Latin Americas Bicentenary and the Maddison Legacy

Maddison Memorial ConferenceAndr Hofman - Director CEPAL ReviewEconomic Commission for Latin America and the CaribbeanAmsterdam, November 2010

Outline

Introduction.Bicentenary Latin America: Economic growth in the very long run, 1500-2010.Growth and Productivity in Latin America, 1950-2010: Growth accounting .Growth and Productivity in Latin America, 1990-2010: LA-KLEMS.Final remarks.

IntroductionThis presentation is about growth and productivity in Latin America and the influence of the work of Angus Maddison in research on growth and productivity in Latin America and some future research indications. It is partially based on a article Angus and I were preparing Latin Americas Bicentenary: Long run performance in an international comparative perspective, 1500-2010, but it contains also some new elements related with growth and productivity in Latin America.

Introduction (cont.)

3 periods of analysis in Latin America. All periods end with 2010 but in each subsequent period new analytical and empirical tools are introduced.The periods are:1500-2010 Bicentenary Latin America - Economic growth and productivity in the very long run. 1950-2010 Growth and productivity in Latin America: Growth accounting.1990-2010 Disaggregated growth and productivity in Latin America: The LA-KLEMS approach.Important characteristic is the systematic use of quantitative evidence in a macroeconomic - national accounts - framework.

Bicentenary Latin America - Economic growth and productivity in the very long run, 1500-2010.

Bicentenary Latin America - Economic growth and productivity in the very long run, 1500-2010.

Benchmarks 1500, 1820, 1870, 1913, 1950, 1973.1500-1820 Extensive growth in Latin America, discovery, conquest and destruction.

Bicentenary Latin America - Economic growth and productivity in the very long run, 1500-2010.1820-1870 Independence period in Latin America. Very low growth in comparison with rest of the world. 1870-1913 Rapid growth in the world and also in Latin America. Foreign direct investment and international trade.1913-1950 Faster growth in Latin America compared to the world economy. Growth was faster in part because of internal production capacity expanded as WW and crisis made import substitution necessary.

Table 1 LEVELS OF PER CAPITA GDP AND INTERREGIONAL SPREAD, 1500 - 2008(1990 international dollars)Source: Maddison (2001).

0

1000

1500

1820

1870

1913

1950

1973

2003

Western Europe

Western Offshoots

Japan

Asia (excluding Japan)

Latin America

Eastern Europe & former USSR

Africa

World

Interregional Spreads

450

400

400

450

400

400

425

444

1.1:1

400

400

425

450

400

400

416

435

1.1:1

774

400

500

572

416

483

400

565

2:1

1 232

1 201

669

575

665

667

418

667

3:1

1 974

2 431

737

543

698

917

444

867

5:1

3 473

5 257

1 387

640

1 511

1 501

585

1 510

9:1

4 594

9 288

1 926

635

2 554

2 601

852

2 114

15:1

11 534

16 172

11 439

1 231

4 531

5 729

1 365

4 104

13:1

17 921

26 146

20 413

2 936

5 795

4 354

1 368

5 709

19:1

Table 2 LEVELS OF PER CAPITA GDP AND INTERREGIONAL SPREAD, 1500 - 2008(1990 international dollars)Source: Maddison and Hofman (forthcoming).

1500182018701913195019732008Latin America4166926811481250645046973Western Europe77112041960345845791141622246Western Offshoots40012022419523392681617930152Japan500669737138719211143422816West70211091882367256491308225544Asia (excluding Japan)57257755065863412265030Eastern Europe & f. USSR4986869411558260257318102Africa41442050063789414101780Rest538578606860109120724892World5666678751525211140917614Interregional Spread1.9:12.9:14.8:18.2:114.6:113.2:116.9:1West/Rest Spread1.3:11.9:13.1:14.3:15.2:16.3:15.2:1

Table 3LATIN AMERICA: TOTAL GDP, 15002008 (average annual growth rate)Sources: Maddison and Hofman (forthcoming).

