p.krugman (1992) in ‘the counter counter revolution in the theory of economic develoment’ says:...
TRANSCRIPT
P.Krugman (1992) in ‘The counter counter revolution in the theory of economic develoment’ says:
¨In the 1950’s there was a rich field of research called Development Economics. Its main purpose was that of understanding why some countries are so much rich than others and to propose policies to increase their rate of economic growth. Such field of study no longer exists. ¨.
Globelics as an inter-disciplinary community studying social, institutional and economic change.
• Globelics research agenda has now come full circle into what Krugman called the High Development Theory Agenda of the 1950´s. It has returned to the likes of Hirschman or Myrdal or Weber, bringing back to central stage institutions, public goods,the environment and social inclusión, which neoclassical growth theory had left out in an attempt to describe growth as an equilibrium process.
• Evolutionary economics – and Globelics –have managed to change the focus, but growing on the basis of natural resources, securing environmental sustainability and caring for social inclusion bring up many new questions which new generations of the Globalics community will have to address in the future.
GLOBELICS 2014, Addis Ababa, Ethiopia.
A new visit to Development Economics in the present age of natural resource based economic growth
Macro and micro lessons from the Latin American experience.
JORGE KATZ [email protected] or [email protected]
FEN,University of Chile
October 2014.
Issues to be discussed
• 1.´Stylized facts´ concerning the Latin American scenario. • 2.Independently of the macropolicy regime LA countries have not been ‘catching
up’ with the developed world in terms of GDP per capita.• 3 Conclusion: equilibrium macro ´fundamentals´ are necessary, but not sufficient
for ‘catching up’. They reduce macro uncertainty but do not induce sustainable growth with equity.
• 4.Growth has shifted from manufacturing to natural resource based sectors, but Dutch Disease and Tragedy of the Commons problems have emerged.
• 5.Sustainable and equitable growth demands policy interventions building up local capabilities, environmental sustainability and social inclusiveness, but this has to come within the constraint of balanced macro ‘fundamentals’. How can it?.
• 6.A tax reform is necessary to provide resources for public goods. The current Chilean policy experiment has to be seen as from this perspective: a tax reform collecting 3% of GDP and a long term program to improve quality of education.
A short visit to received growth theory.
Received theory reflects two quite different research agendas dealing with the determinants of economic growth. The two agendas do not speak to each other. On the one hand, the neoclassical equilibrium growth agenda, initiated by R.Solow (Nobel Prize 1988) in the 1950’s and thereafter advanced by New Growth Theory scholars. It is inspired in Newtonian physics. On the other hand, the neo-Schumpeterian agenda initiated by C.Freeman, R.Nelson, B.A.Lundval and else, inspired in Darwinian natural selection Both agendas have difficulties to deal with natural resource based growth, were ´commons´, environmental sustainability, collective action and government regulation play a key role determining the efficiency, environmental sustainability and social inclusiveness of development processes. Evolutionary Economics – mostly build upon stylized facts coming from the sphere of manufacturing - yet has to bring on board the economic, technological and institutional features of natural resource based growth and the dialogue between economics and ecology.
Lets begin by reviewing Latin American ‘stylized facts’
• 1.Per capita GDP has not ´converged´ to OCDE levels.(12 and 35 thousand U$S respectively, and much higher structural heterogeneity.
• 2. Ratio of GDP per capita between upper to lower quintile is 20-25 times in LA as against 6-8 times in OECD countries.
• 3.The rate of capital formation is lower than in the 1970’s.• 4.Macroeconomic volatility is high, higher than in the 1970´s.• 5.The economy has restructured into natural resource based sectors & services• 6.Terms of trade have improved due to the ‘China effect’, but impact upon low
and medium tech domestic manufacturing is negative, and increasing.• 7. Increasing imports of K goods, low domestic R&D & productivy growth• 8. New macro and micro problems - ‘Dutch Disease’ and ‘Tragedy of the
Commons’ – have emerged associated to natural resource based growth.• 9. The new growth regime involves the outward expansion of the natural
resource exploitation frontier but lacks institutions for environmental protection and for social inclusiveness.
