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

Economic Growth in Latin America: Past, Present and Future Perspectives. Andrés Solimano ECLAC, United Nations November 11, 2004. Table of Contents The Recent Growth Performance of Latin America The Growth Record of Latin America of the Last Four Decades Volatility

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

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  1. Economic Growth in Latin America: Past, Present and Future Perspectives. Andrés Solimano ECLAC, United Nations November 11, 2004

  2. Table of Contents • The Recent Growth Performance of Latin America • The Growth Record of Latin America of the Last Four Decades • Volatility • Changes in Growth Performance • Towards Explaining Growth Performance • Future Prospects

  3. A. The Recent Growth Performance of Latin America

  4. Figure 2. PROJECTED GROWTH RATE BY COUNTRY, 2004 América Latina y el Caribe: 4,5%

  5. Table 1 Savings, Investment and Growth Latin America and the Caribbean, 1990-2003. 1990-1997 1998-2003 Rate of Growth (% per year) GDP 3.2 1.3 GDP per capita 1.4 -0.2 Gross Capital Formation 22.4 19.3 (% of GDP) National Savings 19.6 17.8 (% of GDP) Foreign Savings 2.9 1.5 (% of GDP) Source: Preliminary overview of the economies of Latin America and Caribbean, ECLAC 2003.

  6. B. The Growth Record of Latin America of the Last Four Decades

  7. 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.

  8. C. Volatility

  9. Economic growth has been slow and volatile • Average annual growth rate of per capita GDP in 1960-2002 • Latin America: 1.6% per capita 100 to 192 • US: 2.5% 100 to 275 • South Korea: 6% 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

  10. 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 6 11 17 41.5 Bolivia 4 10 14 34.1 Brazil 3 9 12 29.3 Chile 6 3 9 22.0 Colombia 0 7 7 17.1 Costa Rica 2 8 10 24.4 Dom. 4 4 8 19.5 Republic Ecuador 2 8 10 24.4 Mexico 0 8 8 19.5 Peru 5 10 15 36.6 Uruguay 6 9 15 36.6 Venezuela 6 12 18 43.9 Average 3.7 8.3 11.9 29.3 Control group Korea 2 1 3 7.3 Thailand 0 2 2 4.9 Philippines 0 7 7 17.1 Ireland 1 2 3 7.3 Spain 2 2 4 9.8 Turkey 5 6 11 26.8 Average 1.7 3.3 5 12.3 Source: Own elaboration based on ECLAC and IMF data.

  11. D. Changes in Growth Performance

  12. Changes in Growth Performance Across Countries in Latin American Economies

  13. Table 6 Growth Booms in Latin America and Other Countries 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 Bolivia 9 34.8 36.7 -1.9 1965-1973 Brazil 10 67.7 32.5 35.2 1971-1980 Chile 11 91.1 55 46.5 1986-1997 Colombia 7 24.9 20 4.9 1968-1974 Costa Rica 10 41.9 23 18.9 1965-1974 Dom. Republic 9 51.1 29 22.1 1992-2000 Ecuador 9 53.6 40.1 23.5 1972-1980 Mexico 8 33.5 25 8.3 1963-1970 Korea 1963-1971 9 67.7 42.1 25.6 1982-1991 10 56.5 35.9 26.6 Ireland 8 64.5 39.6 34.9 1994-2001 Spain 14 112.4 81.9 40.5 1961-1974 Thailand 11 124.5 54.7 69.8 1986-1996

  14. Table 7 Anatomy of Growth Booms Country and Per capita National External Investment Term of Memo (average of four years before) Growth Booms Gross Domestic Saving Financing Trade National External Investment Term of Period* Product Saving Financing Trade (Index 1995=100) (annual growth rate) (Percentages of Gross Domestic Product) (Percentages of Gross Domestic Product) (Index 1995=100) Bolivia 1965-73 3.3 13.8 3.0 16.8 138.5 10.1 6.0 16.1 108.9 Brazil 1971-80 5.5 17.9 4.1 22.1 89.4 15.9 1.4 17.4 90.2 Chile 1986-97 5.3 19.1 3.2 22.3 92.5 4.8 9.0 13.9 145.9 Colombia 1968-74 3.8 13.7 3.0 16.7 97.1 15.2 2.6 17.7 97.1 Costa Rica 1965-74 4.1 10.6 8.8 19.4 72.4 12.3 3.8 16.1 74.1 Dominican Rep. 1992-2000 4.6 18.6 3.5 22.1 99.0 22.0 2.7 24.8 129.7 Ecuador 1972-80 3.9 17.7 4.1 21.8 188.6 9.5 7.3 16.8 105.6 Mexico 1963-70 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.

  15. E. Towards Explaining Growth Performance

  16. 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: Venezuela -1.3% per year since 1980 • stagnations: Mexico -0.3% per year since 1980 • booms: Chile 3.5% per year since 1980 • South Korea: 3.7% per year since 1960

  17. Table 8 Growth Accounting for Latin American Economies

  18. Table 10 Latin America. Rate of Growth of GDP and Total Factor Productivity Growth (TFP) Average annual GDP growth rates (%) Average annual rate of growth of TFP (%) Country 1960-1980 1981-2002 1990-2002 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 3.5 4.7 5.8 4.1 1.3 1.5 2.4 1.4 Colombia 5.3 2.9 2.5 4.1 1.8 0.3 0.4 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 2.2 0.8 1.4 1.5 1.1 0.7 1.3 0.9 Venezuela 5.1 1.0 1.3 3.0 0.3 -1.3 -1.0 -0.5 Latin America 5.5 2.4 3.2 3.8 1.9 -0.3 0.6 0.7 Simple average 6.1 2.1 2.5 4.0 1.9 -0.7 0.0 0.5 Weighted average Source: Andrés Solimano and Reimundo Soto (2003)."Latin American Economic Growth in the Late Twentieh Century: Evidence and Interpretation", ECLAC, mimeo.

  19. TFP growth is policy determined

  20. F. Future Prospects

  21. Prospects • GDP Growth: “boom” (4% avg. in 2004 and in 2005) • Interest rates: lowest in 50 years • Inflation: low (for LA standards) and stable • Exports: high and growing • Terms of Trade: high, especially oil producers • Capital Flows: timid and selective comeback

  22. 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

  23. Economic Growth in Latin America: Past, Present and Future Perspectives. Andrés Solimano ECLAC, United Nations November 11, 2004

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