Transcript IERAL

Competitiveness and Growth in
Argentina: Appropriability,
Misallocation or Disengagement?
Gabriel Sánchez and Inés Butler
IERAL-Fundación Mediterránea
September 21, 2007 – IDB Seminar
Argentina’s growth problems
• Low trend growth
Figure 6a. Real GDP pc and long run trend
– Sporadic
unsustained
accelerations
– Divergence from
world growth
1960 = 100
260
240
220
200
180
160
140
120
100
GDP pc
Source: IERAL based on Mecon
Trend GPD
2004
2000
1996
1992
1988
1984
1980
1976
1972
1968
1964
1960
80
• Caused both by low
investment and
TFP growth
Growth
Factor
Accumulation
Investment
TFP Growth
Research and
innovation
Schumpeterian
endogenous growth
framework
Resource
allocation
Self-discovery
Allocative
efficiency
Investment
Returns to economic
activity
Low social
returns
Human capital
Iinfrastructure
Capabilities for
structural
transformation of
exports
Open forest
Cost of finance
Low
appropriability
Government
failures
Micro risks, property
rights, corruption,
taxes, transaction
costs
Anti-export bias,
insufficient foreign
market opening
Macro risks,
financial, monetary,
fiscal & exchange
rate instability
Internacional
finance
Market failures
Local finance
Domestic saving
Coordination
failures
Information
externalities
Intermediation
Permanently binding constraints to
investment I: Infrastructure
• Transportation and energy: scarce and costly
• Telecommunications OK for development level
• Poor investment / amortization ratios in public offer
firms in this area after 2002
Figure 17. Investment and energy consumption by industry
Annual porcentage chang 2006 - 2007
8%
16%
7%
14%
6%
12%
5%
10%
Investment
Investment
Annual procentage change 2002 - 2006
4%
3%
8%
6%
2%
4%
1%
2%
0%
0%
0.0
1.0
2.0
3.0
4.0
Energy consumption
5.0
Source: IERAL - Fundación Mediterránea based on MIPAr-97 and INDEC
6.0
7.0
0.0
1.0
2.0
3.0
4.0
Energy consumption
5.0
6.0
7.0
Permanently binding constraints to investment II:
Micro risks from government failures
• Poor rule-of-law and control of corruption, discretionary taxes and
government intervention in goods and factor markets
• Poor market valuation of intangible assets
– At least 10 times smaller than in OECD countries
• Institutional roots of government failures: hard to modify
Figure 18. Tax volatility and investment in Argen
Source: World Bank, Governance indicators, 2006.
1,4%
22%
20%
1,2%
18%
1,0%
16%
0,8%
14%
Tax volatility
2006
2005
2004
2003
2002
2001
2000
10%
1999
0,4%
1998
12%
1997
0,6%
1996
Control of Corruption
1998
2005
1998
Est.
Est.
Est.
0,06
-0,44
-0,29
-0,17
-0,28
0,03
1,18
1,34
1,13
-0,35
-0,69
-0,20
-0,72
-0,22
-0,67
0,13
-0,31
-0,24
1,33
1,34
1,52
1,66
1,56
1,89
1995
ARGENTINA
BRAZIL
CHILE
CHINA
COLOMBIA
INDIA
SPAIN
UNITED STATES
Rule of Law
2005
Est.
-0,56
-0,41
1,20
-0,47
-0,71
0,09
1,13
1,59
24%
1994
Country
1,6%
1993
Table 24. Governance indicators
Investment rate (right)
Source: IERAL of Fundación Mediterránea based on National Accounts
Latent constraints to investment I: international finance
Table 10. Saving-investment relationship: Argentina, raw data
•Uncertain sustainability
Figure 10. Savings and investment in Argentina
200
180
160
140
120
100
80
60
40
Fixed investment
National savings
Source: IERAL from Fundación Mediterránea based on INDEC
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
20
1995
• Financial autarky: a
historically binding
constraint (Taylor,
1998).
