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Latin America’s Bicentenary and the Maddison Legacy Maddison Memorial Conference. Andr é Hofman - Director CEPAL Review Economic Commission for Latin America and the Caribbean Amsterdam, November 2010. Outline. Introduction.
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André Hofman - Director CEPAL Review
Economic Commission for Latin America and the Caribbean
Amsterdam, November 2010
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.
Benchmarks 1500, 1820, 1870, 1913, 1950, 1973.
1500-1820 Extensive growth in Latin America, discovery, conquest and destruction.
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.
Source: Maddison (2001).
Source: Maddison and Hofman (forthcoming).
Sources: Maddison and Hofman (forthcoming).
Source: Maddison and Hofman (forthcoming).
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 Bértola and ECLAC project on the bicentenary.
National institutions, ideologies, pressures of socio-economic interest groups, historical accidents, and domestic economic policy
Nature of the international economic order, exogenous ideologies, pressures or shocks from friendly or unfriendly neighbours
Y(N’ L’ K’) E + A
Y = 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
The 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.
Taking 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, Solow’s 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:
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.
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.
PER CAPITA GDP IN LATIN AMERICA, 1950-2005
(1950 = 100)
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.
Include capital services
Measures of capacity utilization
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.
Fuentes: LA-KLEMS basado en estimación de horas trabajadas y datos de ocupados/puestos de trabajo
LA-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.
Include not registrated sector (informal)
Structural change (between sectors)
Structural heterogeneity (within sectors)
Relation between sector, age groups, education and income
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.
Maddison 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.