Why does Latin America Grow More Slowly?

In order to analyze how satisfactory the growth process in Latin America has been over the past 40 years it is important to make relevant comparisons with other experiences. To tackle this issue, the authors focus on the per capita economic growth rate and its contributing factors, comparing the experience of the typical country in Latin America (LAC) with that of benchmark countries, namely a typical country of the rest of the world (ROW) and of its subsets of developed countries (DEV) and East Asian countries (EASIA). They provide some econometric evidence suggesting that the worse institutional quality of Latin America relative to rest of the world, and to a lesser extent, the lower degree of openness and the higher degree of macroeconomic instability, were important factors behind these differences in productivity growth. The rest of the paper includes a description of economic performance of Latin America during the last four decades and a comparison it with the experience of the benchmark countries, accounting exercises in order to examine the contributions of various factors to the differences in performance observed, an econometric model to explore the role of policy and institutional variables as drivers of these contributions, and a conclusion.Economic Development & Growth, Region 1, Latin America

Venezuela’s Growth Experience

The standard of living, measured as gross domestic product (GDP) per capita, increased dramatically in Venezuela relative to that of the United States from 20 percent in 1920 to 90 percent in 1958, but since then has collapsed to around 30 percent nowadays. What explains these remarkable growth and collapse episodes? Using a standard development accounting framework, we show that the growth episode is mainly accounted for by an increase in capital accumulation and knowledge transfer associated with the foreign direct investment in the booming oil industry. The collapse episode is accounted for equally by a fall in total factor productivity and in capital accumulation. We analyze Venezuela during the collapse episode in the context of a model of heterogeneous production units were policies and institutions favour unproductive in detriment of more productive activities. These policies generate misallocation, lower TFP, and a decline in capital accumulation. We show in the context of an heterogeneous-establishment growth model that distortionary policies can explain a large portion of the current differences in TFP, capital accumulation, and income per capita between Venezuela and the United States.Productivity, physical capital, misallocation, policies

Venezuela's Growth Experience

The standard of living, measured as gross domestic product (GDP) per capita, increased dramatically in Venezuela relative to that of the United States from 20 percent in 1920 to 90 percent in 1958, but since then has collapsed to around 30 percent nowadays. What explains these remarkable growth and collapse episodes? Using a standard development accounting framework, we show that the growth episode is mainly accounted for by an increase in capital accumulation and knowledge transfer associated with the foreign direct investment in the booming oil industry. The collapse episode is accounted for equally by a fall in total factor productivity and in capital accumulation. We analyze Venezuela during the collapse episode in the context of a model of heterogeneous production units were policies and institutions favour unproductive in detriment of more productive activities. These policies generate misallocation, lower TFP, and a decline in capital accumulation. We show in the context of an heterogeneous-establishment growth model that distortionary policies can explain between 80 to 95 percent of the current differences in TFP, capital accumulation, and income per capita between Venezuela and the United States.Productivity, physical capital, misallocation, policies

Assessing the Impacts of Intellectual Property Rights on Trade Flows in Latin America

The protection of intellectual property has been a subject of great contention between developed and developing countries in recent years. Although the Agreement on TRIPs was signed by the members of the World Trade Organization (WTO) during the Uruguay Round of trade negotiations, its provisions are still viewed with animosity by many developing countries. A complete evaluation of the net effects of the TRIPs agreement in developing countries would require a broad assessment of all the costs and benefits described above. This is a formidable task that goes beyond the scope of this paper. Here, we concentrate on a rather small task and analyze the effects of IPRs over the flows of international trade flows, particularly to Latin America. As stated above, trade flows, and especially, flows of high-technology goods can be a source of technology diffusion. In that sense, exploring whether the international flows of high-technology goods are sensitive to IPRs protection in Latin America can be useful if one would like to consider the appropriateness of using intellectual property as a tool to promote technology diffusion throughout the region. Section II presents a brief theoretical background on the relationship between IPRs and trade flows. After a brief review of the empirical literature, Section III describes the data, the econometric model and the results. This section also provides some insights and potential implications of the main findings. Finally, Section IV concludes

Why does Latin America Grow More Slowly?

In order to analyze how satisfactory the growth process in Latin America has been over the past 40 years it is important to make relevant comparisons with other experiences. To tackle this issue, the authors focus on the per capita economic growth rate and its contributing factors, comparing the experience of the typical country in Latin America (LAC) with that of benchmark countries, namely a typical country of the rest of the world (ROW) and of its subsets of developed countries (DEV) and East Asian countries (EASIA). They provide some econometric evidence suggesting that the worse institutional quality of Latin America relative to rest of the world, and to a lesser extent, the lower degree of openness and the higher degree of macroeconomic instability, were important factors behind these differences in productivity growth. The rest of the paper includes a description of economic performance of Latin America during the last four decades and a comparison it with the experience of the benchmark countries, accounting exercises in order to examine the contributions of various factors to the differences in performance observed, an econometric model to explore the role of policy and institutional variables as drivers of these contributions, and a conclusion

Chile's Integration Strategy: Is There Room for Improvement?

What are the main issues in Chile's trade agenda? This paper argues that the country's agenda does not lend itself to that traditional kind of policy advice usually given throughout Latin America. Protection is low and uniform, institutions that govern trade policy are strong and well protected from capture and the country has put a lot of effort in opening markets in the region and abroad. The important issues that come out of the analysis are to a great extent, "second generational". That is: export diversification, the regional distribution of trade gains, completion of the "multidimensional" trade strategy and transport costs. Whereas Chile has made progress in diversifying its exports away from copper, concentration is still high even when compared to other resource intensive countries. On the regional issue, it seems clear that Chile's export-led growth in the last two decades was not evenly distributed across the regions. On Chile's "multidimensional" trade strategy, Asia is clearly the missing link in the country's wide net of preferential agreements and the evidence available suggest that transport costs are these days a more important obstacle to Chile's trade than traditional trade barriers

Estrategia de integración de Chile: ¿Existe margen para mejorar?

Chile es pionero en la liberalización del comercio internacional en América Latina y el Caribe. Su actual política de comercio exterior se asemeja en la mayor medida posible a las recomendaciones teóricas, pero en la lista pendiente subsisten cuestiones que probablemente contribuirán en forma importante a consolidar los beneficios de la integración. Estas incluyen, al menos, cuatro temas: diversificación de las exportaciones, distribución regional de los beneficios de la integración, culminación de la estrategia de comercio "multidimensional" y costos del transporte. En el presente estudio se examinan esos temas y se procura identificar las dificultades y oportunidades que pueden representar para el gobierno chileno en los próximos años

The Participation of Mexico in Global Supply Chains: The Challenge of Adding Mexican Value

There is a general perception that Mexico's insertion in global supply chains has been mostly in assembly operations and that efforts should be made to incorporate additional domestic value in the international production networks in which the country participates. To examine this issue properly one needs to have a measure of the share of domestic value added that is effectively embodied in Mexico's exports. We analyze firm-level data from the IMMEX census which covers all the firms that benefit from the Maquiladora and the PITEX programs. We find that the share of domestic value added as a proportion of the firm's exports has been declining in the last 6 years. We show that the decline is not the result of market share re-allocations; that it persists after controlling for price changes and that is observed across firms of all sizes. The results suggest that more segments of the supply chains are generally not moving into Mexico and that on the contrary there is a trend of falling domestic value added. This result contrasts with that of other countries engaged in similar export processing activities, like China.