Transcript Economic Growth in Latin America: Past, Present and Future Perspectives. Andrés Solimano

Economic Growth in Latin America:
Past, Present and Future
Perspectives.
Andrés Solimano
ECLAC, United Nations
November 11, 2004
Table of Contents
A. The Recent Growth Performance of Latin America
B. The Growth Record of Latin America of the Last
Four Decades
C. Volatility
D. Changes in Growth Performance
E. Towards Explaining Growth Performance
F. Future Prospects
A. The Recent Growth Performance
of Latin America
Figure 1. THE ECONOMIES OF THE REGION GREW BY 1.5%
OVERALL IN 2003.
ECLAC PROJECTS A GROWTH RATE OF 4.5% IN 2004
5
4
3
2
1
0
2004
2003
2002
2001
2000
1999
1998
1997
1996
-1
1995
Annual rate of GDP growth
6
-2
2.5
1
Haití
2.9
R. Dominicana
3.0
El Salvador
3.0
Paraguay
4.2
REGIÓN EL CARIBE
7
Cuba
3.3
Guatemala
3.5
Bolivia
3.5
Honduras
3.7
Nicaragua
3.7
Brasil
3.7
Colombia
3.8
Costa Rica
4
México
4.8
Perú
5.0
Chile
5.5
Panamá
Ecuador
Argentina
10
Uruguay
13
Venezuela
Tasa porcentual de crecimiento anual
Figure 2. PROJECTED GROWTH RATE BY COUNTRY, 2004
12.0
9.2
7.1
América Latina y el
Caribe: 4,5%
2.0
-2.0
-1.0
Figure 3. PER CAPITA OUTPUT IN 2004
(1997 = 100)
102
100
96
94
92
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
90
1992
1997=100
98
Table 1
Savings, Investment and Growth
Latin America and the Caribbean, 1990-2003.
1990-1997
Rate of Growth (% per year)
GDP
GDP per capita
Gross Capital
Formation (% of GDP)
1998-2003
3.2
1.4
1.3
-0.2
22.4
19.3
19.6
17.8
2.9
1.5
National Savings
(% of GDP)
Foreign Savings
(% of GDP)
Source: Preliminary overview of the economies of Latin America and
Caribbean, ECLAC 2003.
B. The Growth Record of Latin
America of the Last Four Decades
Economic Growth in Latin America
1960-2004
Four stylized facts of economic growth in L.A. that
define risks and prospects of growth
Economic growth has been slow and very volatile.
High heterogeneity in degree of development across Latin
American countries.
Economic growth has declined since early 1980s.
Important changes in relative growth performance, including
the economic collapse of some countries. Few cases of rapid
and sustained growth after 1990.
Argentina
Bolivia
Brazil
Chile
Colombia
C. Rica
Ecuador
Mexico
Peru
Rep. Dom.
Uruguay
Venezuela
Unweighted
Average
Table 2
Average per capita GDP Growth Rates.
Average annual GDP
Growth rates (%)
1960-2002
1960-1980
1981-2002
2000-2003
0.9
2.6
-0.6
-1.9
1.0
2.3
-0.3
2.3
2.2
4.6
0.1
1.7
2.5
1.6
3.2
3.2
1.8
2.6
0.9
2.3
2.0
3.1
0.9
3.1
2.0
5.4
-0.2
3.2
2.1
3.7
0.6
2.0
0.7
1.8
-0.2
3.0
3.2
4.7
3.0
3.5
0.8
1.5
0.1
-3.8
0.1
1.6
-1.3
-2.8
1.6
3.0
Source: own elaboration based on data from ECLAC.
(p) Projected by ECLAC.
0.5
1.3
2004 (p)
7.1
3.3
3.7
4.8
3.7
3.7
5.5
3.9
4.2
-1.0
9.5
12.0
5.0
Table 3
World and Latin America. Total Gross Domestic Product 1960-2001*
World
Period
Latin America
GDP per capita
GDP
GDP per capita
GDP
Average annual
Standard
Average annual
Standard
Average annual
Standard
Average annual
Standard
growth rates (%)
Deviation
growth rates (%)
Deviation
growth rates (%)
Deviation
growth rates (%)
Deviation
1960-1970
3.1
0.93
5.0
1.03
2.5
1.25
5.4
1.25
1970-1980
2.0
1.42
3.9
1.50
3.2
1.26
5.7
1.35
1980-1990
1.2
1.04
3.0
1.08
-0.3
2.35
1.7
2.39
1990-2001
1.4
1.10
2.8
1.02
1.1
1.63
2.8
1.68
1960-1980
2.5
1.32
4.5
1.40
2.8
1.27
5.5
1.28
1980-2001
1.4
1.05
2.9
1.03
0.5
2.10
2.4
2.08
* based on 1990 international Geary-Khamis dollars.