•Not binding thanks to
devaluation, high export
prices, new taxes and political
discretion
1994
Notes: Corr(I/Y,S/Y) is the correlation of I/Y and S/Y. b(I/Y,S/Y) is the OLS time series
coefficient from a regression of I/Y on S/Y with a constant.
Source: IERAL - Fundación Mediterránea based on Mecon
•Investment currently tied to
domestic savings
1993
β (I/Y,S/Y)
-0.15
0.70
-0.82
0.43
0.14
0.13
0.10
0.94
0.84
1.02
0.74
0.66
0.36
0.85
-3.32
1.08
Billons of Pesos
1890 -- 1900
1900 -- 1910
1910 -- 1920
1920 -- 1930
1930 -- 1940
1940 -- 1950
1950 -- 1960
1960 -- 1970
1970 -- 1980
1980 -- 1990
1990 -- 2000
2000 -- 2006
1991 -- 2006
1991 -- 1998
1999 -- 2001
2003 -- 2006
Corr (I/Y,S/Y)
-0.29
0.43
-0.62
0.79
0.22
0.30
0.23
0.94
0.93
0.96
0.54
0.72
0.48
0.74
-0.66
0.93
Latent constraints to investment II: poor
financial intermediation
• Argentine firms are financially
constrained, but compensate it
with high internal funds.
Table 11. Domestic Credit,
claims on private sector
– We see it in our econometric analysis
(not shown here).
• Constraint becomes binding if
other constraints are alleviated
and/or internal funds decline
Countries
Argentina
Colombia
Brazil
India
United States
Chile
Rep. of Korea
China
Spain
% GDP, 2005
11.4%
21.1%
32.7%
41.2%
57.9%
70.1%
93.5%
112.2%
146.0%
Source: IERAL - Mediterranean
Fundation based on IMF (IFS)
Real Interest Rate
Net Interest Margin
1994-98
9,3
3,4
1999-02
18,7
6,9
2003-06
0,2
4,4
1994-06
9,4
4,8
Structural transformation
of exports
Low social returns
Open forest
Low appropriability
Market failures
Coordination failures
Information externalities
Government failures
Insufficient foreign market
opening, anti-export bias,
time inconsistent export
taxes
Self-discovery shows little value
Table 26. Relative export price. Argentina to OECD
Overall and New Exports (NE)
Total
Total without NE
1994
0.866
0.871
2005
0.809
0.799
NE
0.817
0.855
MOA
0.853
0.757
MOA NE
0.808
0.805
MOI
0.854
0.786
MOI NE
0.779
0.787
Source: IERAL - Fundación Mediterránea based on
Figure 22. Export sophistication relative to per capita GDP –
Selected countries
1975 - 2000
9 000
8 000
2.5
2.0
6 000
1.5
5 000
1.0
4 000
3 000
0.5
1975
1980
EXPY Arg
Source: IERAL-Fundación Mediterránea.
1985
1990
EXPY Bral
1995
2000
EXPY Chi
EXPY / GDP
7 000
EXPY
New exports (starting
after 1993) account for
20% of all current
exports, but…
3.0
Barriers to self-discovery I: option value
1975 - 2000
Thousands
• Open forest, diversification &
export similarity with OECD
are relatively OK
Figure 26. Open forest Dynamics in Argentina, Brazil and
Chile
2 000
Argentina
Brasil
Chile
1 800
1 600
• Recent discoveries reflect
proximity rather than value
1 400
1 200
1 000
800
• 25 most attractive goods not
yet exported are far in the
product space
600
Source: IERAL-Fundación Mediterránea.
