Introduction
Inter- and Intra-Sectoral Resource Shifts
Pattern of Specialization and Innovation
Conclusion
Trade Policy and Industrial Development:
Lessons from Mexico
Eric Verhoogen
Columbia University
UNU-WIDER/CIEM Conference, Hanoi
June 30, 2014
Trade Policy and Industrial Development
Eric Verhoogen
Introduction
Inter- and Intra-Sectoral Resource Shifts
Pattern of Specialization and Innovation
Conclusion
Overview
I This talk:
Trade Policy and Industrial Development
Eric Verhoogen
Introduction
Inter- and Intra-Sectoral Resource Shifts
Pattern of Specialization and Innovation
Conclusion
Overview
I This talk:
I A broad-brush interpretation of role of international trade in
the recent development of Mexico.
Trade Policy and Industrial Development
Eric Verhoogen
Introduction
Inter- and Intra-Sectoral Resource Shifts
Pattern of Specialization and Innovation
Conclusion
Overview
I This talk:
I A broad-brush interpretation of role of international trade in
the recent development of Mexico.
I Tries to draw some general lessons, including for Vietnam.
Trade Policy and Industrial Development
Eric Verhoogen
Introduction
Inter- and Intra-Sectoral Resource Shifts
Pattern of Specialization and Innovation
Conclusion
Overview
I This talk:
I A broad-brush interpretation of role of international trade in
the recent development of Mexico.
I Tries to draw some general lessons, including for Vietnam.
I Why Mexico?
Trade Policy and Industrial Development
Eric Verhoogen
Introduction
Inter- and Intra-Sectoral Resource Shifts
Pattern of Specialization and Innovation
Conclusion
Overview
I This talk:
I A broad-brush interpretation of role of international trade in
the recent development of Mexico.
I Tries to draw some general lessons, including for Vietnam.
I Why Mexico?
I Clearly differs in many ways from Vietnam, but it is illustrative
of issues that Vietnam is likely to face in its future growth.
Trade Policy and Industrial Development
Eric Verhoogen
Introduction
Inter- and Intra-Sectoral Resource Shifts
Pattern of Specialization and Innovation
Conclusion
Overview
I This talk:
I A broad-brush interpretation of role of international trade in
the recent development of Mexico.
I Tries to draw some general lessons, including for Vietnam.
I Why Mexico?
I Clearly differs in many ways from Vietnam, but it is illustrative
of issues that Vietnam is likely to face in its future growth.
I Cautionary tale about liberalization relevant to Vietnam, given
2006 AFTA accession, 2007 WTO accession, recent trade
agreements with the U.S., Japan, ASEAN agreements with
Korea, India, and pending agreements with the E.U. and
Trans-Pacific Partnership.
Trade Policy and Industrial Development
Eric Verhoogen
Introduction
Inter- and Intra-Sectoral Resource Shifts
Pattern of Specialization and Innovation
Conclusion
Mexico’s Disappointing Growth
I Between 1985 and 1994, Mexico implemented an ambitious
program of reforms, in line with recommendations from
international institutions (IMF, World Bank etc.):
I Trade liberalization
I 1985-87: joined GATT, unilateral reduction of tariff barriers.
I 1994: NAFTA, phased out remaining barriers over 15 years.
I Privatization of state-owned enterprises
I Liberalization of investment regime
I General reduction of role of state in economy
Trade Policy and Industrial Development
Eric Verhoogen
Introduction
Inter- and Intra-Sectoral Resource Shifts
Pattern of Specialization and Innovation
Conclusion
Mexico’s Disappointing Growth
I Between 1985 and 1994, Mexico implemented an ambitious
program of reforms, in line with recommendations from
international institutions (IMF, World Bank etc.):
I Trade liberalization
I 1985-87: joined GATT, unilateral reduction of tariff barriers.
I 1994: NAFTA, phased out remaining barriers over 15 years.
I Privatization of state-owned enterprises
I Liberalization of investment regime
I General reduction of role of state in economy
I Advocates of these reforms were confident that rising average
incomes would follow.
Trade Policy and Industrial Development
Eric Verhoogen
Introduction
Inter- and Intra-Sectoral Resource Shifts
Pattern of Specialization and Innovation
Conclusion
Mexico’s Disappointing Growth
I Between 1985 and 1994, Mexico implemented an ambitious
program of reforms, in line with recommendations from
international institutions (IMF, World Bank etc.):
I Trade liberalization
I 1985-87: joined GATT, unilateral reduction of tariff barriers.
I 1994: NAFTA, phased out remaining barriers over 15 years.
I Privatization of state-owned enterprises
I Liberalization of investment regime
I General reduction of role of state in economy
I Advocates of these reforms were confident that rising average
incomes would follow.
I But Mexico’s growth performance has been disappointing.
Trade Policy and Industrial Development
Eric Verhoogen
Introduction
Inter- and Intra-Sectoral Resource Shifts
Pattern of Specialization and Innovation
Hanson: Why Isn’t Mexico Rich?
Mexico’s Disappointing
Growth Performance
Conclusion
989
Panel A. Latin America
Log per capita GDP (1980 = 0)
1
Mexico
Brazil
Venezuela
Argentina
Chile
0.5
0
−0.5
1980
1985
1990
1995
2000
2005
Year
Source:
Hanson
(2010).Asia
Panel
B. Southeast
0)
1.5
Trade Policy and Industrial
Mexico
Malaysia
Thailand
Development
Indonesia
Philippines
Eric Verhoogen
−0.5
Introduction
Inter- and Intra-Sectoral Resource Shifts
1980
1985
Pattern of Specialization and Innovation
1990
1995
2000
Conclusion
2005
Year
Mexico’s Disappointing Growth
Performance (cont.)
Panel B. Southeast Asia
Log per capita GDP (1980 = 0)
1.5
Mexico
Malaysia
Thailand
Indonesia
Philippines
1
0.5
0
−0.5
1980
1985
1990
1995
2000
2005
Year
Source: Hanson (2010).
Figure 1: Economic Growth in Comparison Countries
(continued)
Trade Policy and Industrial Development
Eric Verhoogen
Introduction
Inter- and Intra-Sectoral Resource Shifts
Pattern of Specialization and Innovation
Conclusion
Journal of Economic Literature, Vol. XLVIII (December 2010)
990
Mexico’s Disappointing Growth Performance (cont.)
Panel C. Eastern and Central Europe
Log per capita GDP (1980 = 0)
0.8
Mexico
Hungary
Turkey
0.6
Bulgaria
Romania
0.4
0.2
0
−0.2
1980
1985
1990
1995
2000
2005
Year
Source: Hanson (2010). Figure 1: Economic Growth in Comparison Countries (continued)
are insufficient to explain the Mexican case.