Source: Angus Maddison (2003). The World Economy: Historical Statistics. Development Centre Studies. OECD.
C. Volatility
Economic growth has been slow and volatile
Average annual growth rate of per capita GDP in 19602002
Latin America: 1.6% per capita
US: 2.5%
South Korea: 6%
100 to 192
100 to 275
100 to 990
Instability: years with recessions (negative GDP growth)
Average for Latin American countries: 16 of 42
US: 8 of 42
South Korea: 4 of 42
Frequency of Growth Crisis: Unstable Growth
Table 4
Growth Crisis in Latin America and Control Group
Number of years with negative GDP
Percentage of
growth rates
crisis in total
period
1960-1980
1981-2002
1961-2002
Latin American Countries
Argentina
Bolivia
Brazil
Chile
Colombia
Costa Rica
Dom.
Republic
Ecuador
Mexico
Peru
Uruguay
Venezuela
Average
Control group
Korea
Thailand
Philippines
Ireland
Spain
Turkey
Average
6
4
3
6
0
2
4
2
0
5
6
6
3.7
11
10
9
3
7
8
4
8
8
10
9
12
8.3
17
14
12
9
7
10
8
10
8
15
15
18
11.9
41.5
34.1
29.3
22.0
17.1
24.4
19.5
24.4
19.5
36.6
36.6
43.9
29.3
2
0
0
1
2
5
1.7
1
2
7
2
2
6
3.3
3
2
7
3
4
11
5
7.3
4.9
17.1
7.3
9.8
26.8
12.3
Source: Own elaboration based on ECLAC and IMF data.
D. Changes in Growth Performance
Changes in Growth Performance Across
Countries in Latin American Economies
Table 5
Changes in Economic Performance in Latin American Economies
Countries where real per capita income grew
less than zero
0% to 1%
1960-1980
Brazil
Colombia
Costa Rica
Ecuador
Mexico
Uruguay
Source: Own elaboration based on data by ECLAC.
1980-2002
Argentina
Bolivia
Peru
Venezuela
1% to 2%
2% to 3%
above 3%
Chile
Peru
Uruguay
Venezuela
Argentina
Bolivia
Brazil
Costa Rica
Colombia
Dom. Rep.
Ecuador
Mexico
Chile
Dom. Rep.
Table 6
Growth Booms in Latin America and Other Countries
Bolivia
1965-1973
Brazil
1971-1980
Chile
1986-1997
Colombia
1968-1974
Costa Rica
1965-1974
Dom. Republic
1992-2000
Ecuador
1972-1980
Mexico
1963-1970
Korea
1963-1971
1982-1991
Ireland
1994-2001
Spain
1961-1974
Thailand
1986-1996
Sustained growth
per-capita GDP growth rates above 2 per year for 6 continuous years or more
Length of the cycle in
Cumulative
Contribution of
Contribution of
years
growth in per
Total Factor
Capital and Labor
capita GDP
Productivity
9
34.8
36.7
-1.9
10
67.7
32.5
35.2
11
91.1
55
46.5
7
24.9
20
4.9
10
41.9
23
18.9
9
51.1
29
22.1
9
53.6
40.1
23.5
8
33.5
25
8.3
9
10
8
67.7
56.5
64.5
42.1
35.9
39.6
25.6
26.6
34.9
14
112.4
81.9
40.5
11
124.5
54.7
69.8
Table 7
Anatomy of Growth Booms
Country and
Growth Booms
Period*
Per capita
Gross Domestic
Product
(annual growth rate)
Bolivia
1965-73
Brazil
1971-80
Chile
1986-97
Colombia
1968-74
Costa Rica
1965-74
Dominican Rep.
1992-2000
Ecuador
1972-80
Mexico
1963-70
National
Saving
External
Financing
Investment
Term of
Trade
(Index 1995=100)
Memo (average of four years before)
National
External
Investment
Term of
Saving
Financing
Trade
(Percentages of Gross Domestic Product)
(Percentages of Gross Domestic Product)
(Index 1995=100)
3.3
13.8
3.0
16.8
138.5
10.1
6.0
16.1
108.9
5.5
17.9
4.1
22.1
89.4
15.9
1.4
17.4
90.2
5.3
19.1
3.2
22.3
92.5
4.8
9.0
13.9
145.9
3.8
13.7
3.0
16.7
97.1
15.2
2.6
17.7
97.1
4.1
10.6
8.8
19.4
72.4
12.3
3.8
16.1
74.1
4.6
18.6
3.5
22.1
99.0
22.0
2.7
24.8
129.7
3.9
17.7
4.1
21.8
188.6
9.5
7.3
16.8
105.6
3.8
16.5
1.8
18.3
182.1
13.4
1.0
14.4
187.4
Source: Economic Survey of Latin America of ECLAC (various), IFC(2002) and Maddison(2003).
