1  1  

LAC’s  Long-‐Term  Growth:  Made  in  China?  

Ta#ana  Didier  World  Bank  

 China’s  Global  Reach  Lecture  Series  

Boston  University  September  20,  2013  

Chief  Economist  Office  La2n  America  and  the  Caribbean  The  World  Bank  

LaIn  America  and  the  Caribbean:    100  years  of  growth  solitude  

2  Notes:  In  Panel  B,  High  Performance  EAP  includes  Korea  Rep.,  Taiwan,  Hong  Kong,  and  Singapore;  Low  Performance  EAP  includes  Indonesia,  Philippines,  Thailand,  and  Malaysia;  LAC  includes  the   following  countries:  Argen#na,  Brazil,  Chile,  Colombia,  Mexico,  Peru,  Uruguay,  Venezuela,  Bolivia,  Costa  Rica,  Dominican  Republic,  Ecuador,  El   Salvador,  Guatemala,  Hai#,  Honduras,  Jamaica,  Nicaragua,  Panama,  and  Paraguay.  The  weights  are  calculated  using  the  2007  nominal  GDP.  Source:  Penn  World  Tables.    

A  parIcularly  telling  connecIon  for  growth  prospects  East  Asian  Tigers  and  Japan  

3  Notes:  For  Panel  B,  the  sample  of  UE15  includes:  Austria,  Belgium,  Denmark,    Finland,  France,  Germany,    Greece,  Ireland,  Italy,  Luxembourg,  Netherlands,  Portugal  ,  Spain,    Sweden  and  the  United  Kingdom;  the  sample  of  EAP  countries  includes  Hong  Kong,  Indonesia,  Korea  Rep.,  Malaysia,  Philippines,  Singapore,  Taiwan  and  Thailand.  Sources:  WITS  and  WDI.  

-0.4

-0.2

0

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0.6

0.8

1

1975

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Output Co-Movement Between EAP and Japan15-year rolling correlation of the Real GDP Growth

HKG KOR IDNMYS THA SGP

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Indonesia Thailand Korea Malaysia Philippines Taiwan Singapore HongKong

% o

f T

otal

Tra

de

Main Trade Partnes1990

World

UE15

USA

EAP

JPN

Japan  was  a  fast-‐growing    neighbor  with  impressive  

technological  progress  that  acted  as  a  growth  pole  for  East  Asian  

economies  

The  nature  of  globalizaIon  may  maNer  

Ø  Has  globalizaIon  played  any  role  in  the  convergence  of  the  East  Asian  Tigers?  • Probably…  (large  literature)  

Ø  If  so,  is  there  anything  special  about  the  globalizaIon  of  these  countries?  • Degree  vs.  Nature  of  GlobalizaIon  

Ø  The  nature  of  the  trade  and  financial  integraIon  of  LAC  may  shed  some  light  on  the  potenIal  for  growth-‐enhancing  effects  of  globalizaIon  

4  

Are  the  2000s  an  excepIon  to  the  rule?  Trend  growth  and  producIvity  picked  up  

5  Notes:  In  Panel  B,  High  Performance  EAP  includes  Korea  Rep.,  Taiwan,  Hong  Kong,  and  Singapore;  Low  Performance  EAP  includes  Indonesia,  Philippines,  Thailand,  and  Malaysia;  LAC  includes  the   following  countries:  Argen#na,  Brazil,  Chile,  Colombia,  Mexico,  Peru,  Uruguay,  Venezuela,  Bolivia,  Costa  Rica,  Dominican  Republic,  Ecuador,  El   Salvador,  Guatemala,  Hai#,  Honduras,  Jamaica,  Nicaragua,  Panama,  and  Paraguay.  The  weights  are  calculated  using  the  2007  nominal  GDP.  Source:  Penn  World  Tables.    

