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![Page 1: Mauricio Cárdenas, Brookings Institution Brookings Mountain West University of Nevada, Las Vegas March 1, 2011 The Emergence of Latin America: A Break.](https://reader035.fdocuments.net/reader035/viewer/2022062516/56649e385503460f94b299d0/html5/thumbnails/1.jpg)
Mauricio Cárdenas, Brookings Institution
Brookings Mountain WestUniversity of Nevada, Las Vegas
March 1, 2011
The Emergence of Latin America: A Break with History?
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“It is impossible to understand Latin America without leaving it and observing it from afar with your own eyes, noting at the same time the myths and stereotypes that have been constructed about it abroad”.
Mario Vargas-LlosaThe Paradoxes of Latin America.
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Latin America: Facts and myths
• Latin America is no longer the stereotype of populism and economic mismanagement, but it would be misleading to derive from the recent progress some form of complacency.
• There are important ideological and economic differences within the region, so generalizations tend to be misleading.
• In this lecture I would like to debunk some myths, while re-stating some unpleasant facts that remain part of Latin America’s reality.
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Latin America is economically relevant: Similar to China in GDP with a smaller population (for 2009)
Popu
latio
n in
Mill
ions
GD
P (B
illio
ns c
urre
nt U
SD)
LAC & China Populations LAC & China GDP (USD)
Source: World Bank, World Development Indicators (2009)
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Source: US Energy Information Administration, February 25, 2011
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CountryTotal 2010 Exports (in
billions of USD)Canada 248.8Mexico 163.3
China 91.9Japan 60.5
United Kingdom 48.5Germany 48.2
Korea, South 38.8Brazil 35.3
Netherlands 34.9Singapore 29.1
France 27.0Hong Kong 26.5
Taiwan 26.0Belgium 25.5
Australia 21.8Switzerland 20.6
India 19.2Italy 14.1
Malaysia 13.9Colombia 12.0
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Seven countries in the region account for more than 80% of the population and GDP
Source: World Bank, World Development Indicators (2009)
LAC & LAC7 GDP (USD)
GD
P (B
illio
ns c
urre
nt U
SD)
LAC & LAC7 Populations
Popu
latio
n in
Mill
ions
3607
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0
1
2
3
4
5
6
Jan-
80
Jan-
82
Jan-
84
Jan-
86
Jan-
88
Jan-
90
Jan-
92
Jan-
94
Jan-
96
Jan-
98
Jan-
00
Jan-
02
Jan-
04
Jan-
06
Jan-
08
Trend GDP growth in LAC and High Income CountriesStock Market Indexes, Jan 2007 = 100
High Income
LatinAmerica
Latin America is now performing much better than the developed countries
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Hyperinflations are long gone
Source: International Monetary Fund, World Economic Outlook; Central Bank bulletins and Economist Intelligence Unit.
Inflation (%) Monetary policy interest rate (%)
Perc
en
t
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10
As well as Fiscal Populism
-1-1
-3 -3-1
2
-10
-7
-9
-14
-9
-2
-17
-13
-9
-5
-1
3
US Euro Japan UK OECD LAC-7
% o
f G
DP
Fiscal Balance
2007 2010
6371
167
47
74
33
9889
200
89100
33
0
40
80
120
160
200
US Euro Japan UK OECD LAC-7
% o
f G
DP
Gross Nominal Liabilities
2007 2010
Source: Economist Intelligence Unit (EIU) and Consensus Forecast (Sep. 2009)
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0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.819
00
1906
1912
1918
1924
1930
1936
1942
1948
1954
1960
1966
1972
1978
1984
1990
1996
2002
2008
GDP Per Capita of Selected Regions / US GDP per Capita
LAC/ US
Asian Tigers/ US
Gold Standard Period
Interwar Period
US Recovers
Alliance for
Progress
Imports Substitution
Lost Decade
Washington Consensus
Washington Dissensus
Source: Maddison (2009).
Disappointing long-term track record
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And much of it has to do with Total Factor ProductivityP
erc
en
ts
Notes: PCE: Peripheral core economies (Australia, Canada, New Zealand, Norway, Sweden).Source: own calculations based on data from Blyde, Daude and Fernández-Arias (2009).
