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To decouple or to couple ? A question for Latin America

To decouple or to couple ? A question for Latin America. Juan Carlos Moreno Brid Matthew Hammill Deputy Director Economic Affairs Officer ECLAC - Mexico ESCAP – New Delhi IDEAS, Chennai, January 2012. One lens : the BPC growth model.

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To decouple or to couple ? A question for Latin America

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  1. To decouple or to couple? A question for Latin America Juan Carlos Moreno BridMatthewHammill Deputy Director EconomicAffairsOfficer ECLAC - Mexico ESCAP – New Delhi IDEAS, Chennai, January 2012

  2. Onelens: the BPC growthmodel • Harrod, Prebisch, Thirlwall, Gap models • Long termgrowthmustnotgenerateanunsustainable balance of payments • (vs Corden at al DoestheCurrentAccountmatter?) • BPC Specifications: levelsor ratios, trade and factor paymentsfromabroad • X – M = 0, (X – M) / Y ≤ k, interests, remittances

  3. Thirlwall’smodel of BPC growth External demand Incomeelasticity of imports Effect of real exchangerate cum priceelasticities of trade Incomeelasticity of imports

  4. To overcome BPC Diversify external demand, Ratio of income elasticities, internal market industrial/trade policy, induce investment public infrastructure, income redistribution Real exchange rate: avoid persistent appreciation Watch capital flows and key stock-flow ratios: Public, Private -bank and non bank- balance sheets!

  5. Data: Latin America’s growth linked to the US economy, 1970-05

  6. LA ‘s recent growth … to decoupling? Source: ECLAC Preliminary Overview of the Economies of Latin America and the Caribbean, 2012

  7. Some opinions… pre 2010 • “When the USA sneezes, Latin America catches a cold” Popular saying • “What crisis? Go ask Bush?”Lula de Silva, President of Brazil, mid-Sep 2008 few weeks before stock market plunged 20%. • Now the US caught the flu, Mexico a mild cold Mexico’s Central Bank late 2008 • It is going to be an economic tsunami for us Same source, some months later

  8. Some aggregate data and country evidence

  9. LA’s exports grew faster than GDP Export-led growth 2.0? Tasas de crecimiento anual 1990-2010

  10. Concentrated in USA and EU Latin America: Geographical distribution of exports, 2007-2010 (Percentage of total exports) Source: ECLAC Preliminary Overview of the Economies of Latin America and the Caribbean, 2012

  11. And rising share of primary inputs Fuente: Comisión Económica para América Latina y el Caribe (CEPAL), sobre la base de datos COMTRADE de Naciones Unidas.

  12. LA’s imports grew faster than exports Annual average rates of growth,1990-2010 Incomeelasticity of imports rose, in some cases itdoubled

  13. The current account deficit widens (% GDP)

  14. Investment ratio peaked in 2011, but is still low LATIN AMERICA: GROSS FIXED CAPITAL FORMATION (Dollars at constant 2005 prices as a percentage of GDP)

  15. The BPC, decoupling, catching-up in 1980-2011?Some evidence for selected Latin American countries

  16. GDP per capita (% of USA), Mind the gap: don’t stand so close to me

  17. Mexico’s Trade balance and growth

  18. Argentina, Trade balance and economic growth 1960-2011 Fuente: Elaboración con base en los indicadores del WDI.

  19. Chile, Trade balance and growth Fuente: Elaboración con base en los indicadores del WDI.

  20. To decouple or to couple? To overcome the BPC?A Latin American answer:Mañana, mañana, mañana…

  21. Thank You Juan Carlos Moreno-BridMatthewHammill Deputy Director EconomicAffairsOfficer ECLAC - Mexico ESCAP – New Delhi IDEAS, Chennai, January 2012

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