Because some countries in Latin America have
doneIndustrial
well in the
last decade, Mexico’s perforTrade Policy and
Development
relative to Asia and Europe, which during the
second half of the twentieth century did converge toward U.S. income levels, was dueEric
pri-Verhoogen
Introduction
Inter- and Intra-Sectoral Resource Shifts
Pattern of Specialization and Innovation
Conclusion
Mexico’s Disappointing Growth Performance (cont.)
I There are a number of plausible factors that have contributed
to the disappointing performance (Hanson, 2010; Kehoe and
Ruhl, 2010):
I
I
I
I
I
Monopolies and inefficient regulation (Arias et al., 2010).
Underdeveloped credit markets (Haber, 2004).
Informality and evasion (Levy, 2008).
Corruption and, more recently, violence.
...
All of these likely played a role.
Trade Policy and Industrial Development
Eric Verhoogen
Introduction
Inter- and Intra-Sectoral Resource Shifts
Pattern of Specialization and Innovation
Conclusion
Mexico’s Disappointing Growth Performance (cont.)
I There are a number of plausible factors that have contributed
to the disappointing performance (Hanson, 2010; Kehoe and
Ruhl, 2010):
I
I
I
I
I
Monopolies and inefficient regulation (Arias et al., 2010).
Underdeveloped credit markets (Haber, 2004).
Informality and evasion (Levy, 2008).
Corruption and, more recently, violence.
...
All of these likely played a role.
I Here I would like to focus on the role of trade — in particular,
links between pattern of specialization and innovation.
Trade Policy and Industrial Development
Eric Verhoogen
Introduction
Inter- and Intra-Sectoral Resource Shifts
Pattern of Specialization and Innovation
Conclusion
Plan of Talk
I Introduction
I Inter- and Intra-Sectoral Resource Shifts
I Pattern of Specialization and Innovation
I Conclusion
Trade Policy and Industrial Development
Eric Verhoogen
Introduction
Inter- and Intra-Sectoral Resource Shifts
Pattern of Specialization and Innovation
Conclusion
The Empirical Challenge
I Evaluating the effect of trade policy in Mexico is difficult
because other things changed at the same time.
Trade Policy and Industrial Development
Eric Verhoogen
Introduction
Inter- and Intra-Sectoral Resource Shifts
Pattern of Specialization and Innovation
Conclusion
The Empirical Challenge
I Evaluating the effect of trade policy in Mexico is difficult
because other things changed at the same time.
I NAFTA was implemented in January 1994, and was followed
by peso crisis in Dec. 1994.
I As Krueger (2000) and others have noted, devaluation was
much larger (50% nominal devaluation) than tariff changes
(10% reductions in Mexico, 3-5% in US).
Trade Policy and Industrial Development
Eric Verhoogen
Introduction
Inter- and Intra-Sectoral Resource Shifts
Pattern of Specialization and Innovation
Conclusion
The Empirical Challenge
I Evaluating the effect of trade policy in Mexico is difficult
because other things changed at the same time.
I NAFTA was implemented in January 1994, and was followed
by peso crisis in Dec. 1994.
I As Krueger (2000) and others have noted, devaluation was
much larger (50% nominal devaluation) than tariff changes
(10% reductions in Mexico, 3-5% in US).
I There may also have been lagging effects of the mid-1980s
liberalization.
Trade Policy and Industrial Development
Eric Verhoogen
Introduction
Inter- and Intra-Sectoral Resource Shifts
Pattern of Specialization and Innovation
Conclusion
The Empirical Challenge
I Evaluating the effect of trade policy in Mexico is difficult
because other things changed at the same time.
I NAFTA was implemented in January 1994, and was followed
by peso crisis in Dec. 1994.
I As Krueger (2000) and others have noted, devaluation was
much larger (50% nominal devaluation) than tariff changes
(10% reductions in Mexico, 3-5% in US).
I There may also have been lagging effects of the mid-1980s
liberalization.
I Here I do not try to separate these factors.
Trade Policy and Industrial Development
Eric Verhoogen
Introduction
Inter- and Intra-Sectoral Resource Shifts
Pattern of Specialization and Innovation
Conclusion
2
Employment Growth vs. Skill Intensity, 1988-1998
Apparel & textile prod.
Transportation equip.
−.5
0
.5
1
Other 4−digit NAICS industries
−1.5
−1
change in log(employment), 1988−1998
1.5
Electrical/electronic prod.
0
.1
.2
.3
.4
.5
.6
Share >=12 yrs education (in large plants), 1998
Notes: Data on employment growth are from the INEGI Economic Censuses from 1989 and 1999 (containing
information from previous year). Data on schooling are from 1999 ENESTyC. Each symbol represents a 4-digit
industry in the North American Industrial Classification System (NAICS). The size of the symbols reflect
employment in the industry in 1998. The fitted regression line is weighted by employment in 1998. See Figure A1
of Verhoogen (2008).
Trade Policy and Industrial Development
Eric Verhoogen
Introduction
Inter- and Intra-Sectoral Resource Shifts
Pattern of Specialization and Innovation
Conclusion
2
Employment Growth vs. Capital Intensity, 1988-1998
Apparel & textile prod.
Transportation equip.
−.5
0
.5
1
Other 4−digit NAICS industries
−1.5
−1
change in log(employment), 1988−1998
1.5
Electrical/electronic prod.
2
3
4
5
6
7
8
log capital−labor ratio, 1998
Notes: Data on employment growth and capital-labor ratio are from the INEGI Economic Censuses from 1989 and
1999 (containing information from previous year). Each symbol represents a 4-digit industry in the North American
Industrial Classification System (NAICS). The size of the symbols reflect employment in the industry in 1998. The
fitted regression line is weighted by employment in 1998. A similar graph (using a different industry classification)
appeared as Figure A2 of Verhoogen (2008).
Trade Policy and Industrial Development
Eric Verhoogen
Introduction
Inter- and Intra-Sectoral Resource Shifts
Pattern of Specialization and Innovation
Conclusion
2
Employment Growth vs. Skill Intensity, 1998-2008
Apparel & textile prod.
Transportation equip.
−.5
0
.5
1
Other 4−digit NAICS industries
−1.5
−1
change in log(employment), 1998−2008
1.5
Electrical/electronic prod.