Table 32. Capabilities and opportunities for structural transformation
Highest Strategic Value
Highest Density
Highest Prody
Discoveries
Min relative prices oecd
Min relative prices oecd (MOI)
Traditional
Prody
Strategic
value
15008,1
7768,6
27211,1
9222,1
18712,5
18811,0
6076,1
19369,6
8490,5
13325,2
13527,1
14758,1
15717,7
13225,8
Density
Export
share
Relative
price
OECD
0,144
0,219
0,124
0,208
0,158
0,148
0,165
2,8
0,4
0,3
18,3
1,2
1,3
71,7
0,69
0,89
0,65
0,86
0,28
0,29
0,80
2000
1995
1990
1985
1980
1975
400
Barriers to self-discovery II: domestic and
foreign trade policies
Table 34. Domestic taxes on imports and exports, selected goods
Domestic Tariffs
Export Taxes
Average
Maximum
Average
Maximum
Highest Strategic Value
11.5
25.0
5.0
5.0
Highest Density
4.4
16.0
5.7
10.5
Highest Prody
8.4
18.0
5.1
18.9
Discoveries
14.1
35.0
7.3
25.9
Min relative prices OECD
11.2
20.0
5.0
9.8
Total
10.3
18.0
11.1
40.0
Relative price
of import
1.17
1.11
1.14
1.23
1.17
1.24
• Domestic trade policy: anti-export bias + time
inconsistency
• Barriers to access EA & LATAM matter for high PRODY
and convergence (EU as well for the latter).
Table 33. Foreign barriers to entry, selected goods
NAFTA Tariffs
Average
Maximum
Highest Strategic Value
4.1
30.0
Highest Density
1.7
72.7
Highest Prody
2.7
43.5
Discoveries
1.2
43.5
Min relative prices oecd
3.8
38.0
Total
6.1
UE Tariffs
Average
Maximum
Asia Tariffs
Average
Maximum
LAC Tariffs
Average
Maximum
4.6
15.0
11.6
80.0
11.5
30.0
6.7
38.0
3.9
40.0
7.9
30.0
4.1
17.0
8.0
30.0
9.9
27.0
3.6
25.0
10.0
30.0
8.9
35.0
13.5
34.0
4.0
25.0
10.1
70.0
7.9
8.6
9.7
Barriers to self-discovery III: coordination &
information externalities
Table 36. Concentration of new exports at the firm level
1994
Numbers of firms exporting NE
412
Major firms of each NE product represent in value (%)*
Simple average
69.3
Weighted average
62.5
Median
74.9
In number of firms, they represent (%)
21.1
* For each product it is selected the sole largest firm.
2004
2 245
Change
1 833
70.3
65.4
78.3
1.0
2.9
3.4
3.9
-17.2
• Scant diffusion of new exports: discover only goods where pioneer
can introduce barriers to entry by herself
– With protracted monopoly, need lower profits to cover costs of discovery
• The most valuable goods are not discovered
Table 37. Correlations between discovery and diffusion at the sectoral level
Change in
Exports due to increase in number of enterprises
Share of exports of the pioneer
Share of exports of the end leader
Herfindahl index
N.B.: HS 6-digit
Source: IERAL de Fundación Mediterránea
Number of new
exports by
95%Confidence interval
sector
-0,493
-0.831 - 0.113
-0,165
-0.625 - 0.379
-0,094
-0.578 - 0.440
-0,516
-0.813 - -0.005
Research and
innovation
Low returns to
economic activity
Low
appropriability
Low social returns
Low human capital
Low engagement
in world flow of
ideas
Barriers to trade and FDI
High cost of
finance
Low
complementary
investment
Specialization in
activities with
lower catch-up
scope
Government
failures
R&D taxes, capital income
taxes
Barriers to creative destruction
Poor local finance
Market failures
Low venture
capital
Spillovers
Poor public
financial support
Research and innovation: scarce but
with low social rate of return (SRR)
• Low SRR suggests small gap with
world technology frontier
• But Argentine TFP is 0.51 world
frontier TFP
• What is missing? Argentina’s
frontier is smaller than world
frontier?
