Sources of Productivity and Economic Growth in Latin America and the Caribbean,

Transcription

1 Sourcs of Prouctivity an Economic Growth in Latin Amrica an th Caribban, Anré Hofman Univrsity of Santiago in Chil 1 Clauio Aravna ECLAC an USACH Jorg Friman Univrsity of Santiago in Chil ABSTRACT This articl xamins growth xprincs of 23 Latin Amrican an English-spaking Caribban countris from 1990 to W carry out thr typs of xrciss. Th first xrcis for th 23 countris in th rgion uss th traitional mthos to masur capital, labour, an fficincy or total factor prouctivity (TFP). Th scon xrcis focuss on th Latin Amrican countris only. Th labour masur (L) is improv through th introuction of a quality ajustmnt to hours work, whil th capital masur inclus capital srvics. Th xrciss rval that as th input masurs improv, th fficincy masur (TFP), which is usually positiv an statistically xplains a larg shar of obsrv growth, bcoms incrasingly ngativ for all groups of countris an all sub-prios. Th only xcption is th boom prio of A thir xrcis uss th LA-KLEMS atabas to isaggrgat th ata into nin inustris. For ach inustry, w intify thr charactristics of th labour factor an ight typs of capital assts. Th isaggrgat ata ar only availabl for Argntina, Brazil, Chil, Colombia, an Mxico. Bas on this mor isaggrgat analysis, w put forwar hypothss on th factors that trmin growth an iscuss implications for public policis. In this articl, w arss rcnt fforts to quantitativly masur what pushs our conomis towars growth an, ultimatly, towars vlopmnt. Ths stuis us a growth accounting framwork to intify lmnts that coul gui public policis in trms of promoting masurs that sustainably incras growth rats in 23 conomis of Latin Amrica an th English-spaking Caribban (LAC). In th intrnational litratur on growth accounting, th iscussion is gnrally structur aroun an approach that can b xprss as follows (Caslli, 2004): Incom = F (inputs, fficincy) 1 Anré Hofman is Profssor of Economics at th Univrsity of Santiago in Chil (USACH); Clauio Aravna is Economist at th Economic Commission for Latin Amrica an th Caribban (ECLAC) in Santiago, Chil an Profssor at USACH; Jorg Friman is Profssor an Dan of th Economics Dpartmnt at USACH. Th authors ar gratful for commnts by Anrw Sharp, Dal Jorgnson, Flip Jimnz, Jürgn Wllr, an itor an an anonymous rviwr. s: anr.hofman53@gmail.com; friman2@gmail.com; clauio.aravna@un.org. I N T E R N A T I O N A L P R O D U C T I V I T Y MON I T O R 51

2 That is, incom or prouction, gnrally masur in pr capita trms, is a function of crtain inputs (usually som masur of capital an labour) an th fficincy with which thos inputs ar us (namly, total factor prouctivity, or TFP). TFP is a masur of th shift in th prouction function (of an conomy, prouction facility, or conomic sctor) at a givn lvl of capital an labour. Intuitivly, w coul say that it masurs th movmnt of th prouction function ovr an abov what can b xplain by th capital an labour inputs. Many factors can caus this shift or aition : tchnical innovations, organizational or institutional changs, man fluctuations, changs in th allocation of capital an labour, scal ffcts, an changs in labour intnsity, as wll as masurmnt rrors (Hultn, 2001). TFP is oftn associat with tchnological progrss, but this is a mistak. To illustrat, consir a chang in a prouctiv procss bas on a consultant s rcommnation. Th consultant will (ially) b pai th prsnt valu of th innovation, in which cas th innovation (or th part pai for it) will b account as an input. Howvr, if th sam innovation is ma by an mploy who (in th xtrm cas) rcivs no aitional paymnt whatsovr for having iscovr th innovation, th innovation will b inclu in TFP an thus will not b rcor in th firm s conomic accounts. Th sam happns with most R&D spning, which tns to b associat with TFP whn, in fact, w ar simply not masuring R&D corrctly. Furthr xampls inclu fr inputs or inputs that ar not rcor in th conomic accounts. On of ths, which w consir blow, is th quality of macroconomic policis. This lavs us with two altrnativs. W can try to improv th stimation of th input contnt, or w can tak th mor ifficult path of trying to trmin what xplains fficincy. As Maison (1987: 651) stats, Growth accounting of this typ cannot provi a full causal story. It als with "proximat" rathr than "ultimat" causality an rgistrs th facts about growth componnts; it os not xplain th lmnts of policy or circumstanc, national or intrnational, that unrli thm, but it os intify which facts n mor ultimat xplanation. LA-KLEMS has bn working in conjunction with th Groningn Growth an Dvlopmnt Cntr, th Valncian Institut of Economic Rsarch, an Harvar Univrsity through th Worl KLEMS Initiativ, l by Dal Jorgnson, to vlop a atabas that allows a bttr intification of th proximat causs of conomic growth in Latin Amrica. Th work has rsult in a consistnt statistical atabas, known as th LA-KLEMS atabas for Latin Amrica. Lik th EU-KLEMS atabas for Europ, LA-KLEMS intifis an masurs fiv inputs: capital (K), labour (L), nrgy (E), matrials (M), an srvics (S). Th projct collct ata on 23 LAC countris from 1990 to 2013, with th sampl prio brokn into four sub-prios: , , , an Th first subprio covrs th conomic rcovry following th rgion s lost ca of th 1980s, which was charactriz by a strong macroconomic ajustmnt an a significant cras in invstmnt, spcially public invstmnt. This subprio n with th Russian an Asian financial criss, which push th worl conomy into a rcssion. Givn that th LAC rgion only start rcovring from th rcssion in 2003, th scon sub-prio spans th rcssion yars from 1997 to Towars th n of this subprio, a nw boom cycl bgan, with a substantial incras in commoity prics. Th thir sub-prio ncompasss th boom in commoity prics from 2003 to 2008 an ns with th Grat Rcssion of , tonat by th subprim crisis in th Unit Stats. Du to bttr managmnt of th co- 52 N U M B E R 33, FALL 2017