Growth decomposition 2000-2007
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30
50
70
90
110
130
150
50
100
150
200
250
300
350
Jan-
05
Apr
-05
Jul-0
5
Oct
-05
Jan-
06
Apr
-06
Jul-0
6
Oct
-06
Jan-
07
Apr
-07
Jul-0
7
Oct
-07
Jan-
08
Apr
-08
Jul-0
8
Oct
-08
Jan-
09
Apr
-09
Jul-0
9
Oct
-09
Jan-
10
Oil
WT
I, C
urre
nt U
S$
Whe
at, C
oppe
r an
d So
ybea
n, 0
1-Ja
n-05
=10
0Commodity Prices
Oil WTI in Current US$, Wheat, Copper and Soybean: Index 01-Jan-05=100
Oil (rhs)
Copper
Soybean
Wheat
Subprime eruption
Bear Stearns
Lehman
Pandit's Memo
The good fortune of high commodity process
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Polity2 measure: Democracy – Autocracy (-10,+10)
-10
-50
51
0-1
0-5
05
10
-10
-50
51
0-1
0-5
05
10
-10
-50
51
0
1900 1950 2000 1900 1950 2000 1900 1950 2000 1900 1950 2000
1900 1950 2000
Argentina Bolivia Brazil Chile Colombia
Costa Rica Dominican Rep Ecuador El Salvador Guatemala
Guyana Haiti Honduras Jamaica Mexico
Nicaragua Panama Paraguay Peru Uruguay
Venezuela
year
Source: Polity IV Project: Political Regime Characteristics and Transitions, 1800-2008 (2008)
Democratic consolidation
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Average number of coups per country in LAC countries
Source: Coups d’Etat, 1960-2006, Center for Systemic Peace (2007)
0.1
.2.3
0.1
.2.3
1965 1975 1985 1995 2005 1965 1975 1985 1995 2005
Sub-Saharan Africa Asia (non-Middle East)
LAC OECD
year
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Murder Rate per 100,000 people
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20
Some progress in the reduction of inequality
Source: Gasparini et al. (2009) based on SEDLAC. v
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21
Annual Percentage Change in Gini Coefficient
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A new middle class is emerging
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Household per capita income and its determinants
Per capita household income
Per capita household income
Proportion of adults in the household
•FERTILITY
Proportion of adults in the household
•FERTILITY
Household income per adult
Household income per adult
Household non-labor income per adult
•RENTS & PROFITS•REMITTANCES•GOV. TRANSFFERS
Household non-labor income per adult
•RENTS & PROFITS•REMITTANCES•GOV. TRANSFFERS
Household labor income per adultHousehold labor income per adult
Proportion of working adults•PARTICIPATION IN LABOR FORCE•EMPLOYMENT OPPORT
Proportion of working adults•PARTICIPATION IN LABOR FORCE•EMPLOYMENT OPPORT
Labor income per working adult in the household
•WAGES BY SKILL/OTHER•HOURS WORKED
Labor income per working adult in the household
•WAGES BY SKILL/OTHER•HOURS WORKED 23
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24
Composition of adult population by education level
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But a very large gap remains in the quality of education
25
Argentina
AustraliaAustria
Azerbaijan
Belgium
Brazil
BulgariaChile
Colombia
Croatia
Czech Republic DenmarkEstonia
Finland
FranceGermany
Greece
Hong Kong
Hungary
Iceland
Indonesia
Ireland
Israel
Italy
J apan
J ordan
Korea
Kyrgyz Republic
LatviaLithuania Luxembourg
Macao, China
Mexico
NetherlandsNew Zealand
Norway Poland
Portugal
Romania
Slovak Republic
Slovenia
Spain
Sweden
Switzerland
Thailand
Tunisia
Turkey
UK
United States
Uruguay
300
350
400
450
500
550
0 5 10 15 20 25 30
Expenditure per student, primary (% of GDP per capita)
Mat
hem
atic
s sc
ore
in P
ISA
200
6
Source: Mathematics score from Pisa (2006). Expenditure per Student, primary (% GDP) is the most recent data available in WDI (2004 for most of the countries). Public expenditure per student is the public current spending on education divided by the total number of students in the primary level.
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Private vs. public education: Performance and socioeconomic status
26Source: OECD (2006).
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A way to measure progress towards development
Variables used in the rankings:Real GDP growthInflation, average CPI (%)Cyclically adjusted fiscal balance (%GDP)Net external debt (%GDP)Net external financing needs/CAR (%)Public sector external debt (%GDP)Emerging market bond spreads (bp)Gini coefficient (%)Human development indexComposite world governance indicator
Policy Track Record
Financial vulnerabilities
Stable Growth
Development factors
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Graduation scorecard: Core program
Notes: Risk adjusted GDP is constructed as the mean of the real GDP growth (1999-2009)/standard deviation real GDP growth (1999-2009); Risk adjusted CPI is constructed as the mean of the CPI inflation rate (1999-2009)/standard deviation of the CPI inflation rate (1999-2009)Source: The Economist Intelligence Unit and IMF World Economic Outlook Data Base, April 2010.
Risk adjusted GDP Risk adjusted CPI
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Graduation scorecard: the hard sciences
Notes: Cyclically adjusted fiscal balance estimated as the intercept from a regression of the primary surplus on cyclical output, where the latter is obtained from the log-linear de-trending of real GDP. The Economist Intelligence Unit and Kaufmann, Kraay and Mastruzzi (2009). Governance Matters VIII
Cyclically adjusted fiscal balance (%GDP) World Governance
Indicators
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Graduation scorecard: Final report
Sources: The Economist Intelligence Unit; IMF World Economic Outlook, April 2010; Bank of International Settlements; Moody's; World Bank Global Economic Monitor and World Development Indicators; Human Development Report 2009; Kaufmann, D., Kraay, A., Mastruzzi, M. (2009) Governance Matters VIII.
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– Macro policy framework is exemplary.– But difficult to get GDP growth above 5 percent without
generating inflationary pressures. Low potential growth.– Effects of new dependency from China are not fully clear.– Central America has very different challenges compared to
South America. – The positive trends suggest that this can become Latin
America’s decade.
Bottom-line