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Development approaches, inequality and child wellbeing: L.America vs. EE-FSU during the 2000s. Giovanni An drea Cornia University of Florence ------------------------------------------------------------- Unicef Training Seminar, BKK, 15-6-2011. history of main development successes.

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Development approaches, inequality and child wellbeing: L.America vs. EE-FSU during the 2000s


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development approaches inequality and child wellbeing l america vs ee fsu during the 2000s

Development approaches,inequality and child wellbeing:L.America vs. EE-FSU during the 2000s

Giovanni Andrea Cornia

University of Florence

-------------------------------------------------------------

Unicef Training Seminar, BKK, 15-6-2011

history of main development successes
history of main development successes
  • Success:1st wave of Tigers (1960s-70s) less by 2nd wave (1980s-90s)
  • home-made India+China models are only in part successes(+GDP growth, but rising inequality, stagnant LEB)
  • 2000s L.A. ’growth with equity’ in open econ (despite evidence that opening  un-equalizing) ?
  • L.A. recent experience stands in contrast with most EE-FSU which followed ultra-liberal policies
slide5

Growth is neutral – despite rapid growth – in EE-FSU

GDP % growth (x-axis) and Gini coefficients (y- axis) in 24 transition economies, 2000-6

slide6

Performance 2: Inequality fell a lot in Latin America

DGini income: 1990-02 (light blue) versus 2003-7 (dark blue), LOC vs NO LOC

Left of Centre Regimes

Non- Left of Centre Regimes

1990-02: 9 up, 5 down, 4 no change

2002-07: 4 up, 11 down, 3 no change

slide7

Changes in Gini of distribution of household net income per capita,

over-1989-00 (blue bars), and 2000-6 (red bars) in 25 EE-FSU countries

1989-00: 23 up, 1 down, 1 no change

2000-06: 12 up, 7 down, 6 no change

slide8

Performance 3. During the crisis the poverty rate stagnated in LA (left panel), but rose in EEFSU (right panel)

slide9

Performance 4

Trends in gross enrolment rates in upper secondary education in sub-regions of EE-FSU

(% of population aged 15-18)

l america gross enrolment rates of 15 19 years old by income decile ca 1990 and 2005
L.AMERICA: Gross Enrolment Rates of 15-19 years old by Income Decile Ca. 1990 and 2005

2000 2009

Bolivia 81.9 89.0

C.Rica 72.3 84.9

Honduras 54.6 67.6

Paraguay 72.5 81.3

Peru 83.4 89.6

Source: CEPAL .

what explains different performance in la vs eefsu
What explains different performance in LA vs EEFSU?

(i) Initial conditions and exogenous shocks during 2000s ?

  • Two regions are ‘similarly heterogeneous’ (chart)
  • Similar GDP/c and structure of regional economies
  • EE-FSU started out with
    • stronger administrative institutions
    • higher human capital
  • Both affected in the 2000s by similar shocks :
    • Large terms of trade gains on the exports of primary commodities
    • Increasing flows of migrant remittances
    • Enhanced access to financial markets

which generated both positive and a few negative effects

ii differences in policies 1
(ii) Differences in policies 1
  • (i) Fiscal deficit and public debt.
    • Both regions followed a policy of low deficits, low public debt and low inflation
  • (ii) Private debt.
    • EE-FSU incurred a large increase in private debt, in foreign currency (chart)
    • not so in L.A.
  • (iii) Current account/GDP.
    • EE: huge deficits up to 25% a year for many years (chart)
    • Consistent surplus in LA over 2003-8,
slide16

Average values of Current Account Balance/GDP in different country groups, 2000-07

Baltic countries

L.America

Oil producing

group I: Argentina, Bolivia, Brazil, Chile, Colombia, Costa Rica, Dominican Republic, Ecuador, El Salvador, Guatemala, Honduras, Mexico, Nicaragua, Panama, Paraguay, Peru, Uruguay, Venezuela group II: Kazakhstan, Kyrgyz Republic, Russia, Tajikistan, Turkmenistan, Uzbekistan. group III: Armenia, Azerbaijan, Georgia, Ukraine. group IV: Albania, Bulgaria, Croatia, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Macedonia, Moldova, Poland, Romania, Slovak Republic, Slovenia, group BC: Estonia, Latvia, Lithuania.

policy differences 2
Policy differences 2
  • (iv) portfolio flows:
    • EE: huge rise in foreign lending to private sector
    • moderate rise in LA (+occasional capital controls)
  • (v) FDI:
    • high reliance (6-8 % of GDP a year) in EE-FSU,
    • reduced (3.5-4.5%) in L.A.
  • (vi) exchange rate: chart
    • several currency boards and fixed pegs in EE-FSU, intermediary regimes in L.A.
  • (vii) regulation of banking sector
    • Strict regulation of domestic banks (deleveraging) in LA
    • Strong leverage +reliance on branches of foreign bank in EE-FSU (ch)
policy differences 3
Policy differences 3
  • (viii) trade policy:
    • EE-FSU, no geogr diversification,(W.Europe) fixed pegs  imports
    • In L.A. open trade account plus diversification (China). Competitive exchange rate provides some protection
  • (viii) tax policy:
    • + 1.5% in tax/GDP ratio in EE-FSU, 2.5 in LA (>in some – chart)
    • Use of flat tax in EE-FSU, income tax/VAT in LA
  • (ix) social transfers:
    • C.E. has powerful welfare state but in FSU+SEE social sector favors pensions but cut child allowances & soc. assistance
    • In LA, soc. prot. is less developed but both social protection + soc. ass. grew (85 ml covered by CCT and CT - (1.0% GDP)
slide25

Reynolds–Smolensky (RS) index for L.A.countries, 1990s & 2000s (Gini pts)

RS index = difference btw the Gini coefficients of the distributions of income before & after taxes

policy differences 4
Policy differences 4
  • (x) labor market policies:
    • rise in n. workers covered by collective contracts
    • work inspections against informal employment,
    • Central wage bargaining in Arg., Uruguay, Brazil
    • rise in minimum wage (Brazil)
  • (xi) human capital formation:
    • Decline in secondary school enrolments in EE-FSU  leading to rise in Gini of human capital workforce
    • Steady rise in 2ary enrolments and lower dispersion of distribution of enrolments  lower ‘skill premium’
slide31

The Politics of Policies: In L.America, the ’damage’ caused by W.C: policies in the 1980s-90s led to the election of ‘progressive’ regimes more sensitive to issues of ‘social justice’: trend in n. of political regimes, 1990 - 2009

slide32

In EE-FSU regime changes in 2000s favors independent (technocratic)

- still ‘rebounding’ from heritage of communism

conclusions
Conclusions
  • The neo-liberal ‘debt/export-lead growth’ EE-FSU model lead to:
    • faster short term growth, but
    • greater instability – and a more acute recession during the financial crisis
    • Greater income inequality, rising poverty, stagnation in child wellbeing
  • The L.A. model emerges in contrast as a kind of new social-democratic model in open-economy (more shock-able)
  • Current EEFSU crisis is a repeat of the debt Latino debt crisis of the 1980s
  • Do policy makers ever learn from the recent history? Yes, … but only from their own mistakes (not from those of others)!
  • The political regimes of the two areas during the last decade influenced the policy approaches ….. What causes changes in political regimes?