3 nomic boom, such as th builing up of rsrvs, a numbr of LAC countris wr abl to withstan th intrnational rcssion through countrcyclical policis. Finally, th subprio compriss th rcovry of th worl conomy an th slowown in China from oubl-igit growth rats to a nw normal, which appars to b btwn 6 pr cnt an 8 pr cnt in annual trms. Commoity prics ar xpct to rmain low in th mium trm, whil intrst rats ar rturning to mor normal lvls, making accss to crit mor ifficult an mor costly. Bas on th ata availability, w sign thr typs of xrciss. Th first covrs 23 countris in th rgion, incluing 18 from Latin Amrica (LA) (from Mxico to Argntina, plus th Dominican Rpublic) an fiv from th English-spaking Caribban (Bahamas, Barbaos, Bliz, Jamaica, an Trinia an Tobago). For this group of 23 countris, w us traitional masurs of capital, labour, an TFP. Th scon xrcis focuss on th 18 Latin Amrican countris only. W improv th labour masur (L) by introucing a quality ajustmnt to hours work (namly, yars of ucation), whil th capital masur inclus a capital srvics masur. W ar thus abl to masur flows in th sam way w masur labour an output shars. Finally, th thir xrcis uss th LA-KLEMS atabas to isaggrgat th ata into nin inustris. For ach inustry, w intify thr charactristics of th labour factor (sx, ag, an lvl of ucation) an ight typs of capital assts. Th isaggrgat ata ar only availabl for fiv countris: Argntina, Brazil, Chil, Colombia, an Mxico. Th xrciss rval, as iscuss in tail blow, that as th input masurs improv, th fficincy masur (or TFP), which is usually positiv an statistically xplains a larg shar of obsrv growth, bcoms incrasingly ngativ for all th groups of countris an in all subprios. Th on xcption is th boom prio of , whn, bcaus of high growth rats, th contribution of TFP crass but rmains positiv. This rsult is consistnt with th finings of othr stuis, which show that TFP isplays a procyclical bhaviour: sinc th capital stock os not ajust quickly, in a prio of low growth th incras in i capacity tns to b rflct in a cras in prouctivity. To xplor what is happning in ths rsults, w prform an xrcis on th fiv countris for which isaggrgat ata ar availabl (Aravna an Hofman, 2014). For ths countris, it is possibl to trmin th contribution of th fiv prouctiv factors us in th KLEMS approach (capital, labour, nrgy, matrials, an srvics) in nin inustrial branchs. Bas on this mor isaggrgat analysis, w xtract hypothss on th factors that trmin growth an that can b arss through public policis. W fin that whil th growth rats of th capital stock (K) ar not far blow mor inustrial countris, invstmnt rats (capital accumulation) ar much lowr, an th improvmnt of th quality-ajust labour input is lowr than rcor in th high-growth Asian countris. In aition, isprsion inicators on labour prouctivity an TFP by conomic sctor in our countris ar much highr than in vlop countris, whras th isprsion of capital pr labour unit is not so iffrnt, pointing to problms in th allocation of invstmnt. Thus, our rlativly low long-trm growth rats coul b associat with a slowr accumulation procss, as wll as TFP-rlat factors such as a misallocation of prouctiv rsourcs across firms or inustris. This woul support th Hsih-Klnow hypothsis, which argus that th misallocation of inputs across firms an inustris may b an important trminant of iffrncs in rsiual TFP, but it rmains to b sn what th I N T E R N A T I O N A L P R O D U C T I V I T Y MON I T O R 53

4 forcs bhin th misallocation ar (Hsih an Klnow, 2010). Th rst of this articl is organiz as follows. Th first sction iscusss th vlopmnt of th LA-KLEMS atabas an prsnts th rsults of th aggrgat xrcis for th 23 LAC countris. Th rsults ar prsnt sparatly for th improv L an K masurs an for ach of th sub-prios intifi abov. This sction also scribs th mpirical rgularitis for th LAC rgion an for ach of th thr subgroups of countris: th English-spaking Caribban, Mxico an Cntral Amrica, an South Amrica. Th scon sction prsnts th mor tail stuy of Argntina, Brazil, Chil, Colombia, an Mxico, countris for which it is possibl to isaggrgat th ata into nin inustris an iffrntiat th contribution of th iffrnt componnts of capital to analys th consquncs for TFP. Sction 3 provis a comparativ analysis of th fiv countris vis-àvis vlop countris. Sction 4 conclus with som hypothss on th factors that coul hlp xplain th TFP rsiual. Bas on ths hypothss, w mak som policy suggstions that coul hlp improv TFP in Latin Amrica an th English-spaking Caribban. W thus hop to contribut to th sign of policis aim at incrasing th long-trm growth rats of th conomis in Latin Amrica an th English-spaking Caribban. Th Contribution of Prouctivity to Growth in Latin Amrica: Growth Accounting Th basic growth accounting framwork allows us to masur th contribution of incrass in inputs an fficincy to output growth. Th analysis starts with a prouction function which fins gross omstic prouct (GDP) as a function of total factor prouctivity (TFP) an factor inputs (capital an labour). Mthoology W us thr approachs to stimat GDP growth contributions. In th first, which is us in stuis bas on th traitional growth accounting framwork, th capital stock is takn from th gross capital formation sris at constant prics, 2 whil mploymnt is introuc as th total numbr of actual hours work. W calculat GDP growth contributions for 18 Latin Amrican countris an fiv Caribban countris using this approach. In th scon approach, bas on th rcommnations of SNA (2008), hours work ar structur accoring to ucation lvl (primary, sconary, an trtiary) an ajust for thir rspctiv rats of rturn. As an aitional innovation, capital is isaggrgat an stimat bas on th availabl capital stock ovr tim. 3 Onc th capital stock has bn stimat, w calculat th rspctiv cost of us, which is thn us to aggrgat th iffrnt typs of assts into a capital srvics inx. This approach is us to stimat GDP growth contributions for 18 Latin Amrican countris. Finally, th thir approach raws on th LA- KLEMS atabas to isaggrgat th ata into nin conomic inustris. 4 For ach inustry, w intify thr charactristics of th labour factor (sx, ag, an lvl of ucation) an ight typs of capital assts. Ths isaggrgat ata ar only availabl for Argntina, Brazil, Chil, Colombia, an Mxico. W stimat th rsiual TFP sris for ach approach by subtracting th wight sum of th growth of capital an labour inputs from GDP growth, whr th 2 Known as th prptual invntory mtho. S Hofman (2000). 3 Aravna an Funts (2013) prform th sam calculation for th trminants of labour prouctivity. 4 On th LA-KLEMS atabas, s Aravna an Hofman (2014). 54 N U M B E R 33, FALL 2017

