Latin America. and the Rising South. Changing World, Changing Priorities. Augusto de latorre, Tatjana Didier, Alain Ize,

Transcription

1 Latin America and the Rising South Changing World, Changing Priorities Augusto de latorre, Tatjana Didier, Alain Ize, Daniel Lederman, and Sergio L. Schmukler WORLD BANK GROUP

2 Contents Foreword Acknowledgments Abbreviations Overview 1 Changes at the center of the world economy 2 How the rise of the South conditioned development in Latin America and the Caribbean: An Interpretation 13 Changing world, new priorities 31 Structure of the report 35 Annex OA 35 Notes 36 References Three Global Trends That Shaped Latin American and Caribbean Development at the Dawn of the Twenty-First Century 41 Set of Facts 1: The weight of the South in the global economy has risen, particularly after 2000, but its rise has not been even across sectors or types of flows 42 Set of Facts 2: The rise of the South has had asymmetric effects on global trade and financial networks 50 Set of Facts 3: The structure of bilateral trade and financial connections of the South has been generally different from that of the North, with geography and endowments arguably shaping their evolving structure 58 Notes 68 References The Structure of Trade Linkages and Economic Growth 73 Trade and economic growth 75 The nature of traded goods 81 The nature of trading partners 98 Potential frictions affecting trade and growth dynamics 106 Annex 2A 117 Notes 118 References 123 xi xiii xv

3 vi CONTENTS 3. Big Emerging Markets, Big Labor Market Dislocations? 133 The rise of the South and the restructuring of global markets in manufacturing, agriculture, and mining 1^5 A closer look at manufactures exports and the role of China through the lens of export similarity 1 Recent trends in manufacturing employment in Latin America and the Caribbean 142 Labor market adjustment paths in response to the rise of China 143 Potential distributional implications of China-induced labor market adjustments 148 Concluding remarks 1-50 Notes 151 References The Changing Patterns of Financial Integration in Latin America and the Caribbean The role of Latin America and the Caribbean in international financial transactions Growth in the intensive and extensive margins 162 Financial flows and trade flows 176 Foreign direct Investment and GDP growth 181 Annex 4A 189 Notes 191 References Ascending with the South Winds: Will Low Saving in Latin America and the Caribbean Be a Drag? 197 Concepts and literature review: When does saving matter for trend growth? 202 Looking back: Latin America and the Caribbean under the spell of the interest rate Channel 205 Looking ahead: Growth-impairing effects of low saving through the exchange rate Channel 214 Annex 5A The Benchmarking Approach 219 Annex 5B 224 Notes 225 References 228 Boxes 1.1 Differences in international trade Integration: The case of Latin America and the Caribbean and Fast Asia Methodology of trade and growth regression estimations What has driven the dispersion of production tasks away from the North toward the South? Asymmetry in the use of temporary trade barriers Construction of the China effect index How do bilateral data compare with balance of payments data? How did the global financial crisis affect Investment in and by the region? Model setup and identification strategy Figures ^ 1 The rise of the South 2 The South's share of global trade flows 1

4 CONTENTS VÜ 0.3 The South's share of global capital inflows The global trade network Similarity and systemic importance in the global trade network The global financial network for syndicated bank loans Regional clustering in global value chains, Density maps of regional trade networks Composition of foreign assets and liabilities in the South, by region 12 O.IO Saving, investment, and the current account 13 O.ll Real U.S. interest rates Terms of trade within Latin America and the Caribbean Export similarity Indexes in manufacturing in Brazil and Mexico Effects of the rise of China on gross exports from Latin America and the Caribbean, by sector, average Sectoral composition of cross-border flows in Latin America and the Caribbean, average Exports of intermediate goods as share of total exports in three global value chains Backward and forward participation in global value chains, Employment shares in the formal and informal manufacturing sectors of Argentina, Brazil, and Mexico Evolution of wages in Brazil relative to wages in Mexico Responses to a positive global supply shock in Latin America and the Caribbean and other emerging market regions Responses to a global monetary easing in Latin America and the Caribbean and other emerging market regions Domestic saving, real exchange rates, and sovereign risk ratings, average Saving and real exchange rate gaps for higher-income countries in Latin America and the Caribbean Country ratings for selected country groups Sovereign risk rating, growth, and investment gaps, Rise of the South: Share of world GDP, trade, and capital flows Sectoral composition of trade flows Sectoral composition of financial flows across regions Composition of global financial flows across sectors Composition of foreign assets and liabilities in the South, by region Patterns of net Integration into the global economy Global trade and financial networks Similarity in global trade networks Structural equivalence of trade connections Extensive margin of South-South connections Regional composition of cross-border connections of countries in Latin America and the Caribbean Clusters in the global trade network Regional composition of cross-border Investments Regional clustering in global value chains, Sectoral composition of bilateral cross-border flows 64