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

1961

1963

1965

1967

1969

1971

1973

1975

1977

1979

1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

2007

Cyclical Adjusted Growth

High-Income

Latin America

Avg 61-70 Avg 71-80 Avg 81-90 Avg 91-00 Avg 01-08 Avg 61-08

LAC 7 1.9% 0.4% -2.0% 0.2% 1.0% 0.3%Non - LAC 7 1.1% 0.5% -2.0% 0.1% 1.2% 0.2%

Argentina 1.3% -0.2% -2.5% 2.0% 1.4% 0.4%Brazil 2.9% 3.2% -3.3% -1.7% 0.5% 0.3%Chile 1.5% 0.5% -0.5% 2.9% 0.5% 1.0%Colombia 1.4% 1.0% -1.3% 0.0% 1.3% 0.5%Mexico 2.0% 0.3% -0.9% -1.6% 0.3% 0.0%Peru 2.4% -0.2% -3.8% 0.5% 2.9% 0.4%Venezuela 2.1% -2.1% -1.6% -0.5% 0.2% -0.4%

EAP 3.1% 2.1% 2.3% 1.3% 2.0% 2.2%China -0.5% 0.9% 1.6% 3.4% 6.2% 2.3%United States 0.9% -0.4% 1.1% 1.0% 0.6% 0.6%Japan 6.7% 1.1% 1.4% -0.7% 0.9% 1.9%

Average TFP growth per year

During  the  2000s,  the  China  ConnecIon  developed  

6  Notes:  For  Panel  B,  the  sample  of  UE15  includes:  Austria,  Belgium,  Denmark,    Finland,  France,  Germany,    Greece,  Ireland,  Italy,  Luxembourg,  Netherlands,  Portugal  ,  Spain,    Sweden,  and  the  United  Kingdom;  the  sample  of  LAC  countries  includes:  Argen#na,  Belize,  Bolivia,  Brazil,  Chile,  Colombia,  Costa  Rica,  Ecuador,  El  Salvador,  Grenada,    Guatemala,  Honduras,  Jamaica,  Mexico,  Nicaragua,  Panama,  Paraguay,  Peru,  Suriname,  Trinidad  and  Tobago,  Uruguay,  and  Venezuela.  Sources:  WITS  and  World  Bank  World  Development  Indicators  (WDI).  

Main Trade Partners

The  China  ConnecIon  is  gathering  momentum  

7  Source:  World  Bank  

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-0.2

0

0.2

0.4

0.6

0.81990

1991

1992

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1995

1996

1997

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2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

Output Co-Movement Between LAC-7 and China20-year rolling correlation of the Real GDP Growth

ARG BRA COL MEX

PER VEN CHL

Channels  of  growth  spillovers  

§  Very  important  so  far  have  been  (  perhaps  of  a  relaIvely  short-‐lived  nature):  Ø  China’s  demand  for  LAC’s  exports  Ø  Indirectly,  China’s  role  in  driving  commodity  prices  up  

§  Trade  and  other  economic  linkages  maNer  for  sustainable  (longer-‐term)  growth  to  the  extent  that  they  translate  into:  Ø  Factor  accumulaIon  (physical  and  human  capital)  Ø  ProducIvity  growth  

8  

Channels  of  growth  spillovers  

§  Technological  diffusion  and  learning  spillovers  become  key  determinants  of  producIvity  improvements  Ø  Directly:  Technology  embodied  in  physical  and  human  capital  Ø  Indirectly:  Knowledge  disseminaIon  through  

•  Trade  flows:  –  Tech-‐content  of  imports  –  Feedback  from  imporIng  naIons    –  Clustering  effects  

•  Capital  flows    –  Differences  in  growth  effects  in  favor  on  FDI    as  opposed  to  non-‐FDI  inflows  

•  MigraIon  flows    –  Diffusion  of  tacit  technological  knowledge  

§  Can  LAC  leverage  the  China  connecIon  further?  9  

An  exploraIon  of  the  nature  of  growth  dynamics  

10  Notes:  LAC-‐7  includes  Argen#na,  Brazil,  Chile,  Colombia,  Mexico,  Peru,  and  Venezuela.  EAP  includes  Hong  Kong,  Indonesia,  Korea  Rep.,  Singapore,  Taiwan,  and  Thailand.  Sources:  LCRCE  Staff  calcula#ons  based  on  Penn  World  Tables.    

