Trade and Competitiveness in
Argentina, Brazil and Chile
Not as easy as A-B-C
1
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

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
2
GDP
Real Exchange Rate (I)
Tradables
Non-Tradables
Need for competition policy (V)
FDI may help (III)
Manufacturing
Roadmap…
Which barriers? (II)
Agro-Food
Upgrading potential (IV)
3
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
4
Ch. I: Fixed exchange rate regimes distorted relative
prices of tradables vs. non-tradables…
340
Argentina
290
240
Brazil
190
Chile
140
Mexico
Jan-03
Jan-02
Jan-01
Jan-00
Jan-99
Jan-98
Jan-97
Jan-96
Jan-95
Jan-94
Jan-93
Jan-92
Jan-91
Jan-90
90
5
… accelerating the declining share of tradables in
employment (and GDP)
45
40
Brazil
35
Mexico
30
2002/1
2001/1
1999/1
1998/1
1997/1
1996/1
1995/1
1994/1
1993/1
1992/1
1991/1
20
1990/1
25
2000/1
Chile
Argentina
6
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
7
Ch II: A-B-C’s primary specialisation is less
dynamic in world trade…
Based on RCA 1970 and weighted by export structure
Based on RCA 2000 and weighted by export structure
120
110
110
180
100
90
80
2000
90
90
160
70
60
1970
70
Brazil
2000
50
50
80
140
70
60
120
1970
50
100
40
80
30
1967
2000
1997
1994
1991
1988
1985
1982
1979
1976
1973
1967
2000
1997
1994
1991
110
200
150
100
Chile
180
140
160
130
140
90
80
120
120
70
60
1970
100
110
80
100
60
2000
50
40
90
2000
1997
1994
1991
1988
1985
1982
1979
1976
1973
1970
40
1967
1988
1985
1982
1979
1976
1973
1970
1967
30
1970
40
30
8
1967
1967
1985
1985
130
120
200
110
100
Argentina
1985
150
… compared with that of Ireland, Korea and Mexico
Based on RCA 1970 and weighted by export structure
Based on RCA 2000 and weighted by export structure
210
240
220
200
2000
Ireland
2000
190
Korea
170
180
160
140
120
150
130
110
100
80
60
1970
1970
90
180
2000
1997
1994
1991
1988
1985
1982
1979
1976
1973
1970
1967
2000
1997
1994
1991
Mexico
160
2000
140
120
100
80
1970
60
2000
1997
1994
1991
1988
1985
1982
1979
1976
1973
1970
40
1967
1988
1985
1982
1979
1976
1973
1970
1967
70
9
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.
10
Ch. III: Most FDI in primary and service sectors
Primary sector
Manufacturing
Food
Chemicals, paper
Electronic eq.
Motor vehicles
Other
Services
Commerce
Infrastructure
Transport /comm.
Banking/finance
Other
Argentina
33
31
7
7
4
13
36
4
12
9
11
Brazil
3
21
4
4
1
5
8
76
8
12
22
14
20
Chile
25
11
4
6
1
64
27
7
20
10
Mexico
1
62
16
9
13
9
11
37
12
7
9
9
11
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
12
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
13
High producer support in the OECD…
(as percentage of the value of production, 2000-02)
100
European Union
United States
Japan
80
60
40
20
0
Wheat
Maize
Rice
Oilseeds
Sugar
Milk
Beef and Pigmeat
Veal
Poultry
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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
15