1500182018207018701913191350195073197320011973-20082001-2008Latin America0.16-0.031.821.432.580.911.392.16Western Europe0.140.981.330.764.051.881.951.54Western Offshoots0.341.411.811.562.451.841.891.21Japan0.090.191.480.888.062.142.141.21West0.141.061.571.173.721.951.841.44Asia (excluding Japan)00.100.420.102.913.554.756.37Eastern Europe & f. USSR0.10.631.181.43.490.051.375.89Africa00.350.570.9220.190.742.63Rest0.020.060.820.652.831.752.795.28World0.050.541.30.882.921.411.882.95

Table 4 Population, 1500 - 2008(million)Source: Maddison and Hofman (forthcoming).

15001820187019131950197320012008Latin America18224081166308531580Western Europe57133188261305358392401Western Offshoots31146111176251340363Japan1531345284109127127West75175268424565718859891Asia (excluding Japan)2686797319261299214035273844E. Europe & f. USSR3091142236267360411404Africa477490125227390821975Rest363866100313681959319852905803World4381042127217912524391661496695% West/World17.116.821.123.722.418.314.013.3

Bicentenary Latin America - Economic growth and productivity in the very long run, 1500-2010.Research agenda.Level of Latin American population at conquest is still a very controversal theme. Angus took a relatively conservative stance with the estimate of 18 million. Estimates alone for Central Mexico ranged from 4.5 million to 100 million. Future research is needed to narrow this range.More research needed on colonial heritage, new institutional set-up after independence, economic growth in specific countries. Reference to Brtola and ECLAC project on the bicentenary.

Growth and productivity in Latin America, 1950-2010: Growth accounting.

Table 5 ULTIMATE AND PROXIMATE ELEMENTS EXPLAINING PER CAPITA GDP PERFORMANCENational institutions, ideologies, pressures of socio-economic interest groups, historical accidents, and domestic economic policyNature of the international economic order, exogenous ideologies, pressures or shocks from friendly or unfriendly neighbours Y (N L K) E + AD PY = gross domestic product.D = population.N = natural resources augmented by technical progress.L = human capital, i.e. labour input augmented by investment in education and training.K = stocks of physical capital augmented by technical progress.E = efficiency of resource allocation.A = net flow of goods, services, production factors, and technology from abroad.= f

Growth accountingThe basic framework of growth accounting makes it possible to measure how much increases in inputs and technological progress contribute to economic growth. The starting point for such an analysis is a Cobb-Douglas production function with constant returns to scale in which GDP (Y) is defined as a function of multifactor productivity (A) and factor inputs (capital, K, and labour, L):

Where Z and H are the quality indices for capital and labour, respectively. H is an index for the quality of the labour force based on educational level.

Growth accountingTaking logs and differentiating with respect to time, and assuming perfect competition, Solow (1957) shows how estimates of the share of factor inputs in GDP can be used to weight the contribution of the rate of increase in inputs to arrive at simple estimates of MFP growth as a residual. Nonetheless, Solows estimated residuals are quite sensitive to modifications in factor inputs, in respect of both their level of utilization and their quality.Assuming zero adjustment costs for capital accumulation and perfect competition in factor markets, so that the payment received by each of them is equal to their social marginal product. By applying logarithms and derivatives we obtain the standard estimate for MFP growth:

Stylized facts on economic growth in Latin America (1950-2005)The growth of economic activity (measured by per capita GDP) in Latin America during the period 1950-2005 shows, among other things, two notable characteristics: the presence of breaks in the long-term trend, as can be seen when comparing country growth with a constant growth trend, and the heterogeneity of per capita GDP, which translates into disparities in their respective levels, as well as on the growth rates from the second half of the twentieth century on.

Stylized facts on economic growth in Latin America (1950-2005)In the past half-century, Latin America has seen very strong fluctuations in its growth pattern and in the contribution of the various factors to growth. Possible causes include low capital formation and fluctuations of productivity. In particular, MFP growth has shown sharp variations since the 1980s; when it appears to have fallen, and then stagnated.

