To decouple or to couple?
A question for Latin America
Juan Carlos Moreno Brid
Deputy Director
ECLAC - Mexico
IDEAS, Chennai, January 2012
Matthew Hammill
Economic Affairs Officer
ESCAP – New Delhi
One lens: the BPC growth model
• Harrod, Prebisch, Thirlwall, Gap models
• Long term growth must not generate an
unsustainable balance of payments
• (vs Corden at al Does the Current Account matter?)
• BPC Specifications: levels or ratios, trade
and factor payments from abroad
• X – M = 0, (X – M) / Y ≤ k, interests, remittances
Thirlwall’s model of BPC growth
Income elasticity of
imports
Income elasticity
of imports
External
demand
Effect of real
exchange rate cum
price elasticities of
trade
4
To overcome BPC
Diversify external demand,
Ratio of income elasticities, internal market
industrial/trade policy, induce investment
public infrastructure,income redistribution
Real exchange rate: avoid persistent
appreciation
Watch capital flows and key stock-flow ratios:
Public, Private -bank and non bank- balance sheets!
5
Data: Latin America’s growth
linked to the US economy, 1970-05
6
LA ‘s recent growth … to decoupling?
Source: ECLAC Preliminary Overview of the Economies of Latin America and the Caribbean, 2012
7
Some opinions… pre 2010
• “When the USA sneezes, Latin America catches a
cold”
Popular saying
• “What crisis? Go ask Bush?”
Lula de Silva, President of Brazil, mid-Sep 2008
few weeks before stock market plunged 20%.
• Now the US caught the flu, Mexico a mild cold
Mexico’s Central Bank late 2008
• It is going to be an economic tsunami for us
Same source, some months later
8
•Some aggregate data and
country evidence
LA’s exports grew faster than GDP
16.0
Export-led
growth 2.0?
Tasas de crecimiento anual 1990-2010
14.0
12.0
10.0
8.0
6.0
4.0
2.0
0.0
-2.0
-4.0
-6.0
-8.0
Exportaciones
PIB
-10.0
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
-12.0
10
Concentrated in USA and EU
Latin America: Geographical distribution of exports, 2007-2010
(Percentage of total exports)
Source: ECLAC Preliminary Overview of the Economies of Latin America and the Caribbean, 2012
And rising share of primary inputs
Fuente: Comisión Económica para América Latina y el Caribe (CEPAL), sobre la base de datos COMTRADE de Naciones Unidas.
LA’s imports grew faster than exports
12.0
Annual average rates of growth,1990-2010
Income elasticity of imports rose,
in some cases it doubled
10.0
8.0
6.0
4.0
2.0
0.0
Argentina
Brasil
Chile
Costa Rica El Salvador
Exportaciones
México
Importaciones
Rep.
Dominicana
ALyeC
The current account deficit widens
(% GDP)
4.0
3.0
2.0
1.0
0.0
-1.0
-2.0
-3.0
2006
2007
2008
2009
2010
Goods balance
Services balance
Current transfers balance
Current account balance
2011
Income balance
2012
Investment ratio peaked in 2011, but
is still low
LATIN AMERICA: GROSS FIXED CAPITAL FORMATION
(Dollars at constant 2005 prices as a percentage of GDP)
15
The BPC, decoupling,
catching-up in 1980-2011?
Some evidence for selected
Latin American countries
Argentina
Brasil
Chile
México
Uruguay
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
1989
1988
1987
1986
1985
1984
1983
1982
1981
1980
16
GDP per capita (% of USA),
Mind the gap: don’t stand so close to me
40
35
30
25
20
15
10
5
0
17
Mexico’s Trade balance and growth
8
1970-81
GDP avg annual growth (%)
7
1960-69
6
5
1995-2000
4
1988-94
3
2
2001-11
1
1982-87
0
-1
-3
-2
-1
0
1
2
3
4
Trade balance goods and services (% GDP), average
5
6
7
Argentina, Trade balance and
economic growth 1960-2011
PIB, crecimiento promedio anual (%)
8
7
6
2001-10
5
1988-94
1960-69
4
3
1995-2000
2
1970-81
1982-87
1
0
-2
-1
0
1
2
3
4
Balanza comercial del ByS (% PIB), promedio
Fuente: Elaboración con base en los indicadores del WDI.
5
6
7
Chile, Trade balance and growth
8
PIB, crecimiento promedio anual (%)
1988-94
7
6
5
1960-69
1995-2000
1982-87
2001-10
4
3
1970-81
2
1
0
-3
-2
-1
0
1
2
3
4
5
Balanza comercial del ByS (% PIB), promedio
Fuente: Elaboración con base en los indicadores del WDI.
6
7
8
To decouple or to couple?
To overcome the BPC?
A Latin American answer:
Mañana, mañana, mañana…
21
Thank You
Juan Carlos Moreno-Brid
Deputy Director
ECLAC - Mexico
IDEAS, Chennai, January 2012
Matthew Hammill
Economic Affairs Officer
ESCAP – New Delhi