2. The FT and The Economist have denigrated it by calling it ‘the new mediocrity’. Is it right?
3. The question then emerges : How can economic growth, structural change and social inclusion be made compatible with macro stability in the present age of financial equilibrium policy thinking?
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