0
.1
.2
.3
.4
.5
.6
Share >=12 yrs education (in large plants), 1998
Notes: Data on employment growth are from the INEGI Economic Censuses from 1989 and 1999 (containing
information from previous year). Data on schooling are from 1999 ENESTyC. Each symbol represents a 4-digit
industry in the North American Industrial Classification System (NAICS). The size of the symbols reflect
employment in the industry in 1998. The fitted regression line is weighted by employment in 1998.
Trade Policy and Industrial Development
Eric Verhoogen
Introduction
Inter- and Intra-Sectoral Resource Shifts
Pattern of Specialization and Innovation
Conclusion
2
Employment Growth vs. Capital Intensity, 1998-2008
Apparel & textile prod.
Transportation equip.
−.5
0
.5
1
Other 4−digit NAICS industries
−1.5
−1
change in log(employment), 1998−2008
1.5
Electrical/electronic prod.
2
3
4
5
6
7
8
log capital−labor ratio, 1998
Notes: Data on employment growth are from the INEGI Economic Censuses from 1989 and 1999 (containing
information from previous year). Data on schooling are from 1999 ENESTyC. Each symbol represents a 4-digit
industry in the North American Industrial Classification System (NAICS). The size of the symbols reflect
employment in the industry in 1998. The fitted regression line is weighted by employment in 1998.
Trade Policy and Industrial Development
Eric Verhoogen
Introduction
Inter- and Intra-Sectoral Resource Shifts
Pattern of Specialization and Innovation
Conclusion
Maquiladora and Total Industry Employment
Employment (thousands)
200
400
Employment (thousands)
200
400
600
Electrical and Electronic Equipment
600
Apparel
all NAICS 315
1995
2000
2005
2010
All NAICS 334 and 335
maquiladoras
0
0
maquiladoras
1990
1990
1995
2000
2005
2010
Employment (thousands)
200
400
600
Transportation Equipment
All NAICS 336
0
maquiladoras
1990
1995
2000
2005
2010
Notes: Maquiladora employment from EMIME for 1988-2006; total industry employment from Economic Censuses
of 1989, 1994, 1999, 2004, and 2009. Apparel and textile products (maquila group 2) mapped to NAICS 315
(apparel manufacturing); transportation equipment (maquila group 6) to NAICS 336 (transportation equipment
manufacturing); electrical and electronic equipment (maquila groups 8 and 9) to NAICS 334 and 335 (computer
and electronic equipment; and electrical equipment, appliances, and components).
Trade Policy and Industrial Development
Eric Verhoogen
Introduction
Inter- and Intra-Sectoral Resource Shifts
Pattern of Specialization and Innovation
Conclusion
Means by Sub-Sector: Apparel, Elect. & Trans. Equip.
non-maquiladoras
Employment
non-exporters
(1)
exporters
(2)
maquiladoras
(3)
315.43
(8.23)
0.08
(0.01)
254.26
(19.11)
0.28
(0.01)
70.18
(0.56)
7.86
(0.04)
3.59
(0.06)
7.45
(0.14)
41.47
(1.22)
6.25
(0.09)
438.97
(11.07)
30.81
(0.72)
0.29
(0.01)
309.07
(14.45)
0.32
(0.01)
70.75
(0.46)
8.15
(0.04)
3.92
(0.05)
9.32
(0.15)
40.54
(1.06)
6.59
(0.08)
969.67
(30.02)
96.52
(0.63)
0.84
(0.02)
54.87
(7.18)
0.19
(0.01)
83.04
(0.63)
7.37
(0.06)
3.83
(0.10)
9.33
(0.27)
72.37
(2.66)
3.53
(0.08)
1423
1774
557
Export percentage of sales
Foreign ownership indicator
Capital-labor ratio
Share with >= 12 years schooling
Percentage blue-collar
Years of schooling, blue-collar
Blue-collar hourly wage
White-collar hourly wage
Turnover rate
Tenure (years)
N
Notes: Standard errors of means in parentheses. Sample is plants with ≥ 100 employees in 1999 ENESTyC.
Capital-labor ratio measured in thousands of 1998 pesos; blue-collar and white-collar hourly wage in 1998 pesos.
Average 1998 nominal exchange rate: 9.1 pesos/dollar.
Apparel
Transport Equip.
Electronics
Trade Policy and Industrial Development
Eric Verhoogen
Introduction
Inter- and Intra-Sectoral Resource Shifts
Pattern of Specialization and Innovation
Conclusion
The Story So Far
I From 1988-1998, manufacturing sector specialized in less
capital- and skill-intensive activities, both across sectors and
within sectors (i.e. to maquilas).
Trade Policy and Industrial Development
Eric Verhoogen
Introduction
Inter- and Intra-Sectoral Resource Shifts
Pattern of Specialization and Innovation
Conclusion
The Story So Far
I From 1988-1998, manufacturing sector specialized in less
capital- and skill-intensive activities, both across sectors and
within sectors (i.e. to maquilas).
I From 1998-2008, these sectors/subsectors tended to stagnate.
Trade Policy and Industrial Development
Eric Verhoogen
Introduction
Inter- and Intra-Sectoral Resource Shifts
Pattern of Specialization and Innovation
Conclusion
The Story So Far
I From 1988-1998, manufacturing sector specialized in less
capital- and skill-intensive activities, both across sectors and
within sectors (i.e. to maquilas).
I From 1998-2008, these sectors/subsectors tended to stagnate.
I Researchers have also documented within-industry pressures
to upgrade (Lopez Cordova, 2003; Verhoogen, 2008).
I But first-order effect of liberalization seems to have been the
standard Heckscher-Ohlin effect.
Trade Policy and Industrial Development
Eric Verhoogen
Introduction
Inter- and Intra-Sectoral Resource Shifts
Pattern of Specialization and Innovation
Conclusion
Role of China
I A common explanation: Mexico had bad luck.
I Just as Mexico was poised to grow, China entered.
I China had similar pattern of specialization in exports to U.S.
Trade Policy and Industrial Development
Eric Verhoogen
Introduction
Inter- and Intra-Sectoral Resource Shifts
Pattern of Specialization and Innovation
Conclusion
Role of China
I A common explanation: Mexico had bad luck.
I Just as Mexico was poised to grow, China entered.
I China had similar pattern of specialization in exports to U.S.
I There is definitely evidence to support the China story:
I Utar and Torres Ruiz (2013).
I Kumler (2014): applies approach of Autor, Dorn and Hanson
(2013) in Mexico.
I Lopez Cordova, Micco and Molina (2008), Hanson and
Robertson (2010), Hsieh and Ossa (2011).
China-Mexico export similarity
Trade Policy and Industrial Development
US import shares
Eric Verhoogen
Introduction
Inter- and Intra-Sectoral Resource Shifts
Pattern of Specialization and Innovation
Conclusion
Role of China
I A common explanation: Mexico had bad luck.