5 Chart 1: Sourcs of GDP Growth in Latin Amrica, Traitional vrsus SNA-2008 Bas Growth Accounting, (avrag annual prcntag point contribution) 'W ^, &W 'W Y &W h Y Sourc: Authors stimats. wights ar th shar of ach input in incom in th national accounts. 5 Main Rsults Whn w compar th capital stimats in which th asst aggrgation is bas on th rspctiv cost of us with th stimats from th traitional mtho, w fin that capital srvics account for a largr contribution to GDP growth than th traitional stimats. In othr wors, th traitional approach unrstimats th contribution of capital or invstmnt, bcaus th quality ajustmnt incrass th contribution of capital. A comparison of th composition of th trminants of GDP unr th two mthos, (Chart 1), shows that th traitional mtho gnrats a largr incras in TFP, rlativ to th ajust mthoology. This is bcaus in th scon xrcis, th contribution or in othr wors th xplanatory powr of capital an hours work, ajust for human capital, is gratr. In particular, th contribution of hours work incrass in all countris, xcpt for Argntina, aftr th quality ajustmnt (as a comparison of th rsults in Tabl 1 an Tabl 2 show). This ris is mainly u to th incras in yars of ucation sinc th rats of rturn ar fairly stabl. At th sam tim, th rsults suggst that whn th markt valu, rathr than th usr s cost of capital, is us as a wight in th aggrgation of assts, th contribution of capital to th prouctiv procss is unrstimat, an thus th rsiual (TFP) is ovrstimat. Th positiv ffct of th capital ajustmnt is spcially favourabl in highr-growth countris (Bolivia, Chil, Colombia, El Salvaor, Panama, an, to a lssr xtnt, Costa Rica an Pru). This suggsts that not only th amount, but also th quality of invstmnt as rflct in this cas in th ajustmnt that taks into account th 5 Givn that it is not possibl to istribut mix incom, it was allocat to labour paymnts. Th ata ar from Aravna an Funts (2013). I N T E R N A T I O N A L P R O D U C T I V I T Y MON I T O R 55

6 Tabl 1: Latin Amrica an th Caribban: Contributions to GDP Growth, Accoring to th Traitional Mtho of Growth Accounting, (avrag annual prcntag point contribution) GDP Capital stock Hours work TFP Argntina Bolivia Brazil Chil Colombia Costa Rica Ecuaor El Salvaor Guatmala Honuras Mxico Nicaragua Panama Pru Paraguay Dominican Rp Uruguay Vnzula Latin Amrica Bahamas Barbaos Bliz Jamaica Trinia an Tobago Caribban ( ) Sourc: Authors stimats. capital composition an spcially th us of ICT is an important sourc of prouctivity (TFP). Morovr, th aggrgat analysis of th 18 countris shows that in all cass, thr was a favourabl (an fairly similar) contribution of highr-quality labour. Th stimation of TFP suggsts that it is procyclical: its contribution is positiv in countris with high GDP growth, but ngativ whn GDP crass sharply. Th pattrn of contraction an rsurrction of TFP uring contractionary an xpansionary prios, as ocumnt in prvious stuis, has givn ris to th hypothsis that ths larg variations in stimat TFP riv not from tchnological factors, but rathr from financial frictions (Calvo, Izquiro, an Talvi, 2006). Thy coul also rflct changs in factor utilization. For xampl, uring an conomic slowown (xpansion), thr coul b a ruction (incras) in hours work, such that th conomy proucs lss (mor) with th sam capital nowmnt. Th labour markt structur coul also b part of th xplanation. Givn that thr is littl unmploymnt insuranc in LAC countris, uring conomic ownturns th unmploymnt rat os not incras as much as in vlop countris. Insta, popl ar mploy in lss prouctiv activitis. This phnomnon coul partially xplain th procyclicality of TFP. 56 N U M B E R 33, FALL 2017

7 Tabl 2: Latin Amrica: Contributions to GDP Growth, Accoring to th SNA-2008 Mtho of Growth Accounting, (avrag annual prcntag point contribution) Qualityajust GDP Capital srvics hours work TFP Argntina Bolivia Brazil Chil Colombia Costa Rica Ecuaor El Salvaor Guatmala Honuras Mxico Nicaragua Panama Pru Paraguay Dominican Rp Uruguay Vnzula Latin Amrica Sourc: Authors stimats. Obsrvations on th Growth Accounting Rsults This sction provis fiv obsrvations on th th growth accounting rsults prsnt in th prvious sction. Th GDP growth cycl is similar in Latin Amrica GDP growth follows th sam cycl in Mxico an Cntral Amrica an in South Amrica. In contrast, th English-spaking Caribban rcor an incras in its growth rat in th sub-prio. Ovrall this rgion follow th trn in vlop countris mor closly than i Latin Amrica. Th subrgion with th highst GDP growth rat was Mxico an Cntral Amrica from 1990 to 2013 (Chart 2). Capital plays a ky rol in th GDP growth procss Capital srvics play a ky rol in th GDP growth procss in Latin Amrica, contributing 68 pr cnt of avrag growth in th rgion in (Chart 2, Panl A). Th iffrnc in th rgions growth ynamics lis in labour an TFP, which contribut 54 pr cnt an 28 pr cnt, rspctivly to GDP growth. If th growth contribution of TFP in th Latin Amrican conomis was zro, th contributions of capital an labour woul b 56 pr cnt an 44 pr cnt, rspctivly. By sub-prio, in Latin Amrica th capital contribution is stabl at aroun 2.5 prcntag points of GDP growth, which riss to 2.9 prcntag points in th last prio ( ). Th analysis by subrgion rvals that th capital contribution was th most volatil in South Amrica, u to a rop in follow by a strong incras in (Chart 2). In South Amrica, th contributions of capital an labour ar similar, with th xcption of th last prio, whn th capital contribution is narly thr tims th labour contribution. In I N T E R N A T I O N A L P R O D U C T I V I T Y MON I T O R 57