Stylized facts on economic growth in Latin America (1950-2005)PER CAPITA GDP IN LATIN AMERICA, 1950-2005(1950 = 100)

A comparison of per capita GDP levels in 1950 with those for 2005 shows no drastic differences in ranking, with a few exceptions.

per capita GDP, 1950 (1980 international dollars)per capita GDP, 2005 (1980 international dollars)Argentina2.727Chile6.957Venezuela (Bol. Rep. of)2.483Mexico5.750Chile2.179Argentina5.407Mexico1.826Costa Rica4.256Peru1.436Venezuela (Bol. Rep. of)3.885Costa Rica1.252Brazil3.433Colombia1.227Colombia3.208Ecuador1.025Ecuador3.046Brazil1.012Peru2.678Bolivia 926Bolivia1.182

Stylized facts on economic growth in Latin AmericaPER CAPITA GDP IN LATIN AMERICA, 1950-2005(1950 = 100)

Stylized facts on economic growth in Latin AmericaPER CAPITA GDP IN LATIN AMERICA, 1950-2005(1950 = 100)

Stylized facts on economic growth in Latin AmericaPER CAPITA GDP IN LATIN AMERICA, 1950-2005(1950 = 100)

Growth accounting

Growth accounting

Growth accounting

Growth and productivity in Latin America, 1950-2010: Growth accounting.Lessons:Inward orientation was maintained to long. Latin America did not catch-up and did not take advantage of available technological progress. Very low TFP. Crisis of the 1980s was profound and caused lost decade. Latin America lost competitiveness in world markets and became a natural resources exporter.

Growth and productivity in Latin America, 1950-2010: Growth accounting.Research agendaInclude capital servicesMeasures of capacity utilizationPotential output

Growth and productivity in Latin America, 1990-2010: LA-KLEMS.

Disaggregated growth and productivity in Latin America 1990-2010: LA-KLEMS - Productivity analysis and the role of ICT in Latin America: Argentina, Brazil, Chile and Mexico.

Growth and productivity in Latin America, 1990-2010: LA-KLEMS.

New element: analysis of economic growth and productivity on the sectoral level (31 sectors).Four Latin American countries: Argentina, Brazil, Chile and Mexico.18 variables in human capital.7 types of fixed capital formation.Contribution of ICT.

Growth accounting - Brasil

Growth accounting - Chile

Growth accounting - Mxico

Including hours worked in productivity analysisArgentinaBrasilChileMxico

Table 11 Labour productivity per hour compared to USA (USA=100)Fuentes: LA-KLEMS basado en estimacin de horas trabajadas y datos de ocupados/puestos de trabajo

World-KLEMSLA-KLEMS is part of the WORLD-KLEMS project to promote international comparisons of economic growth and productivity at the sectoral level.Participating countries: 25 countries of EU, Australia, Canada, Japan, South Korea and USA.Extend to developing countries: Argentina, Brasil, Chile, China, India, Indonesia, Mexico, Rusia, Taiwan and Turkey.

Growth and productivity in Latin America, 1990-2010: LA-KLEMS.Research agendaInclude not registrated sector (informal)Structural change (between sectors)Structural heterogeneity (within sectors)Relation between sector, age groups, education and income

Growth and productivity in Latin America, 1990-2010: LA-KLEMS.Latin America crises in 2009. Institutional set up relatively good (e.g. financial sector).Terms of trade will remain positive as well as demand for Latin American natural resources. Macro fundamentals ok but now micro reforms are needed and sectoral productivity analysis is an important input in economic policy analysis.

Summary and conclusionsMaddison contributions and future research:

-Long term growth analisis: contribution Angus enormous. Latin America in world perspective. Definition of benchmarks in Latin America, analysis in time an starting point in 1500. Future work: Long term growth, improve country detail, refine pre-conquest population estimates.-Medium term analisis: contributed through incorporation of more explanatory variables and growth accounting framework. Future research: Growth accounting, methodological innovations: capital services, MFP analysis. -Actuality: work iniated by Angus and Groningen Growth and Development Centre: LA-KLEMS disaggregated growth accounts and more detailed explanatory analisis.

Latin Americas Bicentenary and the Maddison Legacy.

Maddison Memorial Conference

Muchas gracias.

******************Grfico 4

1. Combinacin de los dos grficos anteriores.

2. DOS ejes, el de la izquierda corresponde a la tasa de crecimiento, mientras que el de la derecha a la contribucin de cada sector a esta tasa. Adems no coinciden en el origen.

3. Los sectores mantienen el orden.

*