From Commodity Booms to the Knowledge Economy
Center for Hemispheric Policy, May 2008W. F. MaloneyOffice of the LAC Chief EconomistLatin America and the Caribbean RegionThe World Bank
The commodity boom has been kind to Latin America
Commodity Indexes
50
100
150
200
250
300
350
400
J an/01 J un/01 Nov/01 Apr/02 Sep/02 Feb/03 J ul/03 Dec/03 May/04 Oct/04 Mar/05 Aug/05 J an/06 J un/06 Nov/06 Apr/07 Sep/07 Feb/08
Soybean Crude Oil (WTI) Raw Sugar Coffee Wheat
Source: Bloomberg - Dow Jones-AIG Agriculture, Energy & Prec. Metals Sub-Indexes are quoted in USD.
And a large share of the recent high growth rates are due to this “good luck”
Long Run Cumulative Growth- Actual and Predicted % variation 2002/06
-5%
0%
5%
10%
15%
20%
25%
30%
35%
VEN ARG PER BRA BOL ECU COL URY MEX PRY PAN DOM GTM SLV HND NIC LAC
Actual Predicted
Source:WDI - Regression: dlog(gdp)=f(dlog(ToT),dlog(Ind.Prod.G7),dlog(US5Y),dlog(HighYield));1991-2002. Predicted: setting external factors to zero
The question: Can Latin America turn this luck into sustained growth?
Productivity Growth
-2
-1.5
-1
-0.5
0
0.5
1
1.5
Latin America OECD East Asia
1970s 1980s 1990s
r owth
Source: Calderon, Fajnzylber y Loayza (2002)
..And are we back to Prebisch’s concerns with our economic structure? The “resource curse” is probably a myth…but
LA underperforms in all sectors Forestry:
remains a dynamic sector in Sweden, and Finland. ..but Brazil or Chile?
1944 Haig report “Chile tremendous forestry potential” didn’t appear
LA under-performs
Minerals: can lead to dynamic industries Norway shows US petroleum based success
replicable… Discovers petroleum in 1969, now exports platforms;
“Norwegian school of thought” in oil exploration. Australia-exports more mining expertise than wine But LA stagnated
Brazil, Peru “mining underperformers” Wright (2001). Chile: Australia’s BHP discovered “la Escondida”
Agriculture: TFP growth faster in agriculture than manufacturing.. But LA underperforms in both…
…including “high tech” goods
Brazil and Mexico: IRCA in Aircraft and Computing Equipment
0
0.2
0.4
0.6
0.8
1
1.2
1.4
1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000
Year
RC
A In
dex
in S
IC 3
72 (
18-y
r M
A)
Brazil AircraftsMexico Office Computing & Acctg.Brazil: Airplanes
Mexico: Computers
Comparative Advantage in Innovation
Taiwan: Computers
3.5!!!
Innovation is Central: Forestry remains a dynamic sector in Sweden, Finland
Nokia: Site of an early pulp mill in Finland
Learn how to learn
It’s not so much what we produce, but that we’re not producing at world class levels.. Why?
Deep historical roots: We started behind in literacy…
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Brazil
Jam
aica
Chile
Mex
ico
Costa R
ica
Argenti
na
Austra
lia
EE.UU.
Canada
Sweden
1870 1925
Sources : Mariscal and Sokoloff 2000, and Meredith 1995, Maloney 2007
… and valued poetry over engineering
Density of Engineers at the Turn of the 20th Century
Country Year Engineers per
100,000 workers Australia 1920 47
Chile 1930 6
Colombia 1887 8
Sweden 1890 84
United States 1920 128
Sources : Maloney 2007
Argentina
Chile
Uruguay
Tunisia
Thailand
M acao-China
Latvia
Indonesia
HongKong,China
Brazil
United States
Turkey
Switzerland
Sweden
Spain
Slovak Republic
Portugal
PolandNorway
New Zealand
Netherlands
Mexico
Japan
Italy
Ireland
Iceland
Hungary
Greece
GermanyFrance
Finland
DenmarkCzech Republic
Belgium
Austria
Australia
300
350
400
450
500
550
0 5 10 15 20 25 30 35 40
2003
PIS
A M
ath
Sco
re (
Mea
n)
2001 Expenditure per student, primary (% of GDP per capita)
We continue to under perform in education quality
LAC “underperforms in R&D
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
4.0%
4.5%
5.0%
4 5 6 7 8 9 10 11
Log G DP pe r Capita
Pre
dic
ted
& O
bse
rved
R&
D/G
DP
IndiaArgentina
China
IsraelFinland
Korea
M exico
Source: Lederman and Maloney 2002 “ R&D and Development”
And what we invest generates little knowledge or growth
-10.00%
-5.00%
0.00%
5.00%
10.00%
15.00%
20.00%
AR
G
BR
A
CH
L
CO
L
CR
I
ME
X
PE
R
UR
Y
VE
N
TW
N
KO
R
ISR
FIN
NO
R
Patents = B1R&D + Bp Country*R&D
Bosch, Lederman and Maloney (2007)
Partly because of low academic quality and
weak collaboration between university and firm
(interviews with entrepreneurs: scale 1-7)
2.0
2.5
3.0
3.5
4.0
4.5
5.0
5.5
6.0
6.5
7.0
Arg Bra Chi Col CR Mex Chn Esp Cor Ind Irl Aus Sw e Isr Fin EUA
Qual of Scientif ic Inst. Collab. U-firms
Source: World Economic Forum
Latin Students Abroad: Still Condemned to Solitude?
Students Abroad per Million Tertiary Enrolled
0200400600800
10001200140016001800
Austra
liaBra
zil
Chile
New Z
ealan
d
China
Vietna
m
Colom
bia
Mex
icoIn
dia
Mala
ysia
Taiwan
Korea
Canad
a
Challenges to Reform
Lack of consensus on importance Chile, yes Mex, Col, Br- noise but not yet coherent
Consensus, but difficult political economy Chile- all agreed on macro, but micro haunted
by the ghosts of ‘73 Mex-balkanized policy making
US-LA post 08: An Alliance for Productivity?
End
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