8 58 N U M B E R 33, FALL 2017 Not: Th stimats for th Caribban ar obtain through th traitional mtho of growth accounting. (Nt capital stock an total hours work). Sourc: Authors stimats. Chart 2: Sourcs of GDP Growth in Latin Amrica, SNA-2008 Bas Growth Accounting by Subrgion an Prio, , (unwight avrag of prcntag point contribution) Panl A: Capital Srvics an GDP Panl B: Quality Ajust Hours an GDP Panl C: TFP an GDP l l > ^ D 'W l l > ^ D Y 'W l l > ^ D &W 'W

9 contrast, in Mxico an Cntral Amrica, th capital contribution always xcs that of labour. Th labour contribution was highr than capital in only four countris in : namly, Bolivia, Ecuaor, Nicaragua, an Vnzula (Tabl 2). In th English-spaking Caribban, th contribution of capital to GDP growth is lowr, ranging from 0.5 to 1.0 prcntag point. This is an unrstimation, howvr, sinc th ata for this rgion o not allow th isaggrgation of th capital stock into capital srvics. Amrica than in South Amrica (Chart 2). Th GDP growth contribution of TFP in Latin Amrica was th most ngativ in This is th sam prio in which th growth contribution of TFP was highst in th Englishspaking Caribban, at about 40 pr cnt, rflcting its procyclical natur. Th analysis of th volution of prouctivity in th sampl of countris tns to confirm that TFP is procyclical, an it is th main trminant of th iffrnc btwn highr or lowr conomic growth (Chart 2). Labour influncs th rgional growth procss Th contribution of labour is iffrnt btwn groups of slct countris, with a procyclical pattrn in South Amrica an th English-spaking Caribban an a continuous clin in Mxico an Cntral Amrica, u to both a smallr incras in mploymnt in thr countris (El Salvaor, Guatmala, an Nicaragua) an a smallr shar of wags in GDP throughout most of th subrgion. Th labour contribution is mainly u to an incras in total hours work, which accounts for 77 pr cnt of th total (Chart 2). 6 Th human capital componnt accounts for ovr 25 pr cnt of th total contribution in svn of th 18 countris of Latin Amrica, whr Costa Rica is th only Cntral Amrican country in th group of svn. Th GDP contribution of labour is gnrally lss than that of capital, both across countris an ovr tim (Charts 1 an 2). Th growth contribution of total factor prouctivity is ngativ an procyclical Th only prio in which TFP has a positiv GDP contribution is , whn th two Latin Amrican subrgions rcor highr GDP growth rats. Th TFP prformanc was systmatically wors in Mxico an Cntral Th incras in th capital contribution gnrats highr total factor prouctivity Th countris with a positiv TFP contribution ar thos that also rcor incrass in th contribution of capital to GDP growth (Chart 3). That is, th gratr invstmnt an th mor intnsiv us of capital incras TFP an thus growth. Sctoral Analysis of th Dtrminants of Prouctivity Thus far, w hav look at th volution of prouctivity at th aggrgat lvl. This sction analyss conomic growth, prouctivity, an thir trminants for nin inustris in fiv countris (Argntina, Brazil, Chil, Colombia, an Mxico) in th prio. Th xrcis raws on th nw LA-KLEMS atabas. Th atabas provis th mploymnt, capital srvics, an prouction sris by sctor. In th cas of mploymnt, th atabas inclus factors associat with th chang in th composition of th labour forc, whil for capital, it inclus th ffcts of th sp of th invstmnt shift towars information an communication tchnologis (ICTs) in rcnt yars. 6 Th contribution of labour to GDP growth is th sum of th contributions of actual hours work an human capital. I N T E R N A T I O N A L P R O D U C T I V I T Y MON I T O R 59

10 Chart 3: Rlationship btwn TFP Growth an Annual Variation of Growth of Capital Srvics in Slct Latin Amrican Countris, l W & l ƒžƒ ƒ ˆ Š ˆƒ ƒž Sourc: authors stimats. Sctoral growth is highst in th trtiary sctor Chart 4 shows that th growth rat of th trtiary sctor (srvics) was highr, on avrag, than th primary an sconary sctors, with th xcption of Brazil whr th primary sctor (agricultur, livstock, an mining) ha th highst avrag growth rat, follow by srvics. 7 For th fiv countris analys, th unwight avrag conomic growth rat in was 3.7 pr cnt. Chil ha th bst prformanc in th prio, at 5.0 pr cnt. Surprisingly, th inustry output ata in Tabl 6, foun latr in th articl, show that th transport an communications inustry ha th highst sctoral growth rat in all fiv countris. Th lowst-growth inustry was manufacturing in Argntina, Brazil, Chil, an Colombia. In Mxico, total avrag growth was low. Ths rsults coul b xplain, in part, by th macro- an microconomic policis in th countris of th rgion. For xampl, from a macroconomic prspctiv, ral xchang rat fluctuations can gnrat uncrtainty about th xpct rturns in inustris with strong intrnational comptition. In trms of microconomics, markt failurs or rgulations can impos costs that act as a wg or tax, istorting rlativ prics an rucing th rturn on invstmnt in th inustry (Rstuccia an Rogrson, 2013). Th fining that manufacturing is th last ynamic inustry in Latin Amrica, whil th srvics inustry is th most ynamic, raiss a numbr of important qustions. 8 How can policis b sign to acclrat growth? If th problm stms from th misallocation of capital u to th way th sctor an th markts oprat, what masurs can b aopt to rvrs th 7 Primary sctor: agricultur, livstock, forstry an fishing an mining; sconary sctor: manufacturing, lctricity, gas an watr an construction an trtiary sctor: tra, rstaurants an hotls, transport an communications, financial, businss an community srvics, social an prsonal srvics. 8 Of cours, th srvic sctor is vry htrognous an som srvic sctor inustris ar not ynamic, as shown in Tabl N U M B E R 33, FALL 2017

