Neither Curse nor Destiny: NR’s in LA Development Fedesarrollo 2013

Bill MaloneyWorld Bank Development Economics Research GroupAnd Universidad de los Andes

Introduction to Innovation Policy • June 14-18, 2010 – Washington, Introduction to Innovation Policy • June 14-18, 2010 – Washington, D.C.D.C.

Based on:

Does What you Export Matter? (2012, forthcoming, Los Andes)

Engineers, Innovative Capacity and Development in the Americas (2012)

In Search of the Elusive Resource Curse (2009) Natural Resources: Neither Curse nor Destiny

(2007)Missed Opportunities: Innovation and Natural

Resources in Latin America (2007)

www.worldbank.org/wmaloney

Introduction to Innovation Policy • June 14-18, 2010 – Washington, Introduction to Innovation Policy • June 14-18, 2010 – Washington, D.C.D.C.

The missing resource curse: no negative growth effect on average

Most cited resource curse findings fragile (eg. Sachs and Warner) Lederman & Maloney (2007, 2008), Alexeev and Conrad (2009) ,

Meller et. al (2013)Subsoil mineral wealth endowments robustly correlated

with growth: Davis (1995), Sala-i-Martin et al. (2004), Stijns (2005),

Brunnschweiler (2008, 2009).Higher commodity prices raise growth

Deaton and Miller (1995), Raddatz (2007) for poor countries.

NRs: Not cursed.. but they do have “issues”1. Governance, 2. Concentration, 3. Productivity/dynamism

Introduction to Innovation Policy • June 14-18, 2010 – Washington, Introduction to Innovation Policy • June 14-18, 2010 – Washington, D.C.D.C.

NR issues: Concentration Terms of trade: level of prices probably not the problem

it was once thoughtPrices have a strong random walk –not a downward trend

(Cuddington, Ludema, Jayasuriya 2007) Rents more protected than in manufactures

But volatility of prices does negatively affect growth NR have a negative affect on growth through export

concentration (Lederman and Maloney 2007)

But any kind of concentration does:Copper 30% of Chile’s exportsNokia 20% of Finland’s exports Intel 20% of Costa Rica’s exports

Diversification agenda becomes a channel to manage risk… but how?

Introduction to Innovation Policy • June 14-18, 2010 – Washington, Introduction to Innovation Policy • June 14-18, 2010 – Washington, D.C.D.C.

NR Issues: Low productivity/growth

Smith (1776), Matsuyama (1996), Sachs et. al (1995 to 2001)

Rationale for Dutch disease concern Rich Country Goods better

Hausmann, Hwang, Rodrik 2007, Lall 2007 Country should produce the highest

productivity good within its CA PRODY, EXPY correlated with higher growth.

NRs have very mixed PRODYs..

High PRODY or High Investment?

Growth Regressions

 

Base: HHR's Regressions

Including the Export Herfindahl and the Investment Share

With Income Average expy

Including the Export Herfindahl and the Investment Share

IV GMM IV GMM IV GMM IV GMM

Log ( initial gdp) -0.038 -0.02 0.149 -0.007 -0.0166* -0.0177 -0.028 0.124

(4.40)** (2.48)* (0.64) (0.78) (0.01) (0.04) (0.02) (0.08)

Log (expy) 0.093 0.053 -0.583 -0.029 0.102*** 0.0504** 0.124 -0.028

(4.58)** (2.45)* (0.71) (1.15) (0.02) (0.02) (0.08) (0.02)

Category Log (expy) -0.0577*** (0.01) (0.04) (0.04)

(0.02) (0.10) (0.03) (0.03)

Log (primary schooling) 0.005 0.006 0.021 0.011 0.00394 0.00582 0.00207 0.00207

(1.77) (0.89) (0.76) (1.84) (0.00) (0.01) (0.00) (0.00)

Log (Investment Share) 0.045 0.023   0.00935 0.00935

(1.05) (1.91)   (0.01) (0.01)

Root Herfindal Index -0.666 -0.058   0.0615 0.0615

(0.81) (2.05)*   (0.06) (0.06)

Constant -0.426 -0.25 3.756 0.272 -0.186* -0.199 -0.449 -0.449

(4.28)** (1.96) (0.73) (1.64) (0.10) (0.47) (0.40) (0.40)

Observations 285 285 285 285 285 285 285 285

Number of wbgroup   75   75   75   75

Regressions include decade dummiesRobust t statistics in parenthesis, * significant at 5%; ** significant at 1%

