Post on 02-Nov-2014
description
Conference on China and Latin America: Growing Economic Relations and
Commonalities in Policy Issues
1st December 2008 – Hong Kong, China
Asian Opportunities and Diversification
Strategies: An Outlook for Latin American Trade
Javier SantisoRolando Avendano
OECD Development Centre
OECD Development Centre
I Introduction: Recent trends and myths on China-Latin America
II Trade competition: Evidence of a potential draw
III Export Diversification and Infrastructure
IV Adaptation strategies towards Chinese competition
OECD Development Centre
Integration of the Asian Drivers into the world economy has shaped primary commodity markets
1. Global output growth Commodity prices procyclical with growth (≈1.5% for each point of growth)
2. Barter terms of trade Rise if industrial world growth > 4%
3. Lower US interest rates Higher output prospects / low storage costs
4. Weakening of US dollar Denomination of raw material prices
OECD Development Centre
The combined contribution of China and India to global growth is substantial
Source: Own calculation based on the IMF World Economic Outlook Database, 2008.
OECD Development Centre
Source: OECD Development Centre 2008, based on Thomson Datastream (Economist Intelligence Unit).
Note: Emerging countries refer to Latin American and Asian only.
Emerging economies have become major actors in mobilising capital
OECD Development Centre
Myth I: The main source of China’s competitive advantage is cheap labour
Fixed Capital Investments in China as % of GDP and Return to Capital (1980-2006)
Source: Bai, Chong-En. C. Hsieh and Y. Qian. “The Return to Capital in China”. NBER Working Paper 12775. National Bureau of Economic Research. December 2006. Based on China Statistical Yearbook.
OECD Development Centre
Myth II: China has a negative impact on FDI flowsto other emerging markets
Source: J. Santiso (ed.). The Visible Hand of China in Latin America. OECD Development Centre Studies, 2008. Based on UNCTAD data.
OECD Development Centre
Myth III: China’s rise benefits commodity exporters and adversely affects light manufacturing ones
Natural Resources as a percentage of Latin American Exports
0102030405060708090
100
Venezuela Chile Peru Argentina Colombia Brazil LatinAmerica
Mexico
% o
f cou
ntry
's ex
ports
Commodities
Oil
Agriculture & other
Source: OECD Development Centre, 2008. Based on: National Balance of Payments, 2006.
OECD Development Centre
I Introduction: Recent trends and myths on China-Latin America
II Trade competition: Evidence of a potential draw
III Export Diversification and Infrastructure
IV Adaptation strategies towards Chinese competition
OECD Development Centre
The rise of China concerns all the region
Source: Economist Intelligence Unit.
Descriptive Statistics on Trade for Selected Countries
Country
Share in Latin
America GDP (%) 2006 in
PPP
Exports Goods-
Servicesas % of
GDP
Share of Exports to
Asian Drivers (Avg. 2000-2006)
Trade Restrictivenes
s Index(WB-OTRI
2005)
Main Exports
Argentina 12.8 23.6 9.7 22.8Animal feed, fixed veg. oils/fats, soft, heavy petrol, oil crude, oil seeds
Brazil 34.1 14.5 6.8 30.1Iron ore, oil seeds, meat, passenger cars, petrol/bitum., sugar
Chile 4.0 39.6 11.5 14.2 Copper, metal ore, fish, fruit/nuts, pulp, wood
Colombia 7.7 21.1 0.9 25.3Petrol, coal, coffee, heavy petrol, crude materials, iron
Mexico 23.2 29.7 0.7 32.0Petrol, passenger cars, telecomms. equipment, computer equipment
Peru 3.7 21.4 9.9 21.0Metal ore, copper, heavy petrol, animal feed, silver
Venezuela 4.0 32.9 0.2 21.8 Petrol, iron, aluminium
OECD Development Centre
Increased Asian exports have been met with apprehension in Latin America
Source: TRAINS Database (World Integrated Trade Solution), Nomenclature STIC Revision 3, 2008.
Note: Does not include NTB data.