11 Chart 4: Total an Sctoral GDP Growth: Primary, Sconary an Trtiary Sctors in Argntina, Brazil, Chil, Colombia an Mxico, (avrag annual rat of chang) l D 'W W ^ Sourc: authors stimats. misallocation? Or must th futur growth of Latin Amrica an th English-spaking Caribban b bas on non-manufacturing inustris? Th answrs ar not obvious an rquir mor tail rsarch. Latin Amrican countris ar charactriz by low invstmnt, rlativ to both vlop countris an othr mrging rgions In , invstmnt in Latin Amrica was quivalnt to aroun 20 pr cnt of GDP, vrsus about 35 pr cnt in vloping Asia. Th low invstmnt rats hav ma it impossibl to achiv highr growth rats in Latin Amrican conomis. Lik th rst of th rgion, th fiv countris gnrally saw a ruction in th invstmnt rat in th lat 1990s an arly 2000s, in part u to th Asian crisis of an/or th slowown of By th n of 2010, howvr, all of th countris rcor th strongst invstmnt ffort of th last 20 yars, with th xcption of Chil (Tabl 3). Th highst rats wr in Argntina (25.4 pr cnt) an Brazil (24.7 pr cnt), whil th rst of th countris wr abov 20 pr cnt. On of th major avancs of th LA-KLEMS atabas is th inclusion of stimats of ICT gross fix capital formation. Th atabas inclus thr ICT assts offic an computing quipmnt, communication quipmnt, an softwar for Argntina, Brazil, Chil, Colombia, an Mxico. Tabl 3 shows th isaggrgation of gross fix capital formation into ICT an non-ict assts. As th tabl shows, th shar of ICT assts as a prcntag of ral GDP is largst in Brazil, at twic th rat of Colombia, th country with th scon-highst shar of ICT assts. Chil has ma th biggst improvmnt in ICT invstmnt, moving up from th lowst lvl in th sampl in 1995 to quickly ovrtak Argntina an Mxico. In th full sampl prio, maning th avrag for vry yar from 1995 to 2010, ICT invstmnt account for aroun 7 pr cnt of th total invstmnt ffort in Argntina, Chil, an Mxico, vrsus I N T E R N A T I O N A L P R O D U C T I V I T Y MON I T O R 61

12 Tabl 3: Disaggrgation of Gross Fix Capital Formation in Argntina, Brazil, Chil, Colombia, an Mxico, by Typ of Asst (prcntag of ral GDP) Total ICT Non-ICT Total ICT Non-ICT Argntina Brazil Chil Colombia Mxico Total ICT Non-ICT Total ICT Non-ICT Argntina Brazil Chil Colombia Mxico Not: Th invstmnt rats prsnt hr ar not official statistics from th countris national accounts, bcaus th ICT invstmnt sris wr flat using honic pric flators. For tails, s Aravna an Hofman (2014). Sourc: Authors stimats. 12 pr cnt in Colombia an 19 pr cnt in Brazil. Tabl 4 isaggrgats non-ict invstmnt by typ of asst. Th largst invstmnt shar is non-rsintial construction in Chil, Colombia, an Mxico, an rsintial builings in Argntina for th yars 1995, 2000, 2005 an Only Brazil concntrats invstmnt in non-construction assts, namly, othr machinry an quipmnt. Rsintial invstmnt is still significant, howvr, at only slightly lss than othr machinry an quipmnt. Givn that invstmnt incorporats tchnological progrss, th allocation to iffrnt typs of assts is rlvant. In trms of th siz of prouctiv non-ict invstmnt (xcluing rsintial invstmnt) as a shar of th total, th countris can b classifi in thr lvls: in Argntina, just 60 pr cnt of total invstmnt is allocat to prouctiv invstmnt; in Brazil an Mxico, 70 pr cnt; an in Chil an Colombia, 80 pr cnt. 9 Th lattr two countris also hav a highr contribution of capital to GDP an hav rcor th largst improvmnts in prouctivity. By conomic sctor, gross capital formation was highst in th trtiary or srvics sctor in in all fiv countris, follow by th sconary an thn th primary sctor (Tabl 5). Mor spcifically, Argntina an Brazil hav a larg shar of invstmnt in manufacturing an a vry low shar in lctricity, gas an watr (EGW), whil Chil, Colombia, an Mxico split th bulk of invstmnt btwn manufacturing, mining, an community an prsonal srvics, with a substantial shar for EGW as 9 Rsintial construction is th non-prouctiv invstmnt as only invstmnts that a to th capital stock that is us in th prouction procss ar consir prouctiv hr. 62 N U M B E R 33, FALL 2017

13 Tabl 4: Gross Fix Capital Formation in Argntina, Brazil, Chil, Colombia, an Mxico, by non-ict Assts, 1995, 2000, 2005 an 2010 (prcntag of ral GDP) Total non-ict assts Rsintial builings Non-rsintial construction Transport quipmnt Othr machinry an quipmnt Total non-ict assts Rsintial builings Non-rsintial construction Transport quipmnt Othr machinry an Argntina Brazil Chil Colombia Mxico Total non-ict assts Rsintial builings Nonrsintial construction Transport quipmnt Othr machinry Total non-ict assts Rsintial builings Nonrsintial Transport quipmnt Othr machinry Argntina Brazil Chil Colombia Mxico Sourc: Authors stimats. wll (Tabl 5). Th invstmnt shars of transport an communications ar similar. Tra, rstaurants an hotls has a notably largr wight in Argntina than in th othr countris. Invstmnt in non-ict capital xplains most of th incras in total valu a, as wll as th growth of th fastst-growing inustry: transport an communications In four of th fiv countris, invstmnt largly accounts for th growth of total valu a, as wll as th growth of th most ynamic inustry, namly, transport an communications (Tabl 6). Th on xcption is Brazil, whr th labour contribution, spcially hours work, xplains th largst shar of total valu a growth, incluing valu a in th transport an communications inustry. In trms of labour, th largst contribution to th growth of valu a cam from hours work, an th inustris that contribut th most wr srvics (mainly tra an financial an businss srvics) an construction Th total contribution of labour ssntially rivs from hours work, with a much smallr contribution from job quality. In manufacturing, hours work grw vry littl in four countris an fll in Mxico. Job quality improv in all inustris in four of th countris. Only Colombia rcor a ngativ contribution from th chang in th composition of mploymnt an only in som inustris. In th primary sctor, I N T E R N A T I O N A L P R O D U C T I V I T Y MON I T O R 63