5 Viii CONTENTS Bl.1.1 Density maps of trade networks Sectoral composition of cross-border flows for Latin America and the Caribbean 2.1 Intraindustry trade 2.2 Shares of traded goods of different factor intensities Growth of global value chains The rise of the South in selected global value chains Technological composition of exports from the South, by region Participation in global value chains Growth effects of the stage of the participation in global value chains The global trade network 2.9 Composition of trading partners Average cost of trading in Land transportation, by region, Ship and port activity, second half of Liner shipping Connectivity index in selected countries, Share of world air freight transport by selected countries, B2.3.1 Foreign targets of temporary trade barriers imposed by selected countries in Latin America and the Caribbean Global export market shares of selected large economies, by sector, 2001,2006, and Global import market shares of selected large economies, by sector, 2001,2006, and Export similarity Indexes in manufacturing for Argentina, Brazil, and Mexico, Effects of the rise of China on gross exports of selected countries in Latin America and the Caribbean, by sector, Employment shares in the formal and informal manufacturing sectors of Argentina, Brazil, and Mexico, before and after Simulated short- and long-run impacts of the rise of China on wages in Argentina, Brazil, and Mexico, by sector Simulated short- and long-run impacts of the rise of China on informal employment in Argentina, Brazil, and Mexico Simulated short- and long-run impacts of the rise of China on the residual sector in Argentina, Brazil, and Mexico Evolution of relative wages in Brazil to Mexico, B4.1.1 Comparison between bilateral and balance of payments account data on mergers and acquisitions and greenfield Investment, Cross-border Investment shares by Latin America and Caribbean (LAC) countries in North, South, and other LAC countries, by type of Investment, selected years Cross-border Investment shares by North, South, and Latin America and Caribbean (LAC) countries, by type of Investment, selected years Cross-border Investment to and from countries in Latin America and the Caribbean, selected years Cross-border holdings of and extensive margin for portfolio Investments ' Cross-border flows of and extensive margin for syndicated loans, s of and extensive margin for mergers and acquisitions, 168

6 CONTENTS ix 4.7 Cross-border flows of and extensive margin for greenfield investment, Extensive margin of cross-border financial flows within Latin America and the Caribbean, by type of investment, selected years Extensive margin of cross-border financial flows from Latin America and the Caribbean to countries in other regions of the South, by type of investment, selected years Sectoral composition of cross-border financial flows to and from Latin America and the Caribbean, by type of investment, selected years Sectoral composition of cross-border financial flows to and from Latin America and the Caribbean, by type of investment, average 178 4A.1 Number of active cross-border connections, by type of investment and region A.2 Sectoral composition of cross-border financial flows to and from Latin America and the Caribbean, by type of investment and subregion, average Growth paths of Latin America and the Southeast Asian Tigers, Growth rates in selected emerging economies, Domestic saving rates in selected economies, adjusted for per capita GDP, External competitiveness (Big Mac index), adjusted for per capita GDP, The three Channels linking saving and growth Saving rates of higher-income countries in Latin America and the Caribbean and middle-income countries in Southeast Asia Domestic saving and real exchange rate gaps Domestic saving and sovereign risk rating gaps Real exchange rate and growth gaps in selected country groups Saving and real exchange rate gaps for higher-income countries in Latin America and the Caribbean Saving and real exchange rate gaps in selected country groups Country ratings for selected country groups Policy-adjusted gaps for high-saver and low-saver higher-income countries in Latin America and the Caribbean, Real U.S. interest rate Incidence of crises in Latin America and Southeast Asia, Impulse responses in Latin America and the Caribbean and other emerging market economies to positive global demand shocks Impulse responses in Latin America and the Caribbean and other emerging market economies to global monetary easing Impulse responses in Latin America and the Caribbean and other emerging market economies to positive global supply shocks Saving and exchange rate gaps for higher-income countries in Latin America and the Caribbean, averages Composition of foreign assets and liabilities in selected countries in Latin America and the Caribbean, Tables OA.l Country group composition Regression results on the effect of the nature of traded goods on economic growth Regression results on the effects of the composition of trading partners on economic growth 104 2A.1 Data description and sources 117

7 X CONTENTS 3.1 Percentage of workers in bottom 40 percent of income distribution in Argentina, Brazil, and Mexico, by sector Cross-border Investment, by pairs of regions and type of investment (annual average, millions of 2011 U.S. dollars) Shares of cross-border investment by source and receiver region, normalized by GDP of Latin America and the Caribbean (annual average, percent) Intensive margin of financial connections across regions Extensive margin of cross-border financial flows Region-to-region financial flows Global financial and trade flows Foreign direct investment and labor productivity growth in the host country 187 5A.1 Country group composition 220 5A.2 Data description and sources 222 5A.3 Data definitions and sources 223 5A.4 Signs and length restrictions on global and domestic shocks 223