Table 38 Innovation
indicators
R&D spending as % of GDP
Countries
2004
Argentina
0.44
Brazil
0.91
Chile
0.70
Colombia (2001)
0.17
Spain
1.07
USA
2.66
Table 40. Social returns on innovation
in Argentina
Dependent variable: Labor productivity growth
Panel
1992-2001
R&D intensity
0.001
(0.05)
Innovative
capital goods
Capital/labor
growth
Time dummy
1998
Time dummy
2001
Time dummy
2002
Constant
0.006
(1.10)
-0.030
(1.73)
-0.021
(1.24)
0.032
(2.02)
0.024
(1.85)
Observations
R-squared
84
0.16
Standard errors are clustered by county. Year, country, and
product dummies included in all estimations. Probit
coefficients are marginal effects. Absolute value of t statistics
in parentheses.
* significant al 5%; ** significant at 1%
Source: IERAL from Fundación Mediterránea based on
Hausmann et al. (June 1996)
Binding constraints on research and
innovation I: disengagement
• Disengagement from world flow of ideas during past 30 years
– Decline in Argentina’s technology frontier prompts observed transitional
decline in TFP relative to the world frontier
Table 43. Capital goods imports by country of origin
as a % of total
Figure 30. Relative price of investment in Argentina vis-a-vis
the US
110
1995
2000
2006
Brasil
10
24
32
EEUU
33
28
15
UE
33
22
15
Resto
24
27
32
Source: IERAL - Fundación Mediterránea based on INDEC.
100
Figure 16c. Argentina’s participation in FDI flows to the
World and to Latin America
90
2.5
35
80
30
2.0
25
70
1.5
20
60
1.0
15
50
0.5
10
Arg / World
Arg / LAC (right)
Source: IERAL - Fundación Mediterránea based on Mecon
2005
2004
2003
2002
2001
2000
1999
0
1998
2002
1998
1994
1990
0.0
1997
Source: IERAL-Fundación Mediterránea based on PWT 6.2
1986
1982
1978
1974
1970
1966
1962
1958
1954
1950
5
Binding constraints on research and
innovation II: human capital
Table 46. Relative wages of university professors and
chemical engineers vis-à-vis industrial workers. 2005
Table 44. Innovation indicators
Researchers per 1000 members
of the labor force
2004
Argentina
3.00
Brazil
1.55
Chile
3.26
Colombia
0.63
Spain (2003)
8.42
USA (1999)
13.94
Country
Graduates on engineering per
1000 members of the labor
2004
Argentina (2002)
0.64
Brazil
0.36
Chile
1.13
Colombia (2002)
1.57
Spain (2001)
0.90
USA
0.60
Source: RICyT
Peru (***)
Costa Rica
United Kingdom (*)
Nicaragua (***)
Portugal
Germany
Brazil (**)
Argentina
United States(*)
China
Mexico
Canada
University
professors
0.29
0.34
0.48
0.54
0.55
0.56
0.57
0.81
0.84
0.98
1.12
1.48
Chemical
engineers
sd
sd
0.88
0.54
2.21
0.53
sd
2.02
2.18
1.59
sd
sd
NOTES:
* year 2004
** year 2003
*** year 2002
Table 45. Allocation of research personnel
2004
Government
Enterprises
Higher Education
Non profit private
Overall
Argentina
26.4%
10.0%
61.3%
2.4%
100.0%
Source: IERAL - Fundación Mediterránea based on RICyT.
Brazil
3.9%
18.6%
76.9%
0.7%
100.0%
Source: IERAL - Fundacion Mediterranea based on ILO and INDEC - EPH.