* per capita GDP growth rates above 2 per year for 6 continuous years or more.
E. Towards Explaining Growth
Performance
Why so different development paths?
Analysis of sources of economic growth
Physical capital accumulation: high and neutral
Human capital accumulation: low and neutral
Technology adoption and use (TFP): main determinant
TFP accounts for
most of the evolution of per-capita GDP in each country
the decline in growth after 1980, avg. TFP growth is 0%.
changes in performance for
• collapses:
• stagnations:
• booms:
Venezuela
Mexico
Chile
-1.3%
-0.3%
3.5%
South Korea: 3.7% per year since 1960
per year since 1980
per year since 1980
per year since 1980
Table 8
Growth Accounting for Latin American Economies
GDP
growth
(%)
Annual Contribution to GDP
Growth
Labor
Capital
TFP
0.5
1.2
0.7
0.8
1.6
1.8
0.3
0.8
-0.3
Annual Contribution to GDP Growth
Dominican 1970-2002
Republic 1970-1980
1981-2002
5.6
7.3
4.9
Labor
2.3
2.3
2.3
Capital
1.6
1.7
1.6
TFP
1.7
3.4
1.0
0.4
2.0
-1.1
Ecuador 1965-2002
1965-1980
1981-2002
4.6
8.4
2.1
2.0
1.8
2.1
1.5
1.7
1.3
1.2
4.8
-1.3
1.1
1.2
1.0
0.6
2.2
-0.8
Mexico 1960-2002
1960-1980
1981-2002
4.5
6.8
2.5
1.9
2.0
1.7
2.1
2.7
1.5
0.6
2.1
-0.8
1.4
1.1
1.7
1.3
1.1
1.5
1.4
1.3
1.5
1960-2002
1960-1980
1981-2002
3.1
4.6
1.8
1.8
1.6
1.9
1.5
1.8
1.1
-0.1
1.1
-1.3
4.1
5.3
2.9
1.6
2.1
1.2
1.4
1.4
1.4
1.0
1.8
0.3
Uruguay 1960-2002
1960-1980
1981-2002
1.5
2.2
0.8
0.3
0.8
-0.2
0.3
0.3
0.3
0.9
1.1
0.7
4.9
6.2
3.7
2.3
2.4
2.1
1.9
2.4
1.5
0.7
1.4
0.1
Venezuela 1960-2002
1960-1980
1981-2002
3.0
5.1
1.0
2.1
2.7
1.7
1.3
2.1
0.7
-0.5
0.3
-1.3
Argentina 1960-2002
1960-1980
1981-2002
2.4
4.2
0.8
Brazil
1960-2002
1960-1980
1981-2002
4.3
7.2
1.8
1.8
2.1
1.5
2.2
3.1
1.4
Bolivia
1960-2002
1960-1980
1981-2002
3.3
4.7
2.0
1.6
1.3
1.8
Chile
1960-2002
1960-1980
1981-2002
4.1
3.5
4.7
Colombia 1960-2002
1960-1980
1981-2002
Costa
Rica
1960-2002
1960-1980
1981-2002
GDP
growth
(%)
Peru
Table 9
Private and Public Investment in Latin America (as percentage of GDP)
Private
Public
Total
Investment Investment Investment
14.8
5.2
20.0
Dominican
14.1
8.8
23.0
Republic
15.2
3.2
18.4
1970-2000
1970-1980
1981-2000
Private
Public
Total
Investment Investment Investment
15.4
6.6
21.9
15.2
6.5
21.8
15.4
6.6
22.0
Argentina
1970-2000
1970-1980
1981-2000
Bolivia
1970-2000
1970-1980
1981-2000
7.1
7.9
6.7
7.5
8.9
6.7
14.6
16.7
13.4
Ecuador
1970-2000
1970-1980
1981-2000
12.3
13.0
11.8
7.5
8.3
7.1
19.8
21.3
18.9
Brazil
1970-2000
1970-1980
1981-2000
15.5
14.8
15.9
5.7
7.0
5.1
21.2
21.8
21.0
Mexico
1970-2000
1970-1980
1981-2000
13.8
12.8
14.4
6.0
7.9
5.0
19.9
20.7
19.4
Chile
1970-2000
1970-1980
1981-2000
12.5
7.4
15.3
6.1
7.7
5.2
18.6
15.1
20.6
Peru
1970-2000
1970-1980
1981-2000
15.6
15.3
15.8
5.3
5.5
5.2
20.9
20.8
21.0
Colombia
1970-2000
1970-1980
1981-2000
10.2
10.3
10.2
7.0
5.8
7.6
17.2
16.1
17.8
Uruguay
1970-2000
1970-1980
1981-2000
8.9
8.6
9.1
4.4
4.6
4.3
13.3
13.2
13.4
Costa Rica
1970-2000
1970-1980
1981-2000
15.0
15.3
14.8
6.0
7.0
5.5
19.6
22.3
18.2
Venezuela
1970-2000
1970-1980
1981-2000
NA
NA
9.1
NA
NA
8.9
NA
NA
18.0
Table 10
