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Development approaches, inequality and child wellbeing: L.America vs. EE-FSU during the 2000s

Development approaches, inequality and child wellbeing: L.America vs. EE-FSU during the 2000s. Giovanni An drea Cornia University of Florence ------------------------------------------------------------- Unicef Training Seminar, BKK, 15-6-2011. history of main development successes.

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Development approaches, inequality and child wellbeing: L.America vs. EE-FSU during the 2000s

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  1. Development approaches,inequality and child wellbeing:L.America vs. EE-FSU during the 2000s Giovanni Andrea Cornia University of Florence ------------------------------------------------------------- Unicef Training Seminar, BKK, 15-6-2011

  2. history of main development successes • Success:1st wave of Tigers (1960s-70s) less by 2nd wave (1980s-90s) • home-made India+China models are only in part successes(+GDP growth, but rising inequality, stagnant LEB) • 2000s L.A. ’growth with equity’ in open econ (despite evidence that opening  un-equalizing) ? • L.A. recent experience stands in contrast with most EE-FSU which followed ultra-liberal policies

  3. Performance 1

  4. L.A: Redistributive GDP growth (growth incidence curves)

  5. Growth is neutral – despite rapid growth – in EE-FSU GDP % growth (x-axis) and Gini coefficients (y- axis) in 24 transition economies, 2000-6

  6. Performance 2: Inequality fell a lot in Latin America DGini income: 1990-02 (light blue) versus 2003-7 (dark blue), LOC vs NO LOC Left of Centre Regimes Non- Left of Centre Regimes 1990-02: 9 up, 5 down, 4 no change 2002-07: 4 up, 11 down, 3 no change

  7. Changes in Gini of distribution of household net income per capita, over-1989-00 (blue bars), and 2000-6 (red bars) in 25 EE-FSU countries 1989-00: 23 up, 1 down, 1 no change 2000-06: 12 up, 7 down, 6 no change

  8. Performance 3. During the crisis the poverty rate stagnated in LA (left panel), but rose in EEFSU (right panel)

  9. Performance 4 Trends in gross enrolment rates in upper secondary education in sub-regions of EE-FSU (% of population aged 15-18)

  10. L.AMERICA: Gross Enrolment Rates of 15-19 years old by Income Decile Ca. 1990 and 2005 2000 2009 Bolivia 81.9 89.0 C.Rica 72.3 84.9 Honduras 54.6 67.6 Paraguay 72.5 81.3 Peru 83.4 89.6 Source: CEPAL .

  11. What explains different performance in LA vs EEFSU? (i) Initial conditions and exogenous shocks during 2000s ? • Two regions are ‘similarly heterogeneous’ (chart) • Similar GDP/c and structure of regional economies • EE-FSU started out with • stronger administrative institutions • higher human capital • Both affected in the 2000s by similar shocks : • Large terms of trade gains on the exports of primary commodities • Increasing flows of migrant remittances • Enhanced access to financial markets which generated both positive and a few negative effects

  12. $ GDP/c in different sub-groups of EE – FSU and LA countries, 2005

  13. (ii) Differences in policies 1 • (i) Fiscal deficit and public debt. • Both regions followed a policy of low deficits, low public debt and low inflation • (ii) Private debt. • EE-FSU incurred a large increase in private debt, in foreign currency (chart) • not so in L.A. • (iii) Current account/GDP. • EE: huge deficits up to 25% a year for many years (chart) • Consistent surplus in LA over 2003-8,

  14. Average values of Current Account Balance/GDP in different country groups, 2000-07 Baltic countries L.America Oil producing group I: Argentina, Bolivia, Brazil, Chile, Colombia, Costa Rica, Dominican Republic, Ecuador, El Salvador, Guatemala, Honduras, Mexico, Nicaragua, Panama, Paraguay, Peru, Uruguay, Venezuela group II: Kazakhstan, Kyrgyz Republic, Russia, Tajikistan, Turkmenistan, Uzbekistan. group III: Armenia, Azerbaijan, Georgia, Ukraine. group IV: Albania, Bulgaria, Croatia, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Macedonia, Moldova, Poland, Romania, Slovak Republic, Slovenia, group BC: Estonia, Latvia, Lithuania.

  15. Policy differences 2 • (iv) portfolio flows: • EE: huge rise in foreign lending to private sector • moderate rise in LA (+occasional capital controls) • (v) FDI: • high reliance (6-8 % of GDP a year) in EE-FSU, • reduced (3.5-4.5%) in L.A. • (vi) exchange rate: chart • several currency boards and fixed pegs in EE-FSU, intermediary regimes in L.A. • (vii) regulation of banking sector • Strict regulation of domestic banks (deleveraging) in LA • Strong leverage +reliance on branches of foreign bank in EE-FSU (ch)

  16. Policy differences 3 • (viii) trade policy: • EE-FSU, no geogr diversification,(W.Europe) fixed pegs  imports • In L.A. open trade account plus diversification (China). Competitive exchange rate provides some protection • (viii) tax policy: • + 1.5% in tax/GDP ratio in EE-FSU, 2.5 in LA (>in some – chart) • Use of flat tax in EE-FSU, income tax/VAT in LA • (ix) social transfers: • C.E. has powerful welfare state but in FSU+SEE social sector favors pensions but cut child allowances & soc. assistance • In LA, soc. prot. is less developed but both social protection + soc. ass. grew (85 ml covered by CCT and CT - (1.0% GDP)

  17. Reynolds–Smolensky (RS) index for L.A.countries, 1990s & 2000s (Gini pts) RS index = difference btw the Gini coefficients of the distributions of income before & after taxes

  18. In EE-FSU many countries adopted the ’Flat Tax’

  19. Policy differences 4 • (x) labor market policies: • rise in n. workers covered by collective contracts • work inspections against informal employment, • Central wage bargaining in Arg., Uruguay, Brazil • rise in minimum wage (Brazil) • (xi) human capital formation: • Decline in secondary school enrolments in EE-FSU  leading to rise in Gini of human capital workforce • Steady rise in 2ary enrolments and lower dispersion of distribution of enrolments  lower ‘skill premium’

  20. Trend in the ratio minimum/average wage

  21. EEFSU spends - on average – more on social transfers than L. America

  22. But Latin America has high targeting of CCT and other social transfers

  23. The Politics of Policies: In L.America, the ’damage’ caused by W.C: policies in the 1980s-90s led to the election of ‘progressive’ regimes more sensitive to issues of ‘social justice’: trend in n. of political regimes, 1990 - 2009

  24. In EE-FSU regime changes in 2000s favors independent (technocratic) - still ‘rebounding’ from heritage of communism

  25. Conclusions • The neo-liberal ‘debt/export-lead growth’ EE-FSU model lead to: • faster short term growth, but • greater instability – and a more acute recession during the financial crisis • Greater income inequality, rising poverty, stagnation in child wellbeing • The L.A. model emerges in contrast as a kind of new social-democratic model in open-economy (more shock-able) • Current EEFSU crisis is a repeat of the debt Latino debt crisis of the 1980s • Do policy makers ever learn from the recent history? Yes, … but only from their own mistakes (not from those of others)! • The political regimes of the two areas during the last decade influenced the policy approaches ….. What causes changes in political regimes?

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