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New patterns of economic growth in developing economies

Noemi Levy-Orlik

UNAM-MEXICO

January, 2007

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• Profound changes in the dominant production model of industrialized & emerging countries.

• Has LA overcome the major shortcomings of the past?

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Hypothesis

• High financial gains “wrong” prices

• Dynamic sectors shifted to __ manufactures: high M coefficient, e.r or ↓ W (to control wages)

• Low л, bad quality of N and Δw < Δ л

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I. New patterns of economic growth in Mexico

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-2

0

2

4

6

8

10

1951 1952 1953 1954 1955 19561957 1958 1959 1960 1961 19621963 1964 1965 1966 1967 19681969 1970 1971 1972 1973 19741975 1976 1977 1978 1979 19801981 1982 1983 1984 1985 19861987 1988 1989 1990 1991 19921993 1994 1995 1996 1997 19981999 2000 2001 2002 2003 20042005

The ISI model

ExternalizationDeregulation and

globalization

6.2% average growth rate 2.6% average growth rate

1.4%

3.5%

3.6%

a) GDP growth (graph 1)

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b) Productive Sector structure (table 1)

A+L+F Minning ManufLow Tech

High Tech

Construction

Electricity

Service Non F. Serv.

F. Services

2006-1983 5.8 1.3 18.0 8.2 9.8 4.2 1.5 63.8 49.4 14.41989/1983 6.5 1.5 16.8 8.3 8.5 4.3 1.4 63.7 50.2 13.41994/1990 5.9 1.3 17.7 8.3 9.5 4.4 1.5 63.8 49.5 14.32006/1995 5.3 1.2 18.7 8.1 10.6 3.9 1.6 64.1 48.8 15.4

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c) GDP spending composition (graph 2)

-10

-5

0

5

10

15

20

25

30

35

40

1980 1981 1982 1983 1984 1985 1986 1987 1988 1990 1992 1994 1996 1998 2000 2002 2003

FBKF+VE X M X:M

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d) M and X: trend and composition (table 2)

CCdeficit X/GDP M/GDPX-M/GDPX* M* DIF X-M/GDP X* M* DIF X-M/GDP X M DIF X-M/GDP X M DIF X-M/GDP X M DIFX-M/GDP

1988 -1.2 10.9 11.4 -0.5 5.1 7.9 -2.8 -0.3 31.2 1.6 29.6 3.2 63.4 90.3 -26.9 -3.4 15.0 14.3 0.8 -0.3 46.3 71.3 -25 -3.11989 -2.4 10.1 11.9 -1.9 4.5 7.0 -2.5 -0.4 34.4 1.5 33.0 3.3 60.7 91.2 -30.5 -4.8 13.3 16.4 -3.0 -1.07 45.3 69.3 -24 -3.71990 -2.5 10.1 12.5 -2.4 6.3 5.9 0.4 -0.1 35.4 1.3 34.2 3.4 58.0 92.7 -34.7 -5.7 9.5 17.0 -7.5 -1.66 46.1 69.8 -24 -4.11991 -4.3 8.5 12.7 -4.2 7.0 4.7 2.3 0.0 28.9 1.0 27.8 2.3 63.8 94.1 -30.3 -6.6 10.7 15.7 -4.9 -1.65 50.6 72.4 -22 -4.91992 -6.3 7.5 13.8 -6.3 6.5 5.0 1.5 -0.2 28.4 0.8 27.6 2.0 64.8 93.7 -28.9 -8.1 10.1 16.4 -6.3 -2.17 52.3 71.3 -19 -5.91993 -5.5 7.4 12.7 -5.3 7.3 4.3 3.0 0.0 22.5 0.6 21.9 1.6 69.8 94.8 -24.9 -6.9 10.3 17.0 -6.7 -2.01 56.9 71.4 -14 -4.91994 -6.6 8.1 14.5 -6.4 6.4 4.8 1.6 -0.2 20.0 0.5 19.5 1.5 73.2 94.4 -21.2 -7.7 10.8 16.9 -6.1 -2.27 59.8 71.3 -11 -5.51995 -0.5 16.3 16.3 0.0 6.0 4.8 1.2 0.2 16.2 1.1 15.1 2.5 77.5 93.7 -16.2 -2.6 12.5 14.3 -1.8 -1.02 62.5 72.4 -9.9 -1.61996 -0.7 17.7 18.5 -0.8 4.5 6.8 -2.4 -0.5 18.9 1.0 17.9 3.2 76.4 91.9 -15.5 -3.5 12.3 12.9 -0.6 -1.08 61.7 72.0 -10 -2.41997 -1.7 16.2 19.2 -3.0 4.3 4.6 -0.3 -0.2 16.6 1.0 15.6 2.5 79.1 93.6 -14.5 -5.1 13.6 12.6 1.0 -1.21 62.8 73.5 -11 -3.91998 -3.5 15.2 20.6 -5.4 4.6 4.6 0.1 -0.2 10.6 0.8 9.8 1.4 84.7 94.4 -9.7 -6.6 13.9 13.0 0.9 -1.6 67.7 74.1 -6.4 -51999 -2.7 15.0 19.9 -4.9 4.5 4.0 0.4 -0.1 12.8 0.7 12.1 1.8 82.5 95.1 -12.6 -6.5 13.0 12.7 0.4 -1.66 66.6 74.8 -8.1 -4.92000 -3 14.9 20.3 -5.4 4.0 3.4 0.6 -0.1 17.7 0.6 17.1 2.5 78.2 95.6 -17.4 -7.7 12.1 12.4 -0.3 -1.76 63.6 76.2 -13 -62001 -2.8 13.1 18.6 -5.5 4.4 3.8 0.6 -0.1 14.8 0.5 14.3 1.8 80.6 95.0 -14.3 -7.1 11.7 13.7 -2.0 -2.02 66.1 73.8 -7.8 -5.12002 -2 12.7 17.6 -4.9 4.3 4.1 0.2 -0.2 16.5 0.8 15.7 2.0 79.2 94.3 -15.1 -6.5 11.6 14.4 -2.8 -1.9 64.6 72.9 -8.3 -4.62003 -1.3 13.6 18.2 -4.5 5.0 4.4 0.6 -0.1 19.9 1.0 18.9 2.5 75.0 93.0 -18.0 -6.7 10.7 15.3 -4.7 -2.13 61.2 70.9 -9.7 -4.5Not included electricity, water gas and comunal services ALF: Agriculture, livestock and silviculture Ml/T: Included food, beverage, tabaco, Textiles, garments, wood products, papers and others.MhT: Inlcuded the chemic industries, oil and coal product, basixc metaliic industries, metalic products. Machinery and equipment