I Just as Mexico was poised to grow, China entered.
I China had similar pattern of specialization in exports to U.S.
I There is definitely evidence to support the China story:
I Utar and Torres Ruiz (2013).
I Kumler (2014): applies approach of Autor, Dorn and Hanson
(2013) in Mexico.
I Lopez Cordova, Micco and Molina (2008), Hanson and
Robertson (2010), Hsieh and Ossa (2011).
China-Mexico export similarity
US import shares
I But here I would like to argue that China is not the whole
story, that Mexico would have had problems even if China had
not entered.
Trade Policy and Industrial Development
Eric Verhoogen
Introduction
Inter- and Intra-Sectoral Resource Shifts
Pattern of Specialization and Innovation
Conclusion
Pattern of Specialization and Innovation
I Old-fashioned idea (Prebisch, 1950; Matsuyama, 1992;
Harrison and Rodrı́guez-Clare, 2010):
I Different activities are associated with different inherent rates
of innovation, productivity growth.
I Liberalization changes to pattern of specialization, may lead to
specialization in non-dynamic activities.
Trade Policy and Industrial Development
Eric Verhoogen
Introduction
Inter- and Intra-Sectoral Resource Shifts
Pattern of Specialization and Innovation
Conclusion
R&D Measure, ENESTyC 1999
I Survey asked: “Since 1997, has the establishment undertaken
R&D?”
I (If yes) “What did the R&D principally consist of?”
“Design of new products”
“Process improvements”
“Product quality improvements”
“Design/Improvement/Manufacture of machinery or
equipment”
I “Other”
I
I
I
I
I N.B.: This is a broad, inclusive definition of R&D, not just
patents.
I Not perfect, but not bad as a first pass.
I Code as 0/1.
Trade Policy and Industrial Development
Eric Verhoogen
Introduction
Inter- and Intra-Sectoral Resource Shifts
Pattern of Specialization and Innovation
Conclusion
.5
Share of plants performing R&D, 1998
1
R&D Intensity vs Skill Intensity, 1998
Apparel & textile prod.
Transportation equip.
Electrical/electronic prod.
0
Other 4−digit NAICS industries
0
.1
.2
.3
.4
.5
.6
Share >= 12 years schooling, 1998
Notes: Size of plotting symbols reflects employment in industry. The fitted regression line is weighted by
employment. The estimated slope is 0.53 with standard error 0.13; the R2 is 0.16. Industry-level averages are for
large plants (≥ 100 employees).
Trade Policy and Industrial Development
Eric Verhoogen
Introduction
Inter- and Intra-Sectoral Resource Shifts
Pattern of Specialization and Innovation
Conclusion
.5
Share of plants performing R&D, 1998
1
R&D Intensity vs Capital Intensity, 1998
Apparel & textile prod.
Transportation equip.
Electrical/electronic prod.
0
Other 4−digit NAICS industries
2
3
4
5
6
7
8
log capital−labor ratio, 1998
Notes: Size of plotting symbols reflects employment in industry. The fitted regression line is weighted by
employment. The estimated slope is 0.05 with standard error 0.01; the R2 is 0.14. Industry-level averages are for
large plants (≥ 100 employees).
Trade Policy and Industrial Development
Eric Verhoogen
Introduction
Inter- and Intra-Sectoral Resource Shifts
Pattern of Specialization and Innovation
Conclusion
R&D Intensity by Sector
non-maquiladoras
All manufacturing
Apparel
Electrical and Electronic Products
Transportation Equipment
non-exporters
(1)
exporters
(2)
maquiladoras
(3)
0.36
(0.01)
0.19
(0.03)
0.35
(0.07)
0.40
(0.07)
0.50
(0.01)
0.33
(0.04)
0.54
(0.04)
0.62
(0.04)
0.41
(0.02)
0.34
(0.05)
0.45
(0.03)
0.54
(0.10)
Source: ENESTyC 1999.
Trade Policy and Industrial Development
Eric Verhoogen
Introduction
Inter- and Intra-Sectoral Resource Shifts
Pattern of Specialization and Innovation
Conclusion
Alternative Innovation Measure I: Patents per Capita
INNOVATION IN MEXICO: NAFTA IS NOT ENOUGH
251
Figure 6.2 Patents per Million Workers, 1960–2000
4.5
4.0
3.5
3.0
2.5
2.0
1.5
1.0
0
19
80
s
19
90
–9
4
19
95
–2
00
0
19
70
s
19
60
s
94
19
95
–2
00
0
19
80
s
19
90
–
19
70
s
19
60
s
80
70
60
50
40
30
20
10
0
East Asia
Latin America and the Caribbean
Mexico
Republic of Korea
120
450
400
350
300
250
200
150
100
50
0
100
80
60
40
20
United States
Canada
19
90
–9
4
19
95
–2
00
0
19
80
s
19
70
s
19
60
s
19
90
–9
4
19
95
–2
00
0
19
80
s
19
70
s
19
60
s
0
High-income countries
Source: U.S. Office of Patents and Trademarks.
Notes: From Lederman, Maloney and Servén (2005), based on data from the U.S. Office of Patents and
Trademarks.
global and long time coverage, and especially because it is commonly
understood that the United States offers perhaps the most advanced lev-
Trade Policy and Industrial Development
Eric Verhoogen
Introduction
Inter- and Intra-Sectoral Resource Shifts
Pattern of Specialization and Innovation
Conclusion
Alternative Innovation Measure II: R&D Spending/GDP
Country
R&D spending/GDP (%)
Mexico
Chile
China
Korea
U.S.
Canada
.38
.65
.65
2.34
2.59
1.76
Notes: Data from World Bank World Development Indicators for 1998.
Trade Policy and Industrial Development
Eric Verhoogen
Introduction
Inter- and Intra-Sectoral Resource Shifts
Pattern of Specialization and Innovation
Conclusion
Summary
I Integration led Mexico to specialize in less capital- and
skill-intensive activities, both across and within sectors.
Trade Policy and Industrial Development
Eric Verhoogen
Introduction
Inter- and Intra-Sectoral Resource Shifts
Pattern of Specialization and Innovation
Conclusion
Summary
I Integration led Mexico to specialize in less capital- and
skill-intensive activities, both across and within sectors.
I These sectors that Mexico tended to be less innovative.
I This did not have to be true. But the correlation appears quite
robust.
Trade Policy and Industrial Development
Eric Verhoogen
Introduction
Inter- and Intra-Sectoral Resource Shifts
Pattern of Specialization and Innovation
Conclusion
Summary
I Integration led Mexico to specialize in less capital- and
skill-intensive activities, both across and within sectors.