Source: Latinobarómetro survey. Santiago de Chile, 2007.
OECD Development Centre
Export competition with China is relatively low, although Mexico is on the spot
Export Competition with China for selected countries (2000-06)
Note: CS and CC coefficients calculated with exports of country i and exports of country j (China, India).
Source: OECD Development Centre, based on WITS Database, 2008.
OECD Development Centre
Regarding competition with India, Latin America has little to fear
Export Competition with India for selected countries (2000-06)
Note: CS and CC coefficients calculated with exports of country i and exports of country j (China, India).
Source: OECD Development Centre, based on WITS Database, 2008.
OECD Development Centre
Note: Modified CS and CC coefficients calculated with exports of country i and imports of country j (China, India).
Source: OECD Development Centre, based on WITS Database, 2008.
Trade complementarities with China remain unexplored today…
Trade Opportunities with China for selected countries (2000-06)
OECD Development Centre
Major economies in the region have a lot to win from increasing trade with Indian partners
Note: Modified CS and CC coefficients calculated with exports of country i and imports of country j (China, India).
Source: OECD Development Centre, based on WITS Database, 2008.
Trade Opportunities with India for selected countries (2000-06)
OECD Development Centre
In which sector is Latin America specialised? Let’s not forget intra-industry trade
Source: OECD Development Centre, based on WITS Database, SITC Revision 3 (three-digit classification) 2008.
n.e.s. = not elsewhere specified.
Good Product Name Argentina Brazil Chile Colombia Mexico Peru Venezuela Average LAC
0 Food & live animals 3.12 1.80 1.24 0.92 -0.16 0.61 -3.32 0.98
1 Beverages and tobacco 1.93 1.73 2.40 0.03 1.69 -1.48 -2.03 1.16
2 Crude mater.ex food/fuel 0.96 1.92 2.53 0.85 -0.63 2.65 -1.01 1.40
3 Mineral fuel/lubricants 1.57 -1.02 -2.30 3.43 1.36 -0.63 7.15 1.21
4 Animal/veg oil/fat/wax 4.28 1.40 -1.08 -0.34 -2.32 -0.51 -5.40 0.90
5 Chemicals/products n.e.s -0.98 -1.33 -0.81 -1.04 -1.19 -2.04 -2.14 -1.17
6 Manufactured goods -0.41 0.61 1.38 -0.40 -0.81 0.27 -0.90 -0.22
7Machinery/transp equipmt -2.06 -0.64 -3.57 -2.44 0.13 -3.93 -4.34 -0.71
8Miscellaneous manuf arts -1.27 -0.40 -2.52 0.07 0.27 0.21 -4.00 -0.21
9 Commodities nes 0.63 8.91 1.74 1.26 -1.21 9.78 2.04 0.81
Note: Positive values of the index reveals a comparative advantage, whereas a negative indicates a comparative disadvantage.
Vollrath's Relative Comparative Advantage Index Latin America (2005-2006)
OECD Development Centre
I Introduction: Recent trends and myths on China-Latin America
II Trade competition: Evidence of a potential draw
III Export Diversification and Infrastructure
IV Adaptation strategies towards Chinese competition
OECD Development Centre
China and India’s increasing demand can have adverse effects
Source: OECD Development Centre, based on WITS Database, 2008.
OECD Development Centre
The rise of China and India is also a challenge against product specialisation
n
np
HH
n
jj
11
11
2
Note: Herfindahl-Hirschmann index calculated as , where represents the market share of country j on the
exports of country i in its total exports .
iijj Xxp /
Export Concentration in Products for Latin AmericaHerfindahl Hirschman Index
0.00.10.20.30.4
0.50.60.70.80.9
Vene
zuela
Ecua
dor
Chile
Pana
ma
Boliv
ia
Peru
Para
guay
Hond
uras
Guya
na
Urug
uay
Colo
mbi
a
Costa
Rica
Mex
ico
Guat
emala
Braz
il
2001 2006
Source: Latin American Economic Outlook 2008, OECD Development Centre. Based on data from Comtrade, World Integrated Trade Database, 2008.