Latin America. Rate of Growth of GDP and Total Factor Productivity Growth (TFP)
Average annual GDP growth rates (%)
Country
1960-1980
1981-2002
1990-2002
Average annual rate of growth of TFP (%)
1960-2002
1960-1980
1981-2002
1990-2002
1960-2002
Argentina
4.2
0.8
2.2
2.4
1.8
-0.3
1.2
0.7
Bolivia
4.7
2.0
3.5
3.3
2.2
-0.8
0.3
0.6
Brazil
7.2
1.8
1.8
4.3
2.0
-1.1
-0.5
0.4
Chile
Colombia
3.5
5.3
4.7
2.9
5.8
2.5
4.1
4.1
1.3
1.8
1.5
0.3
2.4
0.4
1.4
1.0
Costa Rica
6.2
3.7
4.7
4.9
1.4
0.1
1.2
0.7
Dominican Republic
7.3
4.9
6.3
5.6
3.4
1.0
2.6
1.7
Ecuador
8.4
2.1
2.2
4.6
4.8
-1.3
-1.2
1.2
Mexico
6.8
2.5
3.0
4.5
2.1
-0.8
-0.3
0.6
Peru
4.6
1.8
3.9
3.1
1.1
-1.3
1.1
-0.1
Uruguay
Venezuela
Latin America
2.2
5.1
0.8
1.0
1.4
1.3
1.5
3.0
1.1
0.3
0.7
-1.3
1.3
-1.0
0.9
-0.5
Simple average
5.5
2.4
3.2
3.8
1.9
-0.3
0.6
0.7
Weighted average
6.1
2.1
2.5
4.0
1.9
-0.7
0.0
0.5
Source: Andrés Solimano and Reimundo Soto (2003)."Latin American Economic Growth in the Late Twentieh Century: Evidence and Interpretation", ECLAC, mimeo.
TFP growth is policy determined
Policies that reduce TFP
in the long run
Assessment
Inflation
Inflation has reduced with
independent central banks
Fiscal deficits
Large public debt burden in
several countries
Exchange rate instability
Few coverage mechanisms inhibit
free floating of the currency
Low human capital formation
Quality of education is a main
issue in Latin America
Low infrastructure formation
Public investment declined Private
investment is limited
Table 11
Correlation of TFP growth and other variables
in Latin American countries
1960-2002
1960-1980
1981-2002
0.152**
0.198**
0.116**
-0.032
-0.043
-0.044
0.157**
0.314**
-0.188
(growth in secondary education achievement)
-0.079
-0.087
-0.15
International trade shocks
0.032
0.031
0.033
(changes in terms of trade)
(0.014
-0.017
-0.022
International financial flows
0.006
0.035
-0.045
(changes in external debt as share of labor productivity)
-0.017
-0.021
-0.029
Economic Instability I
-0.0925**
0.148*
-0.122**
(monthly inflation rate)
-0.026
-0.075
-0.029
Economic Instability II
0.006
0.210**
-0.008
(standard deviation of the monthly inflation rate)
-0.027
-0.097
-0.03
Economic Instability III
-0.029
0.014
-0.047**
(standard deviation of the real exchange rate)
-0.017
-0.03
-0.022
Business cycles
(growth in consumption of electricity per capita)
Quality of the labor force
F. Future Prospects
Prospects
GDP Growth:
Interest rates:
Inflation:
Exports:
Terms of Trade:
Capital Flows:
“boom” (4% avg. in 2004 and in 2005)
lowest in 50 years
low (for LA standards) and stable
high and growing
high, especially oil producers
timid and selective comeback
Risks
Slowdown in China and East Asia
Rising interest rates in US and China
Appreciating exchange rates in LA
Internal political shocks
Long run factors
Education
Productivity and technology
Infrastructure
Less bureaucracy and lower transaction costs
Poverty, inequality and political stability
Economic Growth in Latin America:
Past, Present and Future
Perspectives.
Andrés Solimano
ECLAC, United Nations
November 11, 2004