I These sectors that Mexico tended to be less innovative.
I This did not have to be true. But the correlation appears quite
robust.
I The sectoral shifts thus tended to dampen the overall rate of
innovation in the economy.
Trade Policy and Industrial Development
Eric Verhoogen
Introduction
Inter- and Intra-Sectoral Resource Shifts
Pattern of Specialization and Innovation
Conclusion
Summary
I Integration led Mexico to specialize in less capital- and
skill-intensive activities, both across and within sectors.
I These sectors that Mexico tended to be less innovative.
I This did not have to be true. But the correlation appears quite
robust.
I The sectoral shifts thus tended to dampen the overall rate of
innovation in the economy.
I What if China had not entered?
Trade Policy and Industrial Development
Eric Verhoogen
Introduction
Inter- and Intra-Sectoral Resource Shifts
Pattern of Specialization and Innovation
Conclusion
Summary
I Integration led Mexico to specialize in less capital- and
skill-intensive activities, both across and within sectors.
I These sectors that Mexico tended to be less innovative.
I This did not have to be true. But the correlation appears quite
robust.
I The sectoral shifts thus tended to dampen the overall rate of
innovation in the economy.
I What if China had not entered?
I We don’t observe the counterfactual, but my sense is that
there would always be another country moving up the product
ladder — Malaysia, Thailand, Indonesia, ... Vietnam.
Trade Policy and Industrial Development
Eric Verhoogen
Introduction
Inter- and Intra-Sectoral Resource Shifts
Pattern of Specialization and Innovation
Conclusion
General Lessons
I More research is needed, needless to say.
Trade Policy and Industrial Development
Eric Verhoogen
Introduction
Inter- and Intra-Sectoral Resource Shifts
Pattern of Specialization and Innovation
Conclusion
General Lessons
I More research is needed, needless to say.
I But patterns suggest that there may be a trade-off between
static allocative efficiency and long-term productivity growth.
I Liberalization alone may not to be enough to bring about
sustained growth.
Trade Policy and Industrial Development
Eric Verhoogen
Introduction
Inter- and Intra-Sectoral Resource Shifts
Pattern of Specialization and Innovation
Conclusion
General Lessons
I More research is needed, needless to say.
I But patterns suggest that there may be a trade-off between
static allocative efficiency and long-term productivity growth.
I Liberalization alone may not to be enough to bring about
sustained growth.
I There is a strong case for interventions to promote the sorts
of activities that generate innovation and productivity growth,
both across and within sectors.
I Argument relies on the idea that innovation generates positive
externalities. (With co-authors, I am examining such spillovers
among soccer-ball producers in Pakistan (Atkin et al., 2014).)
Trade Policy and Industrial Development
Eric Verhoogen
Introduction
Inter- and Intra-Sectoral Resource Shifts
Pattern of Specialization and Innovation
Conclusion
Caveats
1. Such interventions need not be at the border, in the form of
trade policy.
Trade Policy and Industrial Development
Eric Verhoogen
Introduction
Inter- and Intra-Sectoral Resource Shifts
Pattern of Specialization and Innovation
Conclusion
Caveats
1. Such interventions need not be at the border, in the form of
trade policy.
I Well-established principle: better to address the market failure
at the source. In this case, by subsidizing innovative activities.
Trade Policy and Industrial Development
Eric Verhoogen
Introduction
Inter- and Intra-Sectoral Resource Shifts
Pattern of Specialization and Innovation
Conclusion
Caveats
1. Such interventions need not be at the border, in the form of
trade policy.
I Well-established principle: better to address the market failure
at the source. In this case, by subsidizing innovative activities.
I WTO limits ability to conduct industrial policy through taxes,
restrictions at the border in any case.
Trade Policy and Industrial Development
Eric Verhoogen
Introduction
Inter- and Intra-Sectoral Resource Shifts
Pattern of Specialization and Innovation
Conclusion
Caveats
1. Such interventions need not be at the border, in the form of
trade policy.
I Well-established principle: better to address the market failure
at the source. In this case, by subsidizing innovative activities.
I WTO limits ability to conduct industrial policy through taxes,
restrictions at the border in any case.
2. Government officials have no special knowledge about which
sectors/firms/ideas/technologies are going to be successful in
the future.
I Indeed, even the best-intentioned officials are often less well
informed than businesspeople in the relevant industry.
Trade Policy and Industrial Development
Eric Verhoogen
Introduction
Inter- and Intra-Sectoral Resource Shifts
Pattern of Specialization and Innovation
Conclusion
Broad-Based Policies
I Common approach is to focus on policies that provide
broad-based (sometimes called “horizontal” (Lederman and
Maloney, 2012)) support for innovative activities:
Trade Policy and Industrial Development
Eric Verhoogen
Introduction
Inter- and Intra-Sectoral Resource Shifts
Pattern of Specialization and Innovation
Conclusion
Broad-Based Policies
I Common approach is to focus on policies that provide
broad-based (sometimes called “horizontal” (Lederman and
Maloney, 2012)) support for innovative activities:
I Infrastructure
Trade Policy and Industrial Development
Eric Verhoogen
Introduction
Inter- and Intra-Sectoral Resource Shifts
Pattern of Specialization and Innovation
Conclusion
Broad-Based Policies
I Common approach is to focus on policies that provide
broad-based (sometimes called “horizontal” (Lederman and
Maloney, 2012)) support for innovative activities:
I Infrastructure
I Technical/vocational education
Trade Policy and Industrial Development
Eric Verhoogen
Introduction
Inter- and Intra-Sectoral Resource Shifts
Pattern of Specialization and Innovation
Conclusion
Broad-Based Policies
I Common approach is to focus on policies that provide
broad-based (sometimes called “horizontal” (Lederman and
Maloney, 2012)) support for innovative activities:
I Infrastructure
I Technical/vocational education
I Removal of restrictions on imports of high-quality/high-tech
imported inputs.
Trade Policy and Industrial Development
Eric Verhoogen
Introduction
Inter- and Intra-Sectoral Resource Shifts
Pattern of Specialization and Innovation
Conclusion
Broad-Based Policies
I Common approach is to focus on policies that provide
broad-based (sometimes called “horizontal” (Lederman and
Maloney, 2012)) support for innovative activities:
I Infrastructure
I Technical/vocational education
I Removal of restrictions on imports of high-quality/high-tech
imported inputs.
I A number of policies along these lines are already in place in
Vietnam.