GDP Per Capita Relative to the United States (PPP at current prices)
19501952
19541956
19581960
19621964
19661968
19701972
19741976
19781980
19821984
19861988
19901992
19941996
19982000
20022004
20062008
20100
10
20
30
40
50
60
70
80
Taiwan
Korea
ChileArgentina
Brasil
Source: Penn Tables. A.Heston et.al. Univ. of Penn.
Income per capita ´lags behind´ OECD countries
19801982
19841986
19881990
19921994
19961998
20002002
20042006
20082010
20120
5000
10000
15000
20000
25000
30000
35000
40000
45000
50000
ArgentinaBrazilChileMexicoDenmarkFinlandIrelandKorea, Republic of
year
curr
ent i
nter
natio
nal d
olla
rs
Source: Astorga & Katz, in Dutrenit and Sutz.
9
Fuente: Basado en datos de CEPAL.
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
15
17
19
21
23
25
27
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 typical regional scenarioIlustasted by the Chilean case
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)VehiclesNatural 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
19
90
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
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
275.01990
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
1
2
3
4
0.430.6900000000000
07
1.1399999999999
6
1.3381630260950
1
2.68
3.95
Alternative macroeconomic policy regimes have not been capable of inducing ´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 their production and exports. Argentina expanded growth and employment all across but could not keep inflation at bay. X’s came from ‘old’ plants, without much new investment.
• None of the three countries managed closing up 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 regimeand could not substain its previous exchange rate policy
Neither Argentina, nore 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
On the other hand, the gap has been closing up in natural resource based sectors which now represent the ‘new modernity’
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 perspective1995-1996 2006-2007
ArgentinaBrazilChinaIndiaEEUU
ProducctionTons
HarvestedArea . Acre
ArgentinaBrazilChinaIndiaEEUU
Yield per acre.
ArgentinaBrazilChinaIndiaEEUU
12.48024.15013.500 4.47659.174
5.98010.950 8.127 4.81724.900
2.0872.2051.6610.9292.376
46.50059.00016.200 7.69086.770
15.90020.700 9.300 8.10030.190
2.925 2.850 1.742 0.947 2.874
Source: USDA
But: expanding the natural resource exploitation frontier is having 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
rou
nd
to
ns
Norway Chile UK Canada Faroe Island Australia
Overexploitation of pristine waters has brought about a negative response from the ecology.
Summing up : what are the major questions ahead? Lets mention four of them:
I. How to deal with China’s 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 entering energy and capital markets, taking agricultural land on lease, exploring gas and oil reserves, and else. How to deal with this? . China is by far the more important trade partner in LA today, with a GDP elasticity in the order of 0.3 for most countries in the region. . China is presently changing its long term priorities favouring domestic consumption rather than investment and exports. What impact can we expect this to have upon natural resource based Latin American exporters?.
II. How to deal with a more volatile world environment,III With a local policy regime that only cares for short term financial equilibriumIV. How to deal with the problems imposed by 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 traying to attract FDI – only cares for short term financial equilibrium.
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 natural resource overexploitation.
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 resources are also needed
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 in terms of countercyclical interventions
• These interventions should aim at maintaining the global balance of the economy, but resources are needed to address the building up of local capabilities and foreign competitiveness, on the one hand, and improving social equity, on the other.
• This demands coordination between short and long term policies keeping inflation at bay and also caring for building up domestic capabilities and improving social inclusion.
An interesting option : the current Chilean experiment.Short term equilibrium and long term change
1. The present Chilean policy experiment appears as an interesting attempt to bring together both these aspects : a tax reform that collects around 3% of GDP to be used to improve Education. But:
2. The FT and The Economist have mottled it ‘the new mediocrity’. Is it casual? The question then emerges :
3. How can structural change and social inclusion be attained in a democratic setting and in the present ideological environment?
Globelics as an inter-disciplinary community studying social, institutional and economic change.
• Globelics research agenda has now come full circle into what Krugman called the High Development Theory Agenda of the 1950´s. It has returned to the likes of Hirschman or Myrdal or Weber, bringing back to central stage institutions, public goods,the environment and social inclusión, which neoclassical growth theory had left out in an attempt to describe growth as an equilibrium process.
• Evolutionary economics – and Globelics –have managed to change the focus, but growing on the basis of natural resources, securing environmental sustainability and caring for social inclusion bring up many new questions which new generations of the Globalics community will have to address in the future.