Chile
3.0%
60.3%
32.4%
4.3%
100.0%
Spain
14.3%
23.5%
62.0%
0.2%
100.0%
Colombia
4.6%
1.3%
88.4%
5.7%
100.0%
Paraguay
24.5%
0.0%
59.1%
16.4%
100.0%
Binding constraints on research and
innovation III: poor IPRs
Figure 31. Cross country deviation from average R&D and
contribution of Software Piracy Rates (SPR)
2.0
1.5
1.0
0.5
• Low research intensity in a
cross-section of countries
is almost entirely
explained by differences in
software piracy rates
• Market valuation of firms’
investment in intangible
assets is 10-30 times
smaller than in OECD
0.0
-0.5
-1.0
Argentina
Australia
Brazil
R&D deviation
Source: IERAL-Fundación Mediterránea
Chile
Malaysia
Contribution of SPR
United
States
Transition between steady-state
productivity gaps, 1980-2000
• Klenow and Rodríguez-Clare (2004):
– All countries have same long-run growth rates thanks to
technological spillovers
– Investment and research only determine proximity to
world technological frontier
– Divergence can only occur as transitional dynamics
• Argentine transition in steady state productivity gap
b/t 1980 (64%) and 2000 (51%)
– Can only be explained by transitional change in research
intensity from 0.94% (1980) to 0.4% GDP (2000)
– Cannot be explained by transition in capital per effective
worker
Binding constraints on allocation
Table 48. Sectoral Structure of Employment
1993
1998
2003
2006
Sectoral employment
Primary
Industrial
Service
9.9%
15.7%
74.3%
9.7%
13.9%
76.4%
9.4%
13.4%
77.2%
8.4%
13.1%
78.5%
Primary
11 928
14 232
15 946
16 140
GDP / L
Industrial
20 697
25 162
22 591
24 573
Service
16 512
18 714
16 756
17 282
Source: IERAL - Fundación Mediterránea based on Mecon
Table 51. PIB /L growth, sectoral and overall
1993-1998
1993-2001
1993-2006
1999-2001
2003-2006
Primary
19.3%
29.2%
35.3%
4.6%
1.2%
Industrial
21.6%
10.2%
18.7%
-5.8%
8.8%
Service
13.3%
5.4%
4.7%
-2.9%
3.1%
Overall
14.7%
7.1%
8.5%
-3.0%
3.9%
Source: IERAL - Fundación Mediterránea
Table 50. Productivity decomposition analysis
1993-1998
1993-2001
1999-2001
2003-2006
1993-2006
Within
2.61 ( 95%)
0.73 ( 85%)
-1.22 ( 81%)
1.01 ( 78%)
0.59 ( 94%)
Source: IERAL - Fundación Mediterránea
Between
0.36 ( 13%)
0.22 ( 26%)
-0.19 ( 12%)
0.48 ( 38%)
0.33 ( 52%)
Interaction
-0.23 ( -8%)
-0.10 ( -11%)
-0.10 ( 7%)
-0.21 ( -16%)
-0.29 ( -47%)
o Constraints:
o High relative price of
investment
o Labor market
rigidities
o Financial constraints
The growth and competitiveness
agenda for Argentina
• Investment in infrastructure
• Reduction of microeconomic risks via macro stability and
institutional improvements
• Reduction of relative price of investment
• Remove barriers to FDI and and capital good imports from
high-knowledge countries. Improve ITCs.
• Increase availability of researchers for the business sector.
– Also improve IPR regime.
• Policies and public-private cooperation to overcome market
failures that deter valuable self-discoveries. Strategic
investment in ISPGs.
– Also avoid time inconsistent trade policies and negotiate opening of
LATAM and EA markets
• Improve access to domestic and international finance.
Constraints on growth stability
• Domestic savings and government failures that
cause macroeconomic and external volatility
– Currently not binding
– They depend on favourable export prices, new taxes,
devaluation and political discretion rather than on an
adequate institutional design.
– Can become binding constraints to stable growth again
in the future.
– Not enough to secure a regime shift towards bigger
growth.
• Stable but low growth associated with low growth of real wages
fails to eliminate the latent demand for social insurance.