Trade Policy and Industrial Development
Eric Verhoogen
Introduction
Inter- and Intra-Sectoral Resource Shifts
Pattern of Specialization and Innovation
Conclusion
Targeted Policies
I Targeted policies are inherently more subject to corruption,
capture, plain old mistargeting. But if implemented well they
can be very effective.
Trade Policy and Industrial Development
Eric Verhoogen
Introduction
Inter- and Intra-Sectoral Resource Shifts
Pattern of Specialization and Innovation
Conclusion
Targeted Policies
I Targeted policies are inherently more subject to corruption,
capture, plain old mistargeting. But if implemented well they
can be very effective.
I Good examples: Law on Corporate Income Tax (2009) and
Law 31 (2014) provide preferential tax treatment for
investments in:
I
I
I
I
I
I
I
I
high technology
scientific research
technology development
computer software
environmental protection
high-grade steel
energy-saving products
machinery and equipment for primary industries
Trade Policy and Industrial Development
Eric Verhoogen
Introduction
Inter- and Intra-Sectoral Resource Shifts
Pattern of Specialization and Innovation
Conclusion
Targeted Policies (cont.)
I Mexican experience suggests that such policies are
well-advised, pressures from market “fundamentalists”
notwithstanding.
Trade Policy and Industrial Development
Eric Verhoogen
Introduction
Inter- and Intra-Sectoral Resource Shifts
Pattern of Specialization and Innovation
Conclusion
Targeted Policies (cont.)
I Mexican experience suggests that such policies are
well-advised, pressures from market “fundamentalists”
notwithstanding.
I This is not a blanket endorsement of intervention. Many
heavy-handed interventions produce more distortions,
rent-seeking than growth.
Trade Policy and Industrial Development
Eric Verhoogen
Introduction
Inter- and Intra-Sectoral Resource Shifts
Pattern of Specialization and Innovation
Conclusion
Targeted Policies (cont.)
I Mexican experience suggests that such policies are
well-advised, pressures from market “fundamentalists”
notwithstanding.
I This is not a blanket endorsement of intervention. Many
heavy-handed interventions produce more distortions,
rent-seeking than growth.
I But recent liberalization of trade policy makes it even more
crucial to find smart ways promote innovative activities.
Trade Policy and Industrial Development
Eric Verhoogen
Introduction
Inter- and Intra-Sectoral Resource Shifts
Pattern of Specialization and Innovation
Conclusion
Targeted Policies (cont.)
I Mexican experience suggests that such policies are
well-advised, pressures from market “fundamentalists”
notwithstanding.
I This is not a blanket endorsement of intervention. Many
heavy-handed interventions produce more distortions,
rent-seeking than growth.
I But recent liberalization of trade policy makes it even more
crucial to find smart ways promote innovative activities.
I Clean, rigorous evidence on effects (positive or negative) of
industrial policies is relatively scarce. We need more research!
Trade Policy and Industrial Development
Eric Verhoogen
Introduction
Inter- and Intra-Sectoral Resource Shifts
Pattern of Specialization and Innovation
Conclusion
Idea Worth Exploring: Matching Grants
I Currently, main instrument of industrial policy in Vietnam
appears to be favorable tax treatment for pre-selected sectors.
I Presumes knowledge by policy-makers about promising sectors.
Trade Policy and Industrial Development
Eric Verhoogen
Introduction
Inter- and Intra-Sectoral Resource Shifts
Pattern of Specialization and Innovation
Conclusion
Idea Worth Exploring: Matching Grants
I Currently, main instrument of industrial policy in Vietnam
appears to be favorable tax treatment for pre-selected sectors.
I Presumes knowledge by policy-makers about promising sectors.
I Possible alternative: Matching grants.
Trade Policy and Industrial Development
Eric Verhoogen
Introduction
Inter- and Intra-Sectoral Resource Shifts
Pattern of Specialization and Innovation
Conclusion
Idea Worth Exploring: Matching Grants
I Currently, main instrument of industrial policy in Vietnam
appears to be favorable tax treatment for pre-selected sectors.
I Presumes knowledge by policy-makers about promising sectors.
I Possible alternative: Matching grants.
I Firms propose innovative projects, aimed at increasing exports.
Trade Policy and Industrial Development
Eric Verhoogen
Introduction
Inter- and Intra-Sectoral Resource Shifts
Pattern of Specialization and Innovation
Conclusion
Idea Worth Exploring: Matching Grants
I Currently, main instrument of industrial policy in Vietnam
appears to be favorable tax treatment for pre-selected sectors.
I Presumes knowledge by policy-makers about promising sectors.
I Possible alternative: Matching grants.
I Firms propose innovative projects, aimed at increasing exports.
I External panel from industry, academia select promising ones.
Trade Policy and Industrial Development
Eric Verhoogen
Introduction
Inter- and Intra-Sectoral Resource Shifts
Pattern of Specialization and Innovation
Conclusion
Idea Worth Exploring: Matching Grants
I Currently, main instrument of industrial policy in Vietnam
appears to be favorable tax treatment for pre-selected sectors.
I Presumes knowledge by policy-makers about promising sectors.
I Possible alternative: Matching grants.
I Firms propose innovative projects, aimed at increasing exports.
I External panel from industry, academia select promising ones.
I Fund offers co-financing.
Trade Policy and Industrial Development
Eric Verhoogen
Introduction
Inter- and Intra-Sectoral Resource Shifts
Pattern of Specialization and Innovation
Conclusion
Idea Worth Exploring: Matching Grants
I Currently, main instrument of industrial policy in Vietnam
appears to be favorable tax treatment for pre-selected sectors.
I Presumes knowledge by policy-makers about promising sectors.
I Possible alternative: Matching grants.
I
I
I
I
Firms propose innovative projects, aimed at increasing exports.
External panel from industry, academia select promising ones.
Fund offers co-financing.
Exports used as target for evaluation of success of grants, basis
for future grants to same firm.
Trade Policy and Industrial Development
Eric Verhoogen
Introduction
Inter- and Intra-Sectoral Resource Shifts
Pattern of Specialization and Innovation
Conclusion
Idea Worth Exploring: Matching Grants
I Currently, main instrument of industrial policy in Vietnam
appears to be favorable tax treatment for pre-selected sectors.
I Presumes knowledge by policy-makers about promising sectors.
I Possible alternative: Matching grants.
I
I
I
I
Firms propose innovative projects, aimed at increasing exports.
External panel from industry, academia select promising ones.
Fund offers co-financing.
Exports used as target for evaluation of success of grants, basis
for future grants to same firm.
I Matching grants place less ex-ante burden on knowledge of
policy-makers, perhaps at greater risk of capture, corruption.