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130

tt+

1t+

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7t+

8t+

9t+

10t+

11t+

12t+

13t+

14t+

15t+

16t+

17t+

18t+

19t+

20

TFP: LAC-7 vs. East Asian TigersSimple avg, Index base 100 =1970 EAP, 2000 LAC

LAC-7

EAP

PPP Converted GDP Per Capita 2005 International Dollars Per PersonLAC - 7 (1990): $6175.4EAP (1960): $2149.9

We  focus  on  :    The  connec/on  to  growth  poles  and  the  poten/al  for/existence  of  spillover  effects    And  the  role  that  factor  accumulaIon  and  domesIc  policies  can  play  at  fostering  spillover  effects  from  this  connecIon  

Growth  poles  and  technology  diffusion:  ComposiIon  of  exports  

11  Notes:  Didier  (2013)  

Share of Total Exports

44%55%

63%

52% 51%61%

27%34% 36%

56%45%

37%

48% 49%39%

73%66% 64%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2000-2003 2004-2007 2008-2011 2000-2003 2004-2007 2008-2011 2000-2003 2004-2007 2008-2011

From LAC to China From LAC to the South From LAC to the North

% o

f Tot

al E

xpor

tsPrimary Sector Secondary Sector

Growth  poles  and  technology  diffusion:  ComposiIon  of  exports  

12  Source: WITS.

MEX

CRI

BRAARG

DOM

GTM

COL

URY

PER

CHL

ECU

PRY

VEN

BOL

GRD

GUY

HND

JAM

NICPAN

SLV

TTO

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

0% 10% 20% 30% 40% 50%

% o

f P

rim

ary

Exp

orts

to C

hina

% of Total Trade with China

Primary Exports and Total Export to China2009

♦ LAC-7♦ Caribbean♦ South America♦ Central America

PHL

MYS

THA

TWN

KOR

HKG

NPL

LKA

BGD

IDN

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

0% 10% 20% 30% 40% 50%%

of

Pri

mar

y E

xpor

ts to

Japa

n% of Total Trade with Japan

Primary Exports and Total Trade to Japan1990

Growth  poles  and  technology  diffusion:  ComposiIon  of  imports  

13  Notes: Only countries with more than 5% of total trade with China are reported. The factor intensity classification of product of Hinloopen and Van Marrewijk is used. Source: WITS.

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Pana

ma

El S

alva

dor

Gua

tem

ala

Guy

ana

Chi

le

Cos

ta R

ica

Dom

. Rep

.

Jam

aica

Hon

dura

s

Uru

guay

Ven

ezue

la

Col

ombi

a

Nic

arag

ua

Peru

Bol

ivia

Para

guay

Ecu

ador

Arg

entin

a

Bra

zil

Mex

ico

% o

f T

otal

Tra

de w

ith

Chi

na

Share of Factor Intensity Categories in Imports LAC and China, 2009

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Hon

g K

ong

Phili

ppin

es

Kor

ea R

ep.

