Transcript the Powerpoint Presentation

Manufacturing Miracles by Trade
Liberalization: an agnostic view
from a Mexican perspective
International Conference on Economic Openness and Income Inequality:
IDEAs and Shanghai Administration Institute
Shanghai, China, August 26-27 2006
Juan Carlos Moreno-Brid
Research Coordinator
UN Economic Commission for Latin America and the Caribbean
Subregional office, Mexico
The agnostic’s guide to approach
policy-driven economic Miracles
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Was the policy applied, under what assumptions
and exogenous conditions?
How is the economy performing after the policy?
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Relative to its recent past?
Compared to its historic trend?
Other similar economies?
Is it catching up with the developed world?
Did it remove constraints on its long term growth?
Are there alternative explanations of the Miracle?
Was trade liberalization (TL) applied in
Mexico?
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TL was firmly applied in Mexico since 1985, in the
context of profound macro reforms including:
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privatizations, capital account, FDI and financial
liberalization, downsizing of public sector, elimination of
industrial policies and fiscal austerity
Rationale: TL would boost exports, which would pull
the economy in a high growth path based on labor
intensive use, thus more employment and less poverty
Exogenous conditions? Great for Mexico in the 1990s:
US economy expanded rapidly, NAFTA was signed
Note: TL is not the same as export promotion or export success
First revelation of the Mexican Miracle: a
boom in non-oil exports!
Manufactured goods doubled their share in
total exports; and their technical content rose
But, a substantial proportion were exports
from assembly industries (maquiladoras)
Figure 1
TO TAL EXPO RTS
Million of Dollars
NAFTA
200,000
180,000
In-bond maquladoras
Maquiladoras
Exports w/o maq.
160,000
140,000
120,000
100,000
80,000
60,000
40,000
20,000
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
1989
1988
1987
1986
1985
1984
1983
1982
1981
1980
0
Not surprisingly, manufactured exports’
dynamism is not reflected in value added
Indeed, Mexican trade of manufactures
boomed but value added grew slowly
Turkey
Mexico
Imports
Exports
Value added
Source: UNCTAD secretariat calculations, based on Nicita and Olarreaga (2001).
Note:
Manufactures as defined by SITC.
A reason behind this is that imports soared
weakening manufactures’
Figure 7 backward linkages
Selected Countries: Imports of Goods and Services (% of GDP), 1980-2003
40
Beginning of
NAFTA
Chile
Total imports (% GDP)
%
30
Mexico
20
Argentina
10
Brazil
0
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
Source: Authors´elaboration based on World Bank, World Development Indicators (2004).
2002
Actually in Latin America’s import
ratio rose fourfold relative to pre-crisis
Average
rates of growth
level
GDP (%)
Small
economies
Medium
economies
Large
economies
Latin America
Imports (%)
M/GDP
1950-80
90-2000
1950-80
90-2000
1950-80
90-2000
4.57
3.54
5.72
7.65
1.25
2.16
4.51
3.57
4.68
9.59
1.04
2.69
5.91
3.18
5.12
11.74
0.87
3.69
5.47
3.27
5.10
10.68
0.93
3.27
Source: Moreno-Brid, JC (2004) “¿Por qué fue tan bajo el crecimiento económico de América Latina en los noventa? Una interpretación estructuralista”, en
Enseñanza y reflexiones económicas, homenaje a Carlos Roces, México, UNAM, Plaza y Valdés.
Mexico’s manufacturing activity gradually lost
impulse and its trade deficit soared
Not surprisingly the external constraint on
economic growth became more binding and...
If it were not for oil, the trade deficit would be over and above 5% of
GDP!
Mexico widened its per capita GDP gap
with the USA
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And as formal employment has been stagnant, vast proportions of the
population have little or no social protection
Income is still highly concentrated and
is a structural obstacle to development
LATIN AMERICA (17COUNTRIES): CHaNGES IN GINI COEFFICIENTS, TOTAL 1990 - 2002
Gini coefficient in 2002
Countries where
inequality
increased
Countries where
inequality
decreased
Gini coefficient in 1990
Thus, our agnostic test indicates that TL
produced (maybe half) a Miracle
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Was the policy applied? Yes, and key external factors
were favorable
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How is the economy performing now? Inflation is down,
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Non-oil exports dynamic, but GDP in slow growth
path, investment ratio stuck (20%) , scant formal jobs
Catching up with the developed world? No
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Have key constraints on its long term econommic growth
been removed? Fiscal revenues are weak, the external
constraint is more binding on the non-oil economy.
But oil prices are growing. So there may be hope for a
new Mexican Miracle?
The shortcoming of trade liberalization plus
Washington Consensus is rooted in its assumptions
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S ocial policies would, by themselves, be able to fully
compensate any adverse social effects of economic reforms
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I ntervention of the State in the economy distorts prices
and crowds out private investment.
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L ow inflation and no fiscal deficits are necessary and
sufficient conditions to trigger high, sustained growth
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L iberalization boosts productivity in export sectors, and
spreads out quickly to the rest of the productive system
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Y ou all must believe that there is a unique policy package
for development that is valid for all countries, always!
The shortcoming of trade liberalization plus
Washington Consensus is rooted in its assumptions

S ocial policies would, by themselves, be able to fully
compensate any adverse social effects of economic reforms

I ntervention of the State in the economy distorts prices
and crowds out private investment.

L ow inflation and no fiscal deficits are necessary and
sufficient conditions to trigger high, sustained growth

L iberalization boosts productivity in export sectors, and
spreads out quickly to the rest of the productive system

Y ou all must believe that there is a unique policy package
for development that is valid for all countries, always!
On high income inequality and its impact
on economic growth in LDCs’
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In underdeveloped markets, inequality inhibits the
capacity to grow through economic mechanisms.
Shrinks potential domestic market and distorts
resource allocation response to prices.
Inequality exacerbates the problem of keeping
accountable government. Distorts application of
justice and enforcement of property rights
Inequality fosters conflict and discourages the civic
life needed for effective collective decision making.
An agnostic conclusion:
Trade liberalization did not –and
actually could not- manufacture a
Miracle in Mexico!
Thank you!
谢谢！
Juan Carlos Moreno-Brid
Research Coordinator
UN Economic Commission for Latin America and the Caribbean
Subregional office, Mexico
[email protected]