Trade Policy and Industrial Development
Eric Verhoogen
Introduction
Inter- and Intra-Sectoral Resource Shifts
Pattern of Specialization and Innovation
Conclusion
Idea Worth Exploring: Matching Grants (cont.)
I Caveat: Not all projects are going to succeed.
I Government needs to think a bit more like a venture capitalist.
One successful project out of 10 or 20 can justify program.
Trade Policy and Industrial Development
Eric Verhoogen
Introduction
Inter- and Intra-Sectoral Resource Shifts
Pattern of Specialization and Innovation
Conclusion
Idea Worth Exploring: Matching Grants (cont.)
I Caveat: Not all projects are going to succeed.
I Government needs to think a bit more like a venture capitalist.
One successful project out of 10 or 20 can justify program.
I In Pakistan, with co-authors I have been working with the
government of the province of Punjab to develop an
Innovation Development Fund along these lines. Stay tuned
for results.
Trade Policy and Industrial Development
Eric Verhoogen
Introduction
Inter- and Intra-Sectoral Resource Shifts
Pattern of Specialization and Innovation
Conclusion
References I
Arias, Javier, Oliver Azuara, Pedro Bernal, James J. Heckman, and Cajeme Villarreal, “Policies To Promote Growth
and Economic Efficiency in Mexico,” 2010. NBER working paper no. 16554.
Atkin, David, Azam Chaudhry, Shamyla Chaudry, Amit K. Khandelwal, and Eric Verhoogen, “Organizational
Barriers to Technology Adoption: Evidence from Soccer-Ball Producers in Pakistan,” 2014. Mimeo, Columbia
University.
Autor, David H., David Dorn, and Gordon H. Hanson, “The China Syndrome: Local Labor Market Effects of
Import Competition in the United States,” American Economic Review, 2013, 103 (6), 2121–68.
Devlin, Robert, Antoni Estevadeordal, and Andres Rodriguez-Clare, The Emergence of China: Challenges and
Opportunities for Latin America and the Carribean, Harvard University Press, 2006.
Haber, Stephen, “Why Institutions Matter: Banking and Economic Growth in Mexico,” 2004. Stanford Center for
International Development working paper no. 234.
Hanson, Gordon H., “Why Isn’t Mexico Rich?.,” Journal of Economic Literature, 2010, 48 (4), 987 – 1004.
and Raymond Robertson, “China and the Manufacturing Exports of Other Developing Countries,” in “China’s
Growing Role in World Trade,” NBER Conference Report series. Chicago and London: University of Chicago
Press, 2010, pp. 137 – 159.
Harrison, Ann and Andrés Rodrı́guez-Clare, “Trade, Foreign Investment, and Industrial Policy in Developing
Countries,” in Dani Rodrik and Mark Rosenzweig, eds., Handbook of Development Economics, vol. 5,
North-Holland, 2010, pp. 4039–4214.
Hsieh, Chang-Tai and Ralph Ossa, “A Global View of Productivity Growth in China,” 2011. NBER working paper
no. 16778.
Trade Policy and Industrial Development
Eric Verhoogen
Introduction
Inter- and Intra-Sectoral Resource Shifts
Pattern of Specialization and Innovation
Conclusion
References II
Kehoe, Timothy J. and Kim J. Ruhl, “Why Have Economic Reforms in Mexico Not Generated Growth?.,” Journal
of Economic Literature, 2010, 48 (4), 1005 – 1027.
Krueger, Anne, “NAFTA’s Effects: A Preliminary Assessment,” World Economy, June 2000, 23 (6), 761–75.
Kumler, Todd, “Chinese Competition and Mexican Labor Markets,” 2014. Unpub. paper, Columbia University.
Lederman, Daniel and William Maloney, Does What You Export Matter? In Search of Empirical Guidance for
Industrial Policies, Washington DC: The World Bank, 2012.
,
, and Luis Servén, Lessons from NAFTA for Latin America and the Caribbean, Stanford CA: Stanford
University Press, 2005.
Levy, Santiago, Good Intentions, Bad Outcomes: Social Policy, Informality and Economic Growth in Mexico,
Brookings Institution Press, Washington D.C., 2008.
Lopez Cordova, Ernesto, “NAFTA and Manufacturing Productivity in Mexico,” Economia: Journal of the Latin
American and Caribbean Economic Association, 2003, 4 (1), 55 – 88.
, Alejandro Micco, and Danielken Molina, “How Sensitive Are Latin American Exports to Chinese Competition
in the U.S. Market?,” Economia: Journal of the Latin American and Caribbean Economic Association, 2008, 8
(2), 117 –.
Matsuyama, Kiminori, “Agricultural Productivity, Comparative Advantage, and Economic Growth,” Journal of
Economic Theory, 1992, 58.
Prebisch, Raul, “The Economic Development of Latin America and its Principal Problems,” 1950. New York:
United Nations, Reprinted in Economic Bulletin for Latin America in 1962.
Trade Policy and Industrial Development
Eric Verhoogen
Introduction
Inter- and Intra-Sectoral Resource Shifts
Pattern of Specialization and Innovation
Conclusion
References III
Utar, Hale and Luis B. Torres Ruiz, “International Competition and Industrial Evolution: Evidence from the Impact
of Chinese Competition on Mexican Maquiladoras,” Journal of Development Economics, 2013, 105, 267 – 287.
Verhoogen, Eric, “Trade, Quality Upgrading and Wage Inequality in the Mexican Manufacturing Sector,” Quarterly
Journal of Economics, 2008, 123 (2), 489–530.
Trade Policy and Industrial Development
Eric Verhoogen
Introduction
Inter- and Intra-Sectoral Resource Shifts
Trade Policy and Industrial Development
Pattern of Specialization and Innovation
Conclusion
Eric Verhoogen
Introduction
Inter- and Intra-Sectoral Resource Shifts
Pattern of Specialization and Innovation
Conclusion
Means by Sub-Sector: Apparel
non-maquiladoras
Employment
non-exporters
(1)
exporters
(2)
maquiladoras
(3)
260.19
(17.90)
0.02
(0.01)
64.96
(29.22)
0.15
(0.02)
84.66
(1.62)
7.25
(0.16)
2.34
(0.13)
5.50
(0.44)
55.17
(4.51)
4.91
(0.31)
460.66
(39.51)
46.93
(3.53)
0.05
(0.02)
48.38
(8.87)
0.18
(0.02)
82.91
(1.46)
7.40
(0.14)
2.43
(0.11)
6.38
(0.55)
60.19
(5.44)
4.45
(0.29)
813.88
(57.79)
97.40
(1.13)
0.60
(0.05)
28.90
(7.56)
0.14
(0.01)
88.48
(1.18)
7.21
(0.14)
3.03
(0.17)
6.84
(0.50)
60.20
(4.90)
3.29
(0.16)
112
105
111
Export percentage of sales
Foreign ownership indicator
Capital-labor ratio
Share with >= 12 years schooling
Percentage blue-collar
Years of schooling, blue-collar
Blue-collar hourly wage
White-collar hourly wage
Turnover rate
Tenure (years)
N
Notes: Standard errors of means in parentheses. Sample is plants with ≥ 100 employees in 1999 ENESTyC.