OECD Development Centre
A commodity boom without diversification is a two-edged sword: the African case
Export Concentration in Products for AfricaHerfindahl Hirschman Index
0.00.10.20.30.40.50.60.70.80.91.0
Ango
la
Chad
Nige
ria
Cong
o
Mali
Nige
r
Moz
ambi
que
Alge
ria
Zam
bia
Cam
eroo
n
Ghan
a
Gam
bia
Nam
ibia
Côte
d'Iv
oire
Sene
gal
Zimba
bwe
Keny
a
Sout
h Af
rica
Tuni
sia
Mor
occo
2000 2005
Source: African Economic Outlook 2008, OECD Development Centre. Based on data from Comtrade, PC-TAS and World Integrated Trade Database, 2008.
OECD Development Centre
Latin America’s performance on trade infrastructure is poor
Source: Doing Business Report. World Bank, 2007.
OECD Development Centre
…and most of its competitors score better on infrastructure
Source: Avendano, R. Santiso, J. “The Impact of China and India on Latin America”. Global Insights: The Emerging States. Centre d’ études et de recherches Internationales (CERI). 2008.
OECD Development Centre
11,700 Km
Shipping time
24 Days160 Km
4 Days
A wake up for reforms: The proximity to export markets
• Lower transport and communication costs • Access to FTA
• Just-in-time delivery
Mexico benefits from its geographic proximity to its major export markets:
OECD Development Centre
Mexico: competition in third markets is more fierce
Source: CEPAL (2006) and World Integraded Trade Solution.
Three key issues:
• Infrastructure investment
• Private participation
• Regulation and transparency
Share of US imports by region
OECD Development Centre
I Introduction: Recent trends and myths on China-Latin America
II Trade competition: Evidence of a potential draw
III Export Diversification and Infrastructure
IV Adaptation strategies towards Chinese competition
OECD Development Centre
Opportunities have emerged as a result of Increased trade with China
Source: Alonso, A. Avendano, R. Estrada, J. “Adapting to the Rise of China: How Can Latin American Companies Succeed? ”. OECD/World Economic Forum Working Paper. April 2008.
High value-added niche to achieve global scale Products with high volatility and customization needs
OECD Development Centre
Latin American companies have started to adapt to new value chains
Source: Alonso, A. Avendano, R. Estrada, J. “Adapting to the Rise of China: How Can Latin American Companies Succeed? ”. OECD/World Economic Forum Working Paper. April 2008.
Upstream value chain integration
OECD Development Centre
Final Remarks
• Excessive complementarity between Chinese and Latin American goods is a risk, but there is room for trade opportunities.
• Prospective demand of Asian Drivers From mineral to agricultural A positive potential effect
• Tumbling raw material prices today may reignite old concerns about resource curse, but countries have shown higher fiscal responsibility during booms.
• The imperative of product diversification
• Beyond diversification: Adaptation to the Chinese model?
OECD Development Centre
Thank you!www.oecd.org
Conference on China and Latin America: Growing Economic Relations and
Commonalities in Policy Issues
1st December 2008 – Hong Kong, China
Asian Opportunities and Diversification
Strategies: An Outlook for Latin American Trade
Javier SantisoRolando Avendano
OECD Development Centre
OECD Development Centre
ANNEX
OECD Development Centre
The Capacity to Generate Fiscal Surpluses…
Following the Chinese example: can Latin America count on fiscal leverage?
Source: OECD Development Centre (2008); Based on ECLAC and Statistical Yearbook for Asia and the Pacific 2008.
OECD Development Centre
Intra-regional trade in both Asia and Latin America is low
Source: COMTRADE .
OECD Development Centre
Methodology matters when exploring export structures
1. CS/CC do not capture importance of each product on world markets
2. Focus on exports overlooks the growing intra-industry trade
Alternative methods:
1. Relative Comparative Advantage index:• Balassa• Vollart’s
2. Herfindahl Hirschmann index