14 Tabl 5: Distribution of Total Gross Fix Capital Formation in Argntina, Brazil, Chil, Colombia, an Mxico, by Inustry, Argntina Brazil Chil Colombia Mxico Agricultur, livstock, forstry, an fishing Mining Manufacturing Elctricity, gas, an watr Construction Tra, rstaurants, an hotls Transport an communications Financial an businss srvics Community, social, an prsonal srvics Total Sourc: Authors stimats. thr was gnrally a vry low or ngativ contribution from hours work. Th improvmnt in th quality of labour compnsat this ngativ contribution in all countris with th xcption of Colombia. Th rsults for TFP ar lss clar, although th aggrgat ffct on growth was ngativ in all conomis. Evn in th cas of transport an communications, TFP was positiv an significant only in Argntina. Again, in four of th fiv countris analys, th inustris with th lowst TFP growth wr thos with th largst capital contribution to th growth of valu a: th mining inustry in Argntina an Brazil; lctricity, gas, an watr n Chil; an transport an communications in Colombia. In Mxico, ths two factors o not coinci. This coul b an inication that th problm of low valu a growth in th countris of th rgion is u not only to low invstmnt, but also to th allocation of invstmnt, as iscuss arlir. Comparativ Analysis of th Dtrminants of Labour Prouctivity In orr to formulat hypothss about how Latin Amrican conomis prform rlativ to mor vlop conomis, w sign a comparativ xrcis using svn of th largst inustrializ countris: Franc, Grmany, Italy, Japan, Spain, th Unit Kingom, an th Unit Stats. Th comparison analys labour prouctivity ovr th prio. Th main rsults ar prsnt blow. Th growth rat of labour prouctivity varis significantly among both th Latin Amrican an vlop countris Th highst growth rats of labour prouctivity ovr th prio ar foun in two Latin Amrican countris, such as Chil (2.6 pr cnt pr yar) an Colombia (2.0 pr cnt) follow by crtain bnchmark countris, Japan (2.1 pr cnt), th Unit Kingom (2.1 pr cnt), an th Unit Stats (2.0 pr cnt) (Tabl 64 N U M B E R 33, FALL 2017

15 Tabl 6: Sourcs of th Growth of Valu A in Argntina, Brazil, Chil, Colombia, an Mxico, by Economic Sctor, (avrag annual prcntag points contribution) Argntina ( ) Valu a Hours work Job quality ICT capital Non-ICT capital TFP Total Agricultur, livstock, forstry, an fishing Mining Manufacturing Elctricity, gas, an watr Construction Tra, rstaurants, an hotls Transport an communications Financial an businss srvics Community, social, an prsonal srvics Brazil ( ) Total Agricultur, livstock, forstry, an fishing Mining Manufacturing Elctricity, gas, an watr Construction Tra, rstaurants, an hotls Transport an communications Financial an businss srvics Community, social, an prsonal srvics Chil Total Agricultur, livstock, forstry, an fishing Mining Manufacturing Elctricity, gas, an watr Construction Tra, rstaurants, an hotls Transport an communications Financial an businss srvics Community, social, an prsonal srvics I N T E R N A T I O N A L P R O D U C T I V I T Y MON I T O R 65

16 Tabl 6: Sourcs of th Growth of Valu A (continu) Colombia Valu a Hours work Job quality ICT capital Non-ICT capital TFP Total Agricultur, livstock, forstry, an fishing Mining Manufacturing Elctricity, gas, an watr Construction Tra, rstaurants, an hotls Transport an communications Financial an businss srvics Community, social, an prsonal srvics Mxico Total Agricultur, livstock, forstry, an fishing Mining Manufacturing Elctricity, gas, an watr Construction Tra, rstaurants, an hotls Transport an communications Financial an businss srvics Community, social, an prsonal srvics Sourc: Authors stimats. Nots: It shoul b not that th numbrs in th columns aftr valu a rfr to prcntag point contributions to valu a, not th growth rats of th variabl. Valu a = GDPtaxs. 7). At th othr n of th spctrum ar Italy (0.5 pr cnt) an Spain (0.7 pr cnt), togthr with Brazil (0.6 pr cnt) an Argntina (1.7 pr cnt). Th lvl of labour prouctivity (masur in 1995 PPP U.S. ollars) in Latin Amrica is about a thir th lvl of th bnchmark countris. Labour prouctivity is spcially low in Brazil an Colombia, whil Argntina an Mxico hav th highst lvls among th fiv countris in th rgion for which ata ar availabl. In most countris, th most prouctiv inustry is lctricity, gas, an watr. Thr of th xcptions hav substantial mining an oil an gas rsourcs: namly, Chil, Mxico, an th Unit Kingom. Th fourth is Colombia, whr th most prouctiv inustry is financ, insuranc, an businss srvics. Nvrthlss, 66 N U M B E R 33, FALL 2017