Capital-labor ratio measured in thousands of 1998 pesos; blue-collar and white-collar hourly wage in 1998 pesos.
Average 1998 nominal exchange rate: 9.1 pesos/dollar.
Return
Trade Policy and Industrial Development
Eric Verhoogen
Introduction
Inter- and Intra-Sectoral Resource Shifts
Pattern of Specialization and Innovation
Conclusion
Means by Sub-Sector: Transportation Equipment
non-maquiladoras
Employment
non-exporters
(1)
exporters
(2)
maquiladoras
(3)
344.24
(46.90)
0.28
(0.07)
212.92
(90.57)
0.27
(0.02)
75.35
(1.89)
7.79
(0.19)
3.55
(0.26)
7.24
(0.61)
45.99
(7.59)
5.37
(0.34)
637.01
(52.91)
41.32
(2.68)
0.49
(0.04)
294.49
(46.77)
0.34
(0.02)
73.40
(1.01)
8.60
(0.12)
4.73
(0.22)
11.17
(0.52)
33.11
(3.18)
6.88
(0.28)
1342.07
(82.97)
96.33
(1.28)
0.97
(0.02)
57.30
(22.49)
0.20
(0.01)
84.29
(1.48)
7.43
(0.14)
3.64
(0.19)
9.81
(0.65)
69.47
(6.74)
3.74
(0.20)
46
141
92
Export percentage of sales
Foreign ownership indicator
Capital-labor ratio
Share with >= 12 years schooling
Percentage blue-collar
Years of schooling, blue-collar
Blue-collar hourly wage
White-collar hourly wage
Turnover rate
Tenure (years)
N
Notes: Standard errors of means in parentheses. Sample is plants with ≥ 100 employees in 1999 ENESTyC.
Capital-labor ratio measured in thousands of 1998 pesos; blue-collar and white-collar hourly wage in 1998 pesos.
Average 1998 nominal exchange rate: 9.1 pesos/dollar.
Return
Trade Policy and Industrial Development
Eric Verhoogen
Introduction
Inter- and Intra-Sectoral Resource Shifts
Pattern of Specialization and Innovation
Conclusion
Means by Sub-Sector: Electrical/Electronic Equipment
non-maquiladoras
Employment
non-exporters
(1)
exporters
(2)
maquiladoras
(3)
334.83
(105.70)
0.25
(0.09)
132.03
(74.50)
0.29
(0.04)
73.35
(3.56)
8.03
(0.27)
3.04
(0.25)
8.74
(1.00)
39.68
(5.52)
6.18
(0.64)
585.75
(56.59)
39.94
(3.33)
0.52
(0.05)
223.10
(26.16)
0.31
(0.02)
71.88
(1.57)
8.52
(0.12)
3.84
(0.17)
10.17
(0.53)
41.19
(4.09)
6.21
(0.29)
1081.90
(51.35)
98.24
(0.78)
0.92
(0.02)
68.35
(14.69)
0.22
(0.01)
80.79
(1.06)
7.54
(0.09)
4.15
(0.17)
10.82
(0.48)
73.60
(4.56)
3.50
(0.12)
24
109
191
Export percentage of sales
Foreign ownership indicator
Capital-labor ratio
Share with >= 12 years schooling
Percentage blue-collar
Years of schooling, blue-collar
Blue-collar hourly wage
White-collar hourly wage
Turnover rate
Tenure (years)
N
Notes: Standard errors of means in parentheses. Sample is plants with ≥ 100 employees in 1999 ENESTyC.
Capital-labor ratio measured in thousands of 1998 pesos; blue-collar and white-collar hourly wage in 1998 pesos.
Average 1998 nominal exchange rate: 9.1 pesos/dollar.
Return
Trade Policy and Industrial Development
Eric Verhoogen
Introduction
Inter- and Intra-Sectoral Resource Shifts
Pattern of Specialization and Innovation
US Import Shares fromHanson:
China,
Mexico
Why Isn’t Mexico Rich?
Conclusion
1001
0.1
Mexico
China
0.08
0.06
0.04
0.02
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
Year
Figure 2: Share of U.S. Manufacturing Imports
Source: Hanson (2010).
Return
comparative advantage in another third of
its products (including automobiles and auto
parts, industrial machinery, and ­beverages).
Trade Policy and Industrial Development
(2010) take a more theoretical approach,
introducing Ricardian productivity differences into a Marc J. Melitz (2003) model
Eric Verhoogen
The increasing similarity between the Chinese and Latin America export baskets is not unlike the
Introductiongrowth inInterand Intra-Sectoral
Resource
Shiftsexcluded) Pattern
ofAmerica.
Specialization
the similarity
between East
Asia (China
and Latin
Figureand
5.2 Innovation
shows the
Conclusion
ESI values between selected Latin American countries and regions and East Asia. The similarity of
exports between Latin America (particularly Brazil and Mexico) and East Asian economies was
relatively pronounced in the early-1990s; this similarity has increased during the same period,
particularly for Mexico and Latin America as a whole.6
Export Similarity between Mexico and China
Figure 5.2
Export Similarity between Selected Latin American Countries and
East Asia in the US Market, 1992-2002
45
40
35
Percent
30
25
20
15
10
5
0
Latin America
Argentina
1992
Brazil
Chile
1995
Colombia
2000
Mexico
Central America
2002
Source: IDB-INT calculations based on UN/Comtrade data.
Within manufacturing product categories, moreover, China’s export prices (measured in unit
values)
are generally
lower and
thanRodriguez-Clare
the prices received
by other developing economies in Latin America
Source:
Devlin,
Estevadeordal
(2006).
and Asia. The premium received by those countries over China is highest in machinery and lowest in
Return
apparel. One explanation for this differential is that products from those regions offer higher quality
or have more attributes than products from China, thereby raising their value. This would be
consistent with differences in comparative advantage: countries that are relatively abundant in human
Trade Policyand
andphysical
Industrial
Development
capital
can improve quality or add product features. A competing explanation is that the Eric Verhoogen