Sing

apor

e

Mal

aysi

a

Indo

nesi

a

Tha

iland

% o

f T

otal

Tra

de w

ith

Japa

n

Share of Factor Intensity Categories in Imports EAP and Japan, 1990

Technology intensive products

Human-capital intensive products

Unskilled-labor intensive products

Natural-ressource intensive products

Primary products

Growth  poles  and  technology  diffusion:  The  degree  of  intra-‐industry  trade  with  growth  poles  

14  Source: WITS.

MEX

CRI

BRA

SLV

ARG

DOM

JAM

TTO

GTM

COL

URY

HND

PERCHL

ECU

NIC

PRYGUY BOL

VEN

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

0% 10% 20% 30% 40% 50%

Intr

a-In

dust

ry T

rade

Ind

ex w

ith

Chi

na

% of Total Trade with China

Intra-Industry Trade and Total Trade with China2009

♦ LAC-7♦ Caribbean♦ Other South America♦ Central America

PHL

MYS

THA

TWNKOR

HKG

IDN

PAK

NPLLKA

BGD

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50%

Intr

a-In

dust

ry T

rade

Ind

ex w

ith

Japa

n

% of the Total Trade with Japan

Intra-Industry Trade and Total Trade with Japan1990

There  is  liNle  evidence  of  technology  diffusion  through  trade  in  the  LAC-‐China  connecIon,  which  relies  extensively  on  comparaIve  advantage  forces…  

Growth  poles  and  technology  diffusion:    LAC-‐South  vs.  LAC-‐North  

15  Notes:  EAP  includes  when  the  data  is  available:    Cambodia,  China,  Fiji,  Hong  Kong,  Indonesia,  Japan,  KiribaI,  South  Korea,  Lao,  Malaysia,  Mongolia,  Myanmar,  Philippines,    Singapore,  Thailand,  and  Vietnam.  Source:  Didier  and  Pinat  (2013)  based  on  Comtrade.  

The  overall  degree  of  Intra-‐Industry  Trade  

16  Sources: WITS

0%

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100%

Cos

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ica

Gre

nada

Mex

ico

Bra

zil

El S

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dor

Arg

entin

a

Jam

aica

TT

O

Gua

tem

ala

Col

ombi

a

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guay

Hon

dura

s

Nic

arag

ua

Chi

le

Peru

Ecu

ador

Bol

ivia

Para

guay

Ven

ezue

la

LAC countries

1990 2009

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Hong Kong Malaysia Thailand Taiwan Philippines Korea Rep. Indonesia

EAP countries

1990 2009

…  the  low  IIT  characterizes  trade  dynamics  of  many  LAC  countries  

Growth  poles  and  technology  diffusion:  The  FDI  channel  playing  an  even  more  limited  role…  

§  The  Japan-‐Tigers  connecIon  Ø  Large  FDI  flows  driven  by  pull  and  push  factors    Ø  Flows  over  Ime  shijed  to  labor-‐intensive  to  capital-‐  and  technology-‐

intensive  industries  Ø  FDI  flows  reinforced  trade  connecIons  with  value  chains  Ø  Growing  connecIons  among  Tigers  

17  

FDI  Inflows  from  China:    Concentrated  on  resource-‐intensive  sectors  

18  Notes:  Didier  (2013)  

Share of FDI M&A Inflows

50% 50%

75%

56%48% 52%

36%28%

45%

0% 0%

25%

44%52% 48%

64%72%

55%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2000-2003 2004-2007 2008-2011 2000-2003 2004-2007 2008-2011 2000-2003 2004-2007 2008-2011

To LAC from China To LAC from the South To LAC from the North

% o

f Tot

al E

xpor

tsPrimary Sector Secondary Sector

FDI  Inflows  from  China:    Concentrated  on  resource-‐intensive  sectors  

19  Notes:  Didier  (2013)  

Share of FDI Greenfield Inflows

9%

68%

49% 45% 41%

53%48%

20%

44%

91%

32%

51% 55% 59%

47%52%

80%

56%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2003 2008 2012 2003 2008 2012 2003 2008 2012

To LAC from China To LAC from the South To LAC from the North

% o

f Gre

enfie

ld I

nflo

ws

Primary Sector Secondary Sector

Few  signs  of  inserIon  into  Global  Value  Chains  

Notes:  Didier  and  GoNlieb  (2013)   20  

And  Few  signs  that  the  LAC  region  is  developing  GVCs  

21  Notes:  EAP  includes  when  the  data  is  available:    Cambodia,  China,  Fiji,  Hong  Kong,  Indonesia,  Japan,  KiribaI,  South  Korea,  Lao,  Malaysia,  Mongolia,  Myanmar,  Philippines,    Singapore,  Thailand,  and  Vietnam.  Source:  2014  LCRCE’s  Flagship  based  on  DOTS.  