Ml/T Mh/T

Exports and Imports by economic activities of origns (%)A+L+F MANUFACTUREMINNING Trade account

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e) Exchange term index (graph 3)

0

20

40

60

80

100

120

140

160

180

200IP(X) dol IP(M) dol ITI(dol) Lineal (IP(M) dol)

Agricultural & oil prices

oil

DEVALUATION Import price index

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II. New patterns of economic growth (productivity and salaries)

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a) П & GDP (graph 4)

0

20

40

60

80

100

120

140

16019

88

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

Average productivity GDP

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a2) Productivity in the manufacture sector5.1

0

20

40

60

80

100

120

140

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

p/ 2004

Aver Productivity L/T P GDP Manuf L/T*

0

20

40

60

80

100

120

140

160

180

Average H.T product.

GDP Manuh H/T*

High Tech Low tech

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b) Wages & real exchange rate/nominal exchange rate (graph 6)

0

20

40

60

80

100

120

Wm

anuf

0

0.5

1

1.5

2

2.5

RE

R/N

ER

Index Manuf Real W RER/NER

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b.2) Wages and exchange rate (graph 7)

-0.2

0

0.2

0.4

0.6

0.8

1

1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

Variaciones del salario medio manufVariacion del Salario medio Depreciacion del TC

er

salaries

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c.1) Salaries & productivity (graph 8)

0

20

40

60

80

100

120

1401988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003p/

2004

Avarage salary Average productivity

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c2) Salaries and productivity (graph 9)

High tech sectors Low Tech Sectors

0

20

40

60

80

100

120

140

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

p/20

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Productivty W. Manuf Low /T

0

20

40

60

80

100

120

140

160

180

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

p/ 2004

Productivity W Mhtech

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III. New patterns of economic growth and labour quality

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a) Growth rates (graph 10)

0

20

40

60

80

100

120

140

160

180

200

(IMSS)(C=1990=100 GDP 1990=100

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b) Unemployment (graph 11)

TGDA TCCO

open unemploment

Total unemplyment

Extremely low paid employment

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c) Labour: Temporary and permanent (graph 12)

0

50

100

150

200

250

IMSS N (1990=100) Permanent N (1990=100) Temporary N (1990=100)

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IV. New patterns of economic growth and financial gains (exchange rate,

prices, and interest rates)

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a1) Productivity (1993=100) and real interest rates (graph 13)

0

20

40

60

80

100

120

140

160

180

Pro

duc

1993

=100

-120

-100

-80

-60

-40

-20

0

20

40

60

TTB

R

PRODUCTIVIDAD RTB

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a2) Financial margins (graph 14)

-0.5

0

0.5

1

1.5

2

2.5

3

3.5

4

TIAN2/TDB1N TECT/TDB! Tian/TECET

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b) Over-undervaluation and interest rates (graph 15)

0

0.5

1

1.5

2

2.5

3

3.5

TCR/TCN TCETES

Overvalued

Devalued

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c) Exchange rate and inflation (graph 16)

-50

0

50

100

150

200

250

29281 30286 31291 32295 33298 34304 35309 36312 37316 38322

ER Depreciation Inflation

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V. Conclusions

• Economic openness & external capital inflows + don’t guarantee strong & stable economic growth

• Fortifying high tech-sectors don’t reduce economic dependence (M coefficient ↑ e.r. distortions)

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• Productivity remains low due reduced linkage with internal production

• Wages trend is downwards (below 1980) and devaluation decrease real wages

• Wages don’t reflect productivity gains

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• Labour quality is worsen although unemployment doesn’t increase

• Financial gains are guaranteed by exchange rate & price stability (and ↓ W) along high financial margins.