17 Tabl 7: Comparison of Labour Prouctivity in Latin Amrican Countris an Dvlop Countris, 1995 an 2007(US$ PPP ollars, 1995) Franc Grmany Italy Spain Unit Kingom Unit Stats Japan Argntina Brazil Colombia Chil Mxico Annual growth rat of labour prouctivity in th total conomy Labour prouctivity in th total conomy (valu a/ hours work) (US$ PPP 1995) Stanar viation of th log of sctoral labour prouctivity Max-min ratio (nin inustris) Inustry with th highst labour prouctivity in 2007 (US$ PPP 1995) Inustry E E E E C E E E E JtK C C Labour prouctivity Inustry with th lowst labour prouctivity in 2007 (US$ PPP 1995) Inustry AtB AtB AtB F F F AtB GtH AtB GtH AtB AtB Labour prouctivity Sourc: EU-KLEMS (2011), LA-KLEMS (2013), an authors stimats. Nots: TOT = Total conomy; AtB = Agricultur an fishing; C = Mining; D = Manufacturing; E = Elctricity, gas, an watr; F = Construction; GtH = Tra; hotls an rstaurants; I = Transport an communications; JtK = Financ, insuranc, an businss srvics; LtQ = Prsonal, community, an social srvics. lctricity, gas, an watr is th scon-mostprouctiv inustry in Chil, Colombia, an th Unit Kingom. At th othr n, th last prouctiv inustry in most countris is agricultur an fishing. Ths rlationships ar intrsting bcaus labour prouctivity trmins th lvl of wags. Thus, sctors that ar highly capital intnsiv that is, with a high K/L ratio, such as lctricity an mining tn to hav highr prouctivity an bttr wags. Th K/L ratio incras mor in th inustrializ countris than in Latin Amrica Th vlop countris unrwnt a significant intnsification of th K/L ratio btwn 1995 an 2007, with an avrag incras of aroun 32 pr cnt in th prio (Tabl 8). Although th fiv Latin Amrican countris, as a whol, rcor a largr incras in th K/L ratio (72 pr cnt), this trn is mainly xplain by strong growth in th ratio in Colombia an, to a lssr xtnt, Chil. In contrast, th intnsification of capital was fairly most in Argntina (13 pr cnt), Brazil (15 pr cnt), an Mxico (19 pr cnt). In ths thr countris, th incras in th K/L ratio was only half that of th I N T E R N A T I O N A L P R O D U C T I V I T Y MON I T O R 67

18 Tabl 8: Comparison of Capital Pr Hour Work in Latin Amrica an Dvlop Countris, 1995 an 2007(1995 PPP ollars) Panl A: K/L ratio Franc Grmany Italy Spain Unit Kingom Unit Stats Japan Argntina Brazil Chil Colombia Mxico Annual growth rat of th K/L ratio in th total conomy Capital-labour ratio in th total conomy Stanar viation of th log of th capital-labour ratio Max-min ratio (nin inustris) Inustry with th highst capital-labour ratio in 2007 Inustry E E E E C E E C E E E E K/L ratio Inustry with th lowst capital-labour ratio in 2007 Inustry F F F F F F F F GtH F GtH AtB K/L ratio Panl B: Non-ICT K/L ratio Franc Grmany Italy Spain Unit Kingom Unit Stats Japan Argntina Brazil Chil Colombia Mxico Annual growth rat of th non-ict K/L ratio in th total conomy Non-ICT capital-labour ratio in th total conomy Stanar viation of th log of th non-ict capital-labour ratio Max-min ratio (nin inustris) Inustry with th highst non-ict capital-labour ratio in 2007 Inustry E E E E C E E C E E E E Non-ICT K/L ratio Inustry with th lowst non-ict capital-labour ratio in 2007 Inustry F F F F F F F F JtK F GtH AtB Non-ICT K/L ratio bnchmark countris, pointing to a growing lag 68 N U M B E R 33, FALL 2017

19 Panl C: ICT K/L ratio Franc Grmany Italy Spain Unit Kingom Unit Stats Annual growth rat of th ICT capital-labour ratio in th total conomy ICT capital-labour ratio in th total conomy Japan Argntina Brazil Chil Colombia Mxico Stanar viation of th log of th ICT capital-labour ratio Max-min ratio (nin inustris) Inustry with th highst ICT capital-labour ratio in 2007 Inustry E JtK I E E E E LtQ C E I E ICT K/L ratio Inustry with th lowst ICT capital-labour ratio in 2007 Inustry AtB AtB AtB AtB AtB AtB AtB AtB AtB AtB AtB AtB ICT K/L ratio Sourc: EU-KLEMS (2011), LA-KLEMS (2013), an authors stimats. Nots: TOT = Total conomy; AtB = Agricultur an fishing; C = Mining; D = Manufacturing; E = Elctricity, gas, an watr; F = Construction; GtH = Tra; hotls an rstaurants; I = Transport an communications; JtK = Financ, insuranc, an businss srvics; LtQ = Prsonal, community, an social srvics. in labour prouctivity. Distinguishing btwn ICT an non-ict capital contributions provis a way to assss th sp with which th Latin Amrican conomis hav incorporat ICT capital rlativ to th vlop countris. A comparison of th ICT K/L ratio in th fiv Latin Amrican countris with th avrag of th inustrializ group rvals that th gap btwn th two has cras somwhat, from 3.8 to 3.2 tims. Howvr, whn Chil is xclu from th Latin Amrican group, th ICT-K/L gap was stabl, givn that th ratio incras by 27 tims in Chil, vrsus about four tims for th rmaining countris. Thus, with a fw xcptions, Latin Amrica i not ruc th lag in th incorporation of ICT capital in th prio unr consiration. Th lvl of th capital/labour ratio (masur in 1995 PPP US ollars) for th fiv Latin Amrican countris is a littl mor than a quartr (31 pr cnt) of th lvl in th bnchmark countris, an it is fairly stabl. If Chil an Colombia ar xclu, howvr, Latin Amrica is sn to b lagging furthr an furthr bhin th inustrializ countris in trms of th K/L lvl. In othr wors, th prouctivity gap btwn Latin Amrica an th vlop countris will tn to win in th absnc of a strong an sustain ffort. Th ngativ contribution of TFP was th main caus of low prouctivity growth in Latin Amrica Tabl 9 prsnts th scriptiv statistics on TFP. As xpct, th TFP lvl is much lowr in th Latin Amrican conomis (aroun half th lvl of th comparator countris). Thr is no common pattrn in TFP by conomic inustry among th countris. Th highst TFP lvls ar in lctricity, gas, an watr (Franc, Spain, an Argntina); manufacturing (Grmany, Unit Kingom, an th Unit Stats); mining an quarrying (Italy, Japan, an Chil); an financ an insuranc (Brazil, Colombia, an I N T E R N A T I O N A L P R O D U C T I V I T Y MON I T O R 69