Growth  poles  and  technology  diffusion  The  FDI  channel  playing  an  even  more  limited  role…  

§  Overall,  liNle  evidence  that  China  is  fostering  producIvity  growth  in  the  LAC  region  as  Japan  did  for  the  East  Asian  Tigers  

§  Some  have  argued  that  this  is  due  to  an  excessive  commodity-‐dependence  (“curse”)…  

§  Will  LAC  waste  the  China  connecIon?  Ø  Precedent  is  not  good:  LAC  did  not  lever  the  connecIon  to  the  U.S.  

22  

23  

But  there  are  some  hopeful  signs  in  LAC  

Source:  Mandel  (2009).  

0

0.02

0.04

0.06

0.08

0.1

0.12

1975

1977

1979

1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

LAC Metal Market Share along the Value Chain

Worked Share Worked Quality Unwrought Share

Unwrought Quality Ore Share Ore Quality

§  Commodity  producIon  per  se  is  not  “inferior”  to  others…  Ø  Biotechnological  revoluIon  and  

connecIvity  in  ArgenIna  and  Brazil  Ø  Climbing  the  quality  ladder  in  metal  

producIon  Ø  Clusters  of  acIvity  (employment,  SMEs)  

around  copper  producIon  and  salmon  farming  in  Chile  

§  Improved  insItuIons  and  policy  frameworks  enhance  the  chances  of  avoiding  the  natural  resource  curse  and  rather  raise  the  hopes  of  realizing  the  blessing.  

   

Overall,  trade  and  financial  connecIons  are  unlikely  to  spur  growth  if  not  accompanied  by  

24  Notes:  In  Panel  A,  EAP  includes  Hong  Kong,  Indonesia,  Korea  Rep.,  Malaysia,  Singapore,  and  Thailand.  In  Panel  B,  EAP  includes  Hong  Kong,  Indonesia,  Korea  Rep.,  Malaysia,  Singapore,  Taiwan,  and  Thailand.  Both  in  Panel  A  and  B,  LAC-‐7  includes  Argen#na,  Brazil,  Chile,  Colombia,  Mexico,  Peru,  and  Venezuela.  Sources:  WDI,  Penn  World  Tables,  and  The  Interna#onal  Energy  Agency  (IEA).  

0%

5%

10%

15%

20%

25%

30%

35%

40%

1960's 1970's 1980's 1990's 2000's

% o

f G

DP

Investment Decade Average

LAC-7

EAP

Ø  Investment  Ø  Human  capital  formaIon  Ø  InnovaIon  capacity  Ø  Appropriate  insItuIonal  and  policy  environment  

Human  capital  plays  an  important  role  in  explaining  the  (low)  degree  of  posiIve  spillovers  

25  Source:  Barro  and  Lee  (2010).    

16.4

51

23.1

9.5

LAC-71990

9.7

29.3

40.7

20.3

East Asian Tigers2010

7.9

40.3

37.5

14.2

LAC-72010

Ø  The  existence  of  skilled  labor  with  high  educaIonal  and  technical  capabiliIes  (e.g.  well-‐trained  engineers  and  skilled  managers)  is  key  for  knowledge  spillovers  

Ø  PosiIve  growth  effects  from  FDI  require  a  minimum  threshold  of  human  capital  in  the  host  country

