INTEGRATING SECURITIES MARKETS
TO BOOST COMPETITIVENESS
The Latin American Integrated Market – MILA DAY 2015
Sebastián Nieto Parra
Economist LAC Unit
Development Centre
OECD
October 2015
Contents
1
Key Challenge: Tackling the Middle Income Trap (MIT)
2
Market Integration: a key asset to avoid the MIT
3
Crucial role of Capital Markets
4
Conditions and Benefits of Capital Markets Integration
Contents
1
Key Challenge: Tackling the Middle Income Trap (MIT)
2
Market Integration: a key asset to avoid the MIT
3
Crucial role of Capital Markets
4
Conditions and Benefits of Capital Markets Integration
The Middle Income Trap: A common
challenge in the MILA countries
GDP per capita (1990 USD )
2013
1980
1950
40000
35000
30000
25000
20000
HI
15000
10000
UMI
5000
0
LMI
LI
CHL
URY
ARG
VEN
CRI
MEX
COL
Source: OECD-CAF-ECLAC Latin American Economic Outlook , 2014
BRA
PER
DOM
OECD
average
A disappointing progress compared to
different OECD countries
Evading the middle income trap
China
South Korea
Japan
Portugal
Israel
Spain
LAC avg
MILA avg
GDP per capita constant 1990PPP dollars
12000
High-income
> 11 750 USD
10000
8000
6000
Middle-income
7250 USD
4000
2000
Low-income
> 2 000 USD
0
1950
1955
1960 1965
1970
1975
1980 1985 1990 1995 2000 2005 2010 2015
Source: Author's calculation based on Felipe, Abdon and Kumar (2012). Data extracted from International Monetary Fund,
World Economic Outlook Database (April 2015) and Madison (2010)
Sources of GDP per capita differences:
low level of productivity
Percentage of GDP per capita difference compared with the upper half of OECD countries
%
0
-20
-40
-60
-80
Peru
China
Colombia South Africa
Brazil
Mexico
Chile
Korea
OECD
Australia
Percentage difference in labour resource utilisation and labour productivity
Labour productivity
%
Labour resource utilisation
40
20
0
-20
-40
-60
-80
-100
Peru
China
Colombia South Africa
Brazil
Mexico
Chile
Korea
Source: OECD National Accounts Database, World Bank (2015), World Development Indicators (database), Washington, DC,
ILO (International Labour Organization), Key Indicators of the Labour Market (KILM)
OECD
Australia
Economic complexity indicator,
1990-2012
ECI ranks how diversified and complex a country’s export basket is
Index
2
2012
1990
1.5
1
0.5
0
-0.5
-1
Source: Hausmann et al. (2012), The Atlas of Economic Complexity, Puritan Press, Cambridge, MA; Simoes and Hidalgo (2012), “The Economic
Complexity Observatory: An analytical tool for understanding the dynamics of economic development”, Workshop at the Twenty-Fifth AAAI
Conference on Artificial Intelligence, August, 2011, Cambridge, MA.
Contents
1
Key Challenge: Tackling the Middle Income Trap (MIT)
2
Market Integration: a key asset to avoid the MIT
3
Crucial role of Capital Markets
4
Conditions and Benefits of Capital Markets Integration
Intra-trade remains poor in the region
Share of intra-regional trade in intermediate and final goods,
by region, 2011
Final goods
Intermediates
70
60
50
40
30
20
10
0
EU27
Asia
LAC
Source: OECD Latin American Economic Outlook 2016 based on United Nations (2015), United Nations Commodity Trade Statistics
Database, (COMTRADE)
More can be done in the participation to
Global Value Chains
Backward GVC participation in selected regions and
countries, 2011 (%)
45
40
35
30
25
20
15
10
5
0
Colombia
Peru
LAC 6
Chile
EU27
Asia
Source: Latin American Economic Outlook 2016 based on 2015 OECD/WTO TiVA data.
Mexico
China
Korea
Business expenditure on research and
development
Business expenditure on research and development
2013
Number of Patent Cooperation Treaty
2010-2011 average
(% of GDP)
250
3.5
3
200
2.5
150
2
1.5
100
1
50
0.5
0
0
Source: OECD (2015), Main Science and Technology Indicators Database and
OECD calculations based on Red de Indicadores de Ciencia y Tecnología Iberoamericana e Interamericana (RICYT)
Source: OECD Indicators on Patent (database)
Effectiveness of investment infrastructure
and logistics: more important than FTAs
Ratio of freight costs to tariffs, 2012 and 2014
Ratio of freight costs to tariffs (2014)
Ratio of freight costs to tariffs (2012)
120
100
80
60
40
20
0
Source: Based on data from the US Census Bureau. FT920: U.S. Merchandise Trade.
Contents
1
Key Challenge: Tackling the Middle Income Trap (MIT)
2
Market Integration: a key asset to avoid the MIT
3
Crucial role of Capital Markets
4
Conditions and Benefits of Capital Markets Integration
Policies to escape the middle income trap
Priorities for productivity and higher income (coefficients)
Low income countries
5
Low middle income countries
Upper middle income countries
4
3
2
1
Fuente: Izquierdo et al. (2015), In Search of Larger Per Capita Incomes: How to Prioritize Across
Productivity Determinants?, IDB mimeo.
Telecommunication
Labor Markets
Trade
Innovation
infrastructure
Health
Education
-1
Stock Markets
0
0
Switzerland
Chile
United States
United Kingdom
Canada
Sweden
Korea, Rep.
