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Trade and Competitiveness in Argentina, Brazil and Chile Not as easy as A-B-C

Trade and Competitiveness in Argentina, Brazil and Chile Not as easy as A-B-C. Joint work of the OECD Economics Department Directorate for Food, Agriculture and Fisheries Directorate for Financial, Fiscal and Enterprise Affairs Development Centre. Ch 1: Anne-Laure Baldi and Nanno Mulder

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Trade and Competitiveness in Argentina, Brazil and Chile Not as easy as A-B-C

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  1. Trade and Competitiveness in Argentina, Brazil and ChileNot as easy as A-B-C

  2. Joint work of the OECD Economics Department Directorate for Food, Agriculture and FisheriesDirectorate for Financial, Fiscal and Enterprise AffairsDevelopment Centre Ch 1: Anne-Laure Baldi and Nanno Mulder Ch 2: Joaquim Oliveira Martins and Tristan Price Ch 3: Andrea Goldstein Ch 4: Jonathan Brooks and Sabrina Lucatelli Ch 5: Carlos Winograd, Marcelo Celani and Jae-Woo Kim

  3. GDP Real Exchange Rate (I) Tradables Non-Tradables Need for competition policy (V) Which barriers? (II) FDI may help (III) Manufacturing Agro-Food Roadmap… Upgrading potential (IV)

  4. Key insights Ch. 1: Fixed exchange rate regimes distorted relative prices of tradables vs. non-tradables Ch. 2: Development of tradable sector is hindered by endogenous market barriers and trade policy Ch. 3: FDI could help overcome market barriers, though most FDI occurred in primary and service sectors Ch. 4: Agro-food sector still has large potential, but stronger framework conditions are needed Ch. 5: Competition policy in non-tradables has positive spillovers for international competitiveness

  5. Ch. I: Fixed exchange rate regimes distorted relative prices of tradables vs. non-tradables…

  6. … accelerating the declining share of tradables in employment (and GDP)

  7. Our model ‘explaining’ relative prices shows: • Fixed regimes distorted relative prices in A-B-M • Portfolio inflows exacerbated the price distortion in A-B • (other determinants: Balassa-Samuelson, government expenditure, terms of trade) In Chile, the frequently adapted ‘crawling peg’ and smaller short-term capital inflows helped to avoid relative price distortions  Today’s flexible regimes in A-B-C-M support the development of the tradable sector

  8. Ch II: A-B-C’s primary specialisation is less dynamic in world trade… 2000 1970 2000 1970 1970 2000

  9. … compared with that of Ireland, Korea and Mexico 2000 2000 1970 1970 2000 1970

  10. Why did I-K-M better succeed than A-B-C in changing their trade specialisation? • I-K-M benefited from regional integration, while A-B-C face tariff peaks and high non-tariff barriers in OECD; • I-K-M benefited from more FDI in manufacturing, overcoming ‘market’ barriers (prohibitive costs of R&D and advertising) for differentiated products.

  11. Ch. III: Most FDI in primary and service sectors

  12. A-B-C are relatively friendly to FDI: • Surge mid-1990s, mostly linked to privatisation • MNCs increased more their share in M than in X • Some supply linkages (car manufacturing, mining, retail trade) But: • Framework conditions can be further improved • Better target MNC location decisions, without resorting to preferential treatment

  13. Ch. IV: Upgrading agro-food potential Share of Agro-food is large in output and employment • 40-50% of Exports, 15-30% of Employment, 10-15% of GDP • Primary products continue to account for lion share But international competition is evolving • Not only depends on prices and quantities, but also on logistics • In food industry: product differentiation, key role of FDI • Competitiveness depends on entire food chain • Shift to higher value-added products: • Reduce tariffs and NTBs in EU and United States, see graph (note FTAs of Chile) • Domestic policies: framework conditions for FDI, coordination within the food chain, investment in branding

  14. High producer support in the OECD…(as percentage of the value of production, 2000-02)

  15. Ch. V: Need for competition policy => Competition in non-tradables makes tradable sector more competitive Argentina’s experience: • Infrastructure sectors were privatised in early 1990s, but regulatory frameworks remained deficient • Currency board distorted relative prices, which called for larger role of competition policy the late 1990s • Competition institutions were reinforced and policy moved from anti-trust to competition advocacy in regulatory reforms • Several case studies illustrate that competition policy helped to reduce entry barriers, increase transparency, and foster best-practices

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