Financiamento del Desarollo Productivo e Inclusion Social Lecciones para America Latina Danny Leipziger Vice Presidente Poverty Reduction and Economic Management, Banco Mundial
LAC economic growth has improved recently R e a l G D P g r o w t h in L a tin A m e r ic a & C a r ib b e a n 1 0 8 6 5.9 Percent 4 2 0-2 - 4 1970 1973 1976 1979 1982 1985 1988 1991 1994 1997 2000 2003 2006f Source: GDF & WDI database and DECPG for forecasts.
..but, it lags other regions and may not be sustained over time. Annual Rates of Real GDP Growth (Percent) 2004 2005f High Income North America 4.3 3.7 European Union 2.3 1.9 Developing Latin America and Caribbean 6.3 4.4 Eastern Europe 6.8 4.8 South East Asia 6.4 5 China 9.5 8.6 Singapore 8.4 4.2 Malaysia 7.1 5.5 Thailand 6.1 5.1 Source: Consensus Forecast, April 2005 Note: North America comprises United States and Canada European Union includes Euro zone countries plus Denmark, Sweden and United Kingdom. South East Asia includes Indonesia, Malaysia, Singapore, Thailand and the Philippines. Latin America and the Caribbean region includes Argentina, Bolivia, Brazil, Chile, Colombia, Costa Rica, Dominican Rep., Ecuador, Mexico, Panama, Paraguay, Peru, Uruguay, and Venezuela.
Lessons from the 1990s: There is no one reform formula. Research on growth determinants (Rodrik) Fundamentals matter: well developed institutions, technological innovation, access to markets, financial market development Sound economic principles: competition, property rights, appropriate monetary policy, fiscal solvency Provides little guidance on specific reforms Reforms that yield growth in one country don t always work in others What ignites growth is different than what sustains it
Despite significant reforms, LAC performed poorly. Quality and intensity of LAC reforms increased significantly during the 1990s Notable improvements in macroeconomic policy and stability Embraced globalization, market opening, trade and financial liberalization, and privatization but, they were incomplete, and gaps remain
Productivity has grown slowly in LAC. 1.5 Annual Growth of TFP 1 0.5 0-0.5-1 Latin America OECD East Asia Research shows that over 50 percent of cross country differences of per capita income levels and growth rates is accounted for by differences in productivity growth. -1.5-2 1970 79 1980 89 1990 99 Source: Loayza, Fajnzylber, and Calderon (2002).
Physical infrastructure gaps reflect fiscal compression. 4.0 Latin America: Investment in Infrastructure (public + private) (weighted average of 7 countries, percent of GDP) 3.5 3.0 2.5 % 2.0 1.5 1.0 0.5 0.0 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 Total Roads plus Rails Power Water Telecommunications Note: 7 Latin America countries, ARG, BOL, BRA, CHL, COL, MEX, PER.
Schooling gaps persist over time. 2 Deficit of surplus in the years of schooling 1.5 1 0.5 0-0.5-1 -1.5-2 Latin America East Asian Tigers Natural Resource- Abundant Countries 1960 1970 1980 1990 2000-2.5 Source: Authors calculations based on data from Barro and Lee (2002)
Gaps in the quality of governance persist. LAC scores lower than all regions except sub-saharan Africa on the World Bank index of quality of governance. quality of governance as measured by ICRG composite index 14 12 10 8 6 4 2 0 AFR EAP ECA LAC MNA SAR Regions
It s costly and slow to do business in LAC. Time to Start a Business (in days) Time to Enforce a Contract (in days) South Asia South Asia OECD High- Income OECD High- Income LAC LAC EAP EAP 0 10 20 30 40 50 60 70 0 100 200 300 400 500
Growth is vital for poverty reduction. 10 8 6 4 2 0-2 -4 Average growth rate EAP ECA LAC MNA SAR AFR 1981-1989 1990-1999 2000-2002 East Asia s rapid economic growth enabled substantial and sustained poverty reduction. LAC lags far behind in growth, and it has achieved limited progress in poverty reduction over 20 years. Poverty headcount ratio at $1 a day (PPP) (% of population) 70 60 50 40 30 20 10 0 EAP ECA LAC MNA SAR AFR 1981 1990 2002
Sustained growth enables poverty reduction. 10 Annual change in poverty headcount (%) Romania Zambia Indonesia -3 Burkina Faso Bolivia 6 Senegal Brazil Bangladesh India Ghana Tunisia Uganda El Salvador Vietnam -10 Annual GDP per capita growth, 1990s (%) Source: Pro Poor Growth in the 1990s. Country Case studies
Low growth + high inequality = persistent poverty Disappointing growth over the past 100+ years & persistently high inequality levels Income relative to OECD Gini coefficient 0.6 60 0.4 55 50 0.2 45 0 1870 1880 1890 1900 1913 1925 1929 1938 1950 1960 1970 1975 1980 1990 2000 40 1950 1960 1970 1980 1990 2000 explain why LAC poverty levels are so high (about 25% of population below US$2 a day).
Lessening inequality can contribute much to poverty reduction. Simulated change in poverty in Mexico (high inequality): 3% annual growth in income per capita 0.25 0.2 0.15 After 10 years 0.1 After 10 years After 30 years 0.05 0 Today No change in inequality Inequality brought from very high to middle high (Gini from.5 to.45) No change in inequality Source: F. Bourguignon. The Poverty-Growth-Inequality Triangle ( 2004).
Greater inequality requires higher growth to reduce poverty. What is the main driver of poverty reduction? Poorer and more equal countries: Growth Richer and more unequal countries: Changes in inequality Growth rates that have the same poverty impact as a 1 percent decline in the gini coefficient Country Compensatory growth rate Country Compensatory growth rate Argentina 2.5 Peru 1.6 Chile 2.4 St. Lucia 1.5 Brazil 2.3 Guatemala 1.5 Mexico 2.0 Paraguay 1.5 Costa Rica 1.0 El Salvador 1.4 Columbia 2.1 Venezuela 1.2 Trinidad and Tobago 2.0 Ecuador 1.1 Dominican Republic 1.9 Nicaragua 1.1 Panama 1.9 Guyana 1.1 Belize 1.8 Bolivia 1.0 Uruguay 1.8 Honduras 0.8 Jamaica 1.7 Source: Guillermo Perry, Humberto Lopez, William Maloney, Omar Arias, Luis Serven. 2006. Poverty Reduction and Growth: Vicious to Virtuous Circles.
Virtuous circle: growth reduces poverty, but reducing poverty also enhances growth. Poor countries Have weak business environments: lower investment, poor allocation of resources Poor regions Have lower human and physical capital and are less attractive to investors Poor families Face imperfect credit markets and hence invest less in physical and human capital Face worse schools and low returns to education and hence underinvest in human capital Face worse health care and hence are less productive Source: Guillermo Perry, Humberto Lopez, William Maloney, Omar Arias, Luis Serven. 2006. Poverty Reduction and Growth: Vicious to Virtuous Circles.
Policy reforms can enhance the potential synergy between growth and poverty reduction. Complement more equal incomes with redistribution through taxes/transfers Enhance distributional impact of existing transfers Improve amount and progressivity of tax collections Enhance poverty reduction effects on growth Use conditional cash transfers: lower short-run poverty and increase human capital Establish safety nets that encourage efficient risk taking
What is the World Bank doing for shared growth? Growth and Development Commission Growth diagnostics Fiscal space for development Analytics of shared growth for poverty reduction Gender and economic development Lagging regions program Labor markets and migration diagnostics
Muchas Gracias