20 Tabl 9: Total Factor Prouctivity(TFP) in Latin Amrica an Dvlop Countris, 1995 an 2007(Unit Stats = 100 in 1995) Franc Grmany Italy Spain Unit Kingom Unit Stats Japan Argntina Brazil Chil Colombia Mxico TFP, total conomy Stanar viation of th log of TFP Max-min ratio Sctor with th highst TFP in 2007 Sctor E D C E D D C E Jtk C JtK JtK TFP Sctor with th lowst TFP in 2007 Sctor AtB AtB AtB LtQ LtQ C AtB LtQ GtH LtQ GtH E TFP Annual growth rat of TFP in th total conomy Sourc: EU KLEMS (2011), LA KLEMS (2013), an authors stimats. Nots: AtB = Agricultur an fishing; C = Mining; D = Manufacturing; E = Elctricity, gas, an watr; F = Construction; GtH = Tra, hotls, an rstaurants; I = Transport an communications; JtK = Financ, insuranc, an businss srvics; LtQ = prsonal, community, an social srvics. Mxico). Th lowst ar in agricultur an fishing (Franc, Grmany, Italy, an Japan); prsonal, community, an social srvics (Spain, Unit Kingom, Argntina, an Chil); an tra, hotls, an rstaurants ( Brazil an Colombia). Rlativ to th bnchmark countris, th Latin Amrica conomis isplay gratr isprsion of TFP As shown in Tabl 9, th isprsion of TFP is clarly highr in Latin Amrica (aroun twic that of th vlop countris) accoring to both masurs (stanar viation an max/ min). In fact, this is th variabl whr isprsion is clarly highr in th Latin Amrican conomis. This mans that th iffrncs in sctoral fficincy ar vry larg in th Latin Amrican countris. That is, most of th isprsion in labour prouctivity lvls across sctors can b attribut to TFP. Furthrmor, TFP clin btwn 1995 an 2007 in two, Mxico an Brazil, of th fiv Latin Amrican countris, incrasing slightly in Argntina, Chil an Colombia. In contrast, TFP incras in fiv of th svn comparator countris, an th two countris with crass Spain an Italy ar th last vlop countris in th group. Th intra-sctoral chang in th prouctivity variabls unr consiration is th rivr of growth in ths conomis. For labour prouctivity, th (intr-sctoral) structural chang componnt has a largr positiv impact in Latin Amrica than in th bnchmark countris Th procss of conomic vlopmnt involvs not only growth pr s, but also structural chang, that is, intr-sctoral changs or changs in th istribution of prouction by inustry N U M B E R 33, FALL 2017

21 Th algbraic shift-shars composition for th growth rat of labour prouctivity is givn by quation 1. VA t VA 0 VA θ jt VA = j0 L t L j L jt L j j0 j Whr ( θ jt θ j0 ) VA j0 ( θ L jt θ j0 ) VA jt VA + j0 j L jt L j j0 θ jt is th wight of mploymnt of sctor j in total mploymnt in yar t. Th first trm is th within componnt, th scon rfrs to th structural chang componnt an th thir, an last, th ynamic componnt. Th subscript 0 rfrs to th initial yar, Evn though this is th prcis composition, th last trm of th xprssion is of no irct conomic intrprtation sinc its sign can b ithr positiv or ngativ pning on th simultanous combination of positiv (ngativ) structural chang componnt combin with positiv (ngativ) variations of th within componnt. Th stanar practic is ithr to irctly ismiss th ynamic componnt trm (as in McMillan an Rorik, 2012) or kp it without making any rfrnc to its conomic maning. Hr w hav opt to show only th within an th structural chang componnt. Howvr, in orr to mak th composition xact aftr ropping th ynamic componnt, th total variation of labour prouctivity is brokn own into th within an structural chang componnts accoring to th wight of ach componnt in th sum of ths two. In th rst of th shift-shars analysis th procur has bn analogous. Whn changs in mploymnt shar ar positivly corrlat with prouctivity lvls, th structural chang trm will b positiv (1) maning that th structural chang incrass conomy wi prouctivity growth. 11 Tabl 10 prsnts th shift-shar composition btwn th within an th structural chang componnts for th fiv variabls analyz, namly labour prouctivity, capital pr hour work istinguishing btwn ICT an non-ict capital an TFP. Th main rsults of th shift-shar analysis ar th following. With a fw xcptions, th main contributor to growth in both th Latin Amrican an comparativ sampls, for all variabls, is th intrasctoral ffct. Th structural chang componnt of labour prouctivity has, on avrag, a positiv contribution, which is ight tims highr in th Latin Amrican conomis than th comparator countris. Nvrthlss, it is smallr than th intra-sctoral ffct, an it is not uniform within th four Latin Amrican conomis, bing vry high Brazil an Argntina an low in Chil. In trms of th K/L ratio, incluing both th ICT an non-ict K/L ratios, th structural chang componnt is significant for Brazil, but not for th rst of th Latin Amrican conomis. Thus, th intra-sctoral componnt is th main trminant of K/L growth. For TFP, th intra-sctoral componnt of chang is ngativ in thr Latin Amrican countris, spcially Brazil (Argntina is th xcption). Thus, th main rsponsibility for th ngativ TFP contribution lis within ach sctor an is not th rsult of tchnology transfrs in th form of labour rallocations from inustris with abov avrag lvls of labour prouctivity to thos with blow avrag lvls. This suggsts that it is ncssary to intify th bottlncks to raising prouctivity within ach sctor. 10 Kuznts (1966) highlights th rol of structural chang in th istribution of conomic growth; Maison (1987) mphasizs th importanc of structural chang as a sourc of growth an prouctivity improvmnts. 11 For tails on th mthoology, s Aravna, Frnánz, Hofman, an Más (2014). I N T E R N A T I O N A L P R O D U C T I V I T Y MON I T O R 71