But the Key- to understand the heterogeneity of experience

Lo

g G

DP

pe

r ca

pita

19

90

Log Natural Resources (Leamer)-11.5041 11.7949

6

7

8

9

10

Algeria

Argentin

AustraliAustria

Banglade

Benin

Bolivia

Brazil

Burkina Burundi

Cameroon

Canada

Cape Ver

Chad

Chile

China

Colombia

Comoros

Congo, D

Costa Ri

Cyprus

Denmark

Dominica

Ecuador

Egypt, A El Salva

Fiji

FinlandFrance

Gabon

Gambia,

Germany

Ghana

Greece

Guatemal

GuineaGuinea-B

Guyana

Honduras

Hong Kon

Hungary

Iceland

India

Indonesi

Iran, Is

IrelandIsraelItaly

Cote d'I

Jamaica

Japan

Jordan

Kenya

Korea, R

Madagasc

Malawi

Malaysia

Mali

Mauritan

MauritiuMexico

Morocco

Mozambiq

NetherlaNew Zeal

Nicaragu

Nigeria

Norway

Pakistan

Panama

Papua Ne

ParaguayPeru

Philippi

Poland

Rwanda

Senegal

Sierra L

South Af

Spain

Sri Lank

Sudan

SwedenSwitzerl

Syrian A

Thailand

Togo

Tunisia

Turkey

United K

United S

Uganda

Uruguay

Venezuel

Zambia

Zimbabwe

Leamer Measure: Net Exports of NR/Worker

Resource AbundantResource Scarce

Maloney 2007

Introduction to Innovation Policy • June 14-18, 2010 – Washington, Introduction to Innovation Policy • June 14-18, 2010 – Washington, D.C.D.C.

Historically, natural resources have been a dynamic source of growth, but not in LA

AgricultureProductivity growth is higher in agriculture than

manufactures (Bernard and Jones 1996, Martin and Mitra 2001)

But not in LA (or LDCs more generally)Forestry

Dynamic in Finland, SwedenMoribund in Brazil, Chile until late 20th century

Mining Foundation for sustained prosperity in Australia,

Canada, USLatin America: “mineral underachievers” (Wright

2007)True enclave economies

Introduction to Innovation Policy • June 14-18, 2010 – Washington, Introduction to Innovation Policy • June 14-18, 2010 – Washington, D.C.D.C.

Ancient History: MiningSame good, different outcomes

Mexico, Chile in 1800 were dominant global powers in Mining but nearly dead by 1900

US experience with exactly the same goods exactly the opposite.US dominates mining in Mexico, Chile-Able to

employ and perfect the Bessemer process, leverage human capital accumulation

Wright (1987) - US Copper industry-an example of national learning as a network effect.

Not product mix-LAC unprepared for the 2nd industrial revolution (See Does what you export matter?- Lederman and Maloney 2012)

Introduction to Innovation Policy • June 14-18, 2010 – Washington, Introduction to Innovation Policy • June 14-18, 2010 – Washington, D.C.D.C.

Innovative/Entrepreneurial capacity the driver?

MEn Quintil Bajo Quintil 2 Quintil 3 Quintil 4 Quintil Alto

Density of Engineers~ 1900

Source: Maloney and Valencia (2013)

Introduction to Innovation Policy • June 14-18, 2010 – Washington, Introduction to Innovation Policy • June 14-18, 2010 – Washington, D.C.D.C.

Hausmann: NRs as isolated trees?

Theoretically, does it matter if monkey climbing one very tall tree vs jumping among trees? Diversification?

Demand side?Rodriguez (again): being a tree in a dense area is like a MEIf easy to jump from one tree to others, then easy to jump

to.. Better to jump to goods that don’t exist yet

The past as predictor? With death of distance, past NR monkey jumps may not

happen-Steam Engine, Saab, NokiaIf it happened in Sweden, will it happen in Chile or Colombia?

Better trees, or better monkeys? Scandanavia’s Forestry Cluster

04/21/23

Nokia: Site of an early pulp mill in Finland

Learn how to learn

Hot High Tech products on RT 128-why not Chile?

FrankenfishSplice in growth gene from Ocean Pout

(eel)Salmon grows twice as fast as normalAquaBounty Maynard, MA

Introduction to Innovation Policy • June 14-18, 2010 – Washington, Introduction to Innovation Policy • June 14-18, 2010 – Washington, D.C.D.C.

Managing risk: lessons from unit values

Quality measure by price/unit value Huge variance within products (Schott 2004) Average quality rises with development

Low possibilities for UV growth in NR (Hwang)

Yes, there is convergence But are quality ladders shorter?

Yes for most

NRs do seem to show a lower risk-return combination

Figure 4: Unit Values: Drift and Standard Deviation, Country Fixed Effects, HS-1 1990-2001

woodprods (44-49)

vegetables (06-15)

transp (86-89)

textiles (50-63)

stoneglass (68-71)

plasticrubber (39-40)

misc (90-97)

minerals (25-27)

metals (72-83)

machinelec (84-85)

leatherprods (41-43)

foothead (64-67)

foods (16-24)

chemallied (28-38)

animals (01-05)

0.02

0.04

0.06

0.08

0.1

0.12

0.14

0.16

0.18

-0.2 -0.1 0 0.1 0.2 0.3

Standard Dev iation (Product Dummies)

Dri

ft (

Pro

du

ct

Du

mm

ies

)

Krishna and Maloney 2009

Introduction to Innovation Policy • June 14-18, 2010 – Washington, Introduction to Innovation Policy • June 14-18, 2010 – Washington, D.C.D.C.

Innovation/Learning capacity, managing risk is keyThe variance in development impact around

any particular production basket is large The focus on particular goods (trees/forests)

diverts attention from more important issues:LAC needs better Monkeys. Asia has been

training (networks of) Monkeys for decades. China struggling now

Do we have the institutions for managing risk of innovation?

Middle income trap? Countries exploit simple rents (NR, cheap labor) and then can’t make the transition to adopting or invention eqs.?

Fin