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LITTLE VALUE CREATION, ARTICULATION AND PROPAGATING FORCES : A - - PowerPoint PPT Presentation
LITTLE VALUE CREATION, ARTICULATION AND PROPAGATING FORCES : A - - PowerPoint PPT Presentation
LITTLE VALUE CREATION, ARTICULATION AND PROPAGATING FORCES : A HYPOTHESIS FOR THE MEXICAN MANUFACTURING SECTOR Authors: Santiago Roca Luis Simabuko Escuela Escuela de Administracin e Administracin de Negocios de Negocios para para
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Open trade and growth Open trade and growth
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Theory Theory
Trade permits local companies to buy foreign goods, services, inputs, machinery and technology Also ideas management and
- rganization
Open trade eventually allows small countries to increase their exports and to gain access to broader markets
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Greater possibilities to benefit from economies of scale and from the international division of labor. Foreign markets leads to larger R&D spending, which accelerates technological change and economic growth.
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An open business environment creates more competition in the internal market, increasing the efficiency of local firms compared to when there are restrictions to international trade.
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Empirical evidence Empirical evidence
Evidence of the positive relationship between open trade and economic growth (Dollar 1992, Sachs and Warner 1995, Edwards 1992) Gravity models (social, demographic, historical and institutional variables) try to isolate the net impact of open trade from other structural factors (Frankel and Romer, 1999; Dollar and Kraay, 2003).
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Dollar and Kraay 2001 estimate that an increase in the volume of business (as % of GDP) by 20 percent results in an increase in the annual growth rate between 0.5 and 1%.
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Productive specialization Productive specialization and and growth growth
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Theory Theory
Graham Graham
if one country specializes in goods with
increasing returns and the other country in goods with decreasing returns, the world will overall have increased income, but the level of the second country’s income will be diminishing, while the first country’s income will be increasing.
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Prebish (term of trade), Myrdal (“cumulative causations”), Hirschman (upstream and downstream links) Matsuyama (“induced learning”), Sachs & Warner (institutions), Krugman (market imperfections) Reinert (high/low quality goods)
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Empirical evidence Empirical evidence IDB: “countries where the exports with intermediate and
high technological content represent 10% of GDP tend to grow between 0.1 and 0.2 percent more than others that -
- ther factors being equal- do not export this type of
goods”
Ros: “for similar initial income and investment rate, the
countries that specialize in manufacturing exports grew from 1960-1990 at a faster rate than exporters of primary products”
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Roca y Simabuko: for each percentage point of
primarization growth, per capita consumption fell by 2.6% and real wages and salaries fell by 5.4% and 7.4%, respectively. However, for each additional percentage point in manufacturing, per capita consumption rose by 4.2% and real wages and salaries increased by 10.6% and 15.5%, respectively.
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The Mexican case The Mexican case
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Mexico’s GDP per capita and trade opening, 1980- Mexico’s GDP per capita and trade opening, 1980- 2001 2001
90
95 100
105
110 115
120
80 82 84 86 88 90 92 94 96 98 00
20
30 40
50
60 70
80
80 82 84 86 88 90 92 94 96 98 00
GDP PER CAPITA (100=1980) TRADE OPENING (% OF GDP)
Source: CEPAL
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Composition of Mexico’s export goods (%) Composition of Mexico’s export goods (%)
81 6 8 2 1 1 47 9 17 13 14 12 18 7 23 40 10 20 30 40 50 60 70 80 90 Primary goods Traditional industrial goods Economics of scale and high intensity goods Durable Industrial Goods Technological Progress Rest
2000 1990 1980
Source: CEPAL
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Model Model ln GDPP = a0 + a1 ln OPEN + a2 ln SPEC + e
Where, GDPP GDP per capita OPEN Exports + imports (as % of GDP) SPEC Productive Specialization: Exports of industrial products as % of total exports e Other variables that affect GDP per capita.
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Hypothesis Hypothesis
Hypothesis I: a1 > 0. Trade opening positively affects economic growth. Hypothesis II: a2 > 0. Export specialization in industrial activities has a positive impact on economic growth.
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Mexico
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Mexico Mexico
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Out of 16% increase of GDP per capita in period 1980-2000 the following explain:
Open trade
23%
Specialization
- 14%
Other factors
7%
Total
16%
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How does trade opening How does trade opening increases GDP per capita ? increases GDP per capita ?
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Imports of technological progress goods (A) Total imports (B)
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Expenses in experimental R&D (Millions of pesos) R&D personal (Thousand of equivalent full time persons)
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Why specializing in Why specializing in manufacturing exports does not manufacturing exports does not increase GDP per capita ? increase GDP per capita ?
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Limited links Limited links
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Limited links Limited links
Graph 5: Value Added. Maquila and other manufacturing industries (Billion of 1993 pesos)
15 30 45 60 75 90
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001
30 60 90 120 150 180
Maquila (left) Other (right) Source: INEGI (www.inegi.gob.mx)
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Poor increase in value added Poor increase in value added
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Cheap labor Cheap labor
Maquila: Real remunerations and GDP (% change)
% change in remunerations is lower than % change in GDP in all three periods. Labor is gaining less from their contribution to value added.
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Other Explanations to Explore
World market saturated products and declining prices Potentially low division of labor and low technological skill formation Low potential to diffuse and disseminate knowledge in other sectors (slope learning curve close to zero)
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Conclusions Conclusions
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Trade opening is directly related to GDP per capita Manufacturing exports are inversely related to GDP per capita
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Mexico’s export-led industrialization successfully adapted to the world market and transformed its productive, business, organizational and technological structure.
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It however did not translate into clear macro benefits due to the absence of strong links, little value and weak dissemination forces over the rest of the economy.
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Poor internal linkages in the maquila industry, high import propensity and limited generation of VA, among other elements, leads the maquila industry to
- perate as an export enclave.
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In those circumstances, manufacturing will generate weak positive externalities and articulations, nor strong disseminations that increase value in other sectors of industry and in economic activity at large.
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