Australia
Spain
Colombia
Denmark
France
OECD avg
Japan
OECD median
Finland
Belgium
Brazil
Peru
Norway
Ireland
Mexico
LAC median
China
Germany
LAC avg
Turkey
Poland
Portugal
Italy
Czech Republic
Greece
Hungary
Bolivia
Venezuela, RB
Argentina
Uruguay
Market capitalization remains high…
Market Capitalization (% GDP, 2012)
160
140
120
100
80
60
40
20
Source: World Bank, World Development Indicators (2012)
0
Japan
Spain
United States
Canada
Poland
Australia
United…
Korea, Rep.
Argentina
Uruguay
Germany
Greece
OECD avg
France
Italy
Turkey
Brazil
Venezuela, RB
Slovenia
OECD median
Peru
Norway
Sweden
Hungary
LAC avg
Mexico
Belgium
Denmark
Bolivia
LAC median
Finland
Chile
Portugal
Switzerland
Netherlands
Colombia
Czech…
Ireland
Jamaica
But with high market concentration
Listed companies (% Market capitalization-GDP, 2012)
60
50
40
30
20
10
Source: World Bank, World Development Indicators (2012)
Productivity growth and stock markets:
listed companies
Annual growth of labor productivity per worked 2000-15
Labor productivity per hour worked annualized growth
2000-15
0.04
0.035
PER
0.03
CHL
0.025
0.02
COL
y = 0.0072ln(x) + 0.164
R² = 0.2978
0.015
BRA
0.01
0.005
MEX
ARG
0
VEN
-0.005
-0.01
0
5E-10
1E-09
1.5E-09
2E-09
Listed companies (% PIB) average 1995-12
Source: World Bank, 2014 / The Conference Board , 2015
2.5E-09
3E-09
3.5E-09
0
Italy
Korea, Rep.
United States
Turkey
Spain
Japan
OECD avg
Germany
United Kingdom
Australia
Finland
OECD median
Brazil
Netherlands
Sweden
France
Canada
Switzerland
Norway
Hungary
Denmark
LAC avg
Portugal
Poland
Belgium
Greece
Czech Republic
Mexico
Chile
Colombia
Slovenia
Peru
LAC median
Argentina
Jamaica
Uruguay
Bolivia
Venezuela
Liquidity: an important challenge for
market development in the region
Stock traded (% market capitalization, 2012)
%
160
140
120
100
80
60
40
20
Source: World Bank, World Development Indicators (2012)
Liquidity is associated with productivity
Labor productivity per hour worked and stocks traded
70
Labor productivity per hour worked avg 2000-15
60
50
y = 4.7609ln(x) + 22.417
R² = 0.2404
40
30
20
VEN
CHL
URG
ARG
MEX
BRA
COL
10
PER
0
0
50
100
Stocks traded (% GDP) avg 1995-12
Source: World Bank, 2014 / The Conference Board , 2015
150
200
250
Differences in terms of debt composition
in MILA countries
Domestic Debt Market Composition (%, 2012)
Central Government
Cource: BIS, 2012
Financial intermediaries
Non-Financial intermediaries
Contents
1
Key Challenge: Tackling the Middle Income Trap (MIT)
2
Market Integration: a key asset to avoid the MIT
3
Crucial role of Capital Markets
4
Conditions and Benefits of Capital Markets Integration
0
Argentina
LAC avg
El Salvador
Dominican…
Costa Rica
Russia
Cyprus
Guatemala
Uruguay
Indonesia
South Africa
Turkey
Colombia
Peru
Malaysia
Panama
MILA avg
Portugal
Mexico
Hungary
Iceland
Thailand
Philippines
Slovenia
China
Italy
Chile
Spain
Israel
Poland
Qatar
Singapore
OECD avg
Slovak…
Korea
Estonia
Czech…
Ireland
New Zealand
Belgium
France
Japan
United…
Finland
Netherlands
Austria
Norway
Denmark
Sweden
Germany
Enhanced macroeconomic discipline
CDSs – Credit Default Swap Spreads 10 years (Basis Points, annual average 2015)
500
2.287
450
400
350
300
250
200
150
100
50
Source: Bloomberg
Market integration attracts further
international investors
• The top investors that own shares in the companies listed on the member exchanges of the CEE Stock
Exchange group are primarily international investors from US, UK, Austria, France, Germany
Note: Stocks included in the CEE Stock Exchange Group are Budapest (Hungary), Ljubljana (Slovenia), Prague (Czech Republic),
and Vienna (Austria). Others category includes the following countries Canada, Czech Republic, Denmark, Hungary, Slovenia, Sweden
Source: CEE Stock Exchange report /Ipreo.
Economies of scale: increases efficiency and
new issuers
Listed domestic companies, 2012
Stock exchange merger and liquidity: The case
of Euronext
1000
900
800
700
600
500
400
300
200
Source: World Bank, World Development Indicators (2012)
Jamaica
Bolivia
Venezuela
Colombia
Argentina
Mexico
Peru
Chile
Brazil
MILA
0
OECD avg
100
Source: Nielsson, (2012) Stock exchange merger and liquidity
The case of Euronext, Journal of Financial Markets, Vo.. 12, Issue 2,
2009, 229-267
Conclusions
- Pacific Alliance countries have a common challenge: to boost
productivity and competitiveness
 To tackle the Middle Income Trap.
- A key actor to facilitate improvements in these areas: Capital Markets.
- In particular MILA: to increase the number of listed companies, the
liquidity, and to attract new investors.
- A key pillar: credibility of macroeconomic policies.
- OECD supports regional integration in Latam and in particular close
work/collaboration with MILA/Pacific Alliance countries:
- Chile and Mexico: OECD members
- Colombia: Accession Process to join the OECD
- Peru: OECD Country Programme
INTEGRATING SECURITIES MARKETS
TO BOOST COMPETITIVENESS
The Latin American Integrated Market – MILA DAY 2015
Sebastián Nieto Parra
Development Centre
OECD
October 2015