19.3

40.9

29.7

10

East Asian Tigers1990

Ter2ary  

Quality  of  EducaIon  Investment  per  student  in  LAC  yields  less  learning    

26  Sources:  OECD,  UNESCO,  and  World  Bank.    

ARG

AUSAUT

AZE

BEL

BRA

BGRCHL

COL

HRV

CZE DNKEST

FIN

FRADEU

GRC

HKG

HUN

ISL

IDN

IRL

ISR

ITA

JPN

JOR

KOR

KGZ

LVALTULUX

MAC

MEX

NLDNZL

NOR POL

PRT

ROM

SVK

SVN

ESP

SWE

CHE

THA

TUN

TUR

GBR

USA

URY

300

350

400

450

500

550

0 5 10 15 20 25 30

Mat

hem

atic

s sco

re in

PIS

A 2

006

Expenditure per student, primary (% of GDP per capita)

Education Gap

DomesIc  policies  can  also  play  an  important  role  in  fostering  spillover  effects….  

27  

§  East  Asian  Tigers  put  in  place  a  wide  set  of  policies  to  acIvely  seek  for  foreign  technology  Ø  Fostering  imports  of  capital  goods  Ø  IncenIves  to  foreign  training  Ø  IncenIves  to  FDI  inflows  

§  In  addiIon,  East  Asian  Tigers  followed  an  exchange  rate  policy  geared  at  fostering  export  compeIIveness  Ø  Feasible  with  relaIvely  closed  capital  accounts  (impossible  trinity  

concerns)  and  a  high  saving  rate    

DomesIc  policies  can  also  play  an  important  role  in  fostering  spillover  effects….  

28  Notes:  In  Panel  A,  EAP  countries  are  Hong  Kong,  Indonesia,  Korea  Rep.,  Malaysia,  Philippines,  Taiwan,  and  Thailand.  Sources:  Kaminsky  and  Schmukler  (2002)  and  Lane  and  Milesi-‐Ferrep  (2007).  

§  The  asymmetries  in  the  degree  of  trade  and  financial  openness  give  rise  to  addiIonal  constrains  for  policies  LAC  

§  The  region  needs  to  make  a  larger  producIvity-‐enhancing  policy  effort  to  compensate  for  structural  impediments  (low  domesIc  savings  and  high  degree  of  financial  globalizaIon)  to  a  compeIIve  exchange  rate  

0

0.2

0.4

0.6

0.8

1

1973

1975

1977

1979

1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

Financial OpennessPartial Liberalization

EAP

LAC-7

Main  Messages  

29  

§  UlImate  test  of  the  benefits  of  globalizaIon  is  convergence  

§  Comparing  the  LAC-‐China  and  Tigers-‐Japan  connecIons  leads  to  a  mixed  evaluaIon  

§  So  far,  liNle  evidence  that  China  has  not  been  a  conduit  for  technological  diffusion  and  knowledge  spillovers    Ø  There  is  no  meaningful  intra-‐industry  trade  between  LAC  and  China  Ø  Exports  are  concentrated  in  natural  resources  Ø  Imports  from  China  are  concentrated  on  unskilled-‐labor  intensive  goods    

 

Main  messages  and  results  

30  

§  There  are  some  bright  spots  in  several  LAC  countries/sectors    Ø  Mode  of  producIon  of  commodiIes  is  escaping  the  enclave  and  plantaIon  

syndromes  

§  LAC  needs  a  larger  producIvity-‐oriented  effort  to  compensate  for  structural  impediments  to  compeIIve  exchange  rate  Ø  The  Tigers  followed  a  different  model:  high  domesIc  savings  and  limited  

integraIon  into  non-‐FDI  internaIonal  markets  

§  Could  the  region  turn  natural  resource  abundance  and  the  China  ConnecIon  into  a  blessing?  Ø  DiversificaIon  –  avoiding  the  “enclave”  and  “plantaIon”  syndromes  Ø  InsItuIons  –  avoiding  corrosive  effects  of  rent-‐seeking    

31  

Thank  you