Transcript Latin America has made great progress over the past decade

Towards a New Strategy for Latin America:
Productivity as an engine of growth
14 October 2016
Christian Daude
OECD Economics Department
Background
• During the last decade, Latin America grew very fast and made
important social progress thanks to extremely favourable external
conditions.
• However, these conditions are no longer present and growth is
slowing down sharply.
• New sources of growth are urgently needed to help Latin America
move back to a stronger, more inclusive and sustainable growth
path.
• Improvements in productivity are key to boost growth in the region.
2
Latin America has made great progress
over the past decade
Poverty headcount ratio
(Poverty line of 3.10 USD PPP per day)
Source: World Development Indicators, World Bank.
3
Strong growth supported the
improvement in living standards
Gross domestic product, constant prices
Source: OECD EO99 database
4
Recently, growth has slowed sharply
Gross domestic product, constant prices
Source: OECD EO99 database
5
Lower commodity prices have
contributed to weaker growth
Evolution of selected commodity prices
Source: OECD EO99 database
6
Inequality remains high and the tax and
transfer system has limited effects
Gini coefficient
(0=perfect equality; 1=perfect inequality)
Difference in Gini coefficient
(Disposable income – market based income)
Source: OECD (2016), Promoting Productivity for Inclusive Growth in Latin America.
Boosting productivity is key
Evolution of GDP per worker relative to the U.S.
Source: Own calculations based on World Bank World Development Indicators.
8
What constrains productivity growth?
• Poor human capital and skills development
• Low investment in innovation and R&D
• Informality in economic activity
• Functioning of product, labour and financial
markets
• Lack of competition
• Low participation in GVCs
9
Poor human capital and skills
Percentage of students not attaining basic skills in math
(in 2012)
Note: Students do not attend basic skills when they are below 420 points in math exams in PISA.
Source: OECD, PISA 2012 Database
10
Low investment in innovation and R&D
Gross domestic expenditure on R&D
(% of GDP, 2013)
Source: OECD Main Science and Technology Indicators Database
11
Barriers to entrepreneurship are high
Barriers to Entrepreneurs
(Scale 0 – 6, with 6 being the most restrictive, 2013)
Source: OECD Product Market Regulations database.
12
High barriers to trade and investment
Barriers to Trade and Investment
(Scale 0 – 6, with 6 being the most restrictive, 2013)
Source: OECD Product Market Regulations database.
13
It is crucial to promote productivity
diffusion from frontier to lagging firms
Administrative burdens for sole
proprietor firms, PMR score 0 to 6
Cost of bankruptcy,
% of estate
5.0
25.0
4.5
22.5
4.0
20.0
3.5
17.5
3.0
15.0
2.5
12.5
2.0
10.0
1.5
7.5
1.0
5.0
0.5
2.5
CAN
JPN
KOR
GBR
USA
PER
AUS
DEU
FRA
IND
PRT
ESP
RUS
BRA
ARG
CHL
TUR
CRI
HND
LAC
MEX
ZAF
POL
ITA
COL
CHN
0.0
JPN
CAN
DEU
ITA
GBR
ZAF
FRA
USA
OECD
AUS
CHL
KOR
POL
RUS
ESP
PER
PRT
BRA
COL
ARG
LAC
MEX
TUR
CRI
IND
HND
CHN
0.0
Resources remained trapped in low-productive and non-viable firms
Source: OECD Product Market Regulations database, Doing Buisneess database.
High level of skills mismatch
Index of Qualification Mismatch
(2012)
Source: Randstad Workmonitor (2012)
15
Higher cross-border trade intensity is
needed
Trade intensity and country size (GDP)
Exports and imports of goods and services, % GDP
225
IRL
200
SVK
175
HUN
CZE
EST
BEL
NLD
SVN
150
CHE
125
DNK
ISL
KOR
POL
100
PRT
CRI
75
NZL
GRC
NOR
50
CAN
CHL
TUR
COL
IND
FRA
ESP
25
DEU
MEX
ZAF
ITA
ARG
CHN
IDN RUS
USA
JPN
BRA
0
10
10.25
10.5
10.75
11
11.25
11.5
11.75
12
12.25
12.5
12.75
13
13.25
Log (GDP-PPP)
Source: Kowalski et al (2015)
Even controlling from country size, most of LA countries are
among the least connected in trade networks
13.5
Participation in Global Value Chains
is very low
Backward GVC participation ratios, cross-country comparison
(as a percentage of country’s gross exports, 2011)
Source: Kowalski et al (2015)
17
In particular, intra-regional
integration in GVCs is very low
Backward participation
Forward participation
Source: Kowalski et al (2015)
18
It is key to improve trade facilitation
Latin America and the Caribbean’s trade facilitation performance
OECD indicators, Latest available data, where 2 = best performance
Source: Kowalski et al (2015)
19
Reforms are key
• Diversification is key to boost growth and reduce resource dependence
• Fostering productivity growth and inclusive should be top priority
• Product and labour market reforms are crucial to make domestic
markets more competitive and to enable faster diffusion of technology
• Innovation and skills policies
• Trade policy and effective regional integration
20