Regional Integration and Regional Integration and Productivity: Productivity: The Experiences of Brazil The Experiences of Brazil and Mexico and Mexico Ernesto López-Córdova and Mauricio Ernesto López-Córdova and Mauricio Mesquita Moreira Mesquita Moreira IDB - INT\ITD IDB - INT\ITD NetAmericas Conference on NetAmericas Conference on “ “ Integrating the Americas” Integrating the Americas” November 20- November 20- 21, 21, 2002 2002
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Regional Integration And Productivity The Experiences Of Brazil And Mexico
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Regional Integration and Productivity: Regional Integration and Productivity: The Experiences of Brazil and MexicoThe Experiences of Brazil and Mexico
Ernesto López-Córdova and Mauricio Mesquita MoreiraErnesto López-Córdova and Mauricio Mesquita Moreira
IDB - INT\ITDIDB - INT\ITD
NetAmericas Conference onNetAmericas Conference on
““Integrating the Americas”Integrating the Americas”
November 20-November 20-21, 21, 20022002
MotivationMotivation What integration does to productivity is a What integration does to productivity is a
key concern in a region where long term, key concern in a region where long term, sustainable growth has been a elusive goal;sustainable growth has been a elusive goal;
The literature on trade and productivity does The literature on trade and productivity does not cover recent agreements;not cover recent agreements;
There has been no attempt to compare There has been no attempt to compare different integration strategies;different integration strategies;
OverviewOverview Literature review of the links between Literature review of the links between
integration (trade and FDI) and productivity integration (trade and FDI) and productivity (TFP);(TFP);
Main facts of Brazil and Mexico’s integration Main facts of Brazil and Mexico’s integration strategies;strategies;
Econometric analysis of the impact of Econometric analysis of the impact of integration on productivity based on plant integration on productivity based on plant level, manufacturing data. Mexico post-level, manufacturing data. Mexico post-NAFTA (1993-99) and Brazil post-NAFTA (1993-99) and Brazil post-stabilization (1996-99); stabilization (1996-99);
What is the Theory?What is the Theory?
Main Integration-Productivity ChannelsMain Integration-Productivity Channels: :
TradeTrade
Foreign Direct InvestmentForeign Direct Investment
Comparative advantageComparative advantage: risk of trade diversion, : risk of trade diversion, particularly in south-south type of agreements.particularly in south-south type of agreements.
ScaleScale: potential gains are higher in a non-preferential : potential gains are higher in a non-preferential liberalization but so are the potential losses.liberalization but so are the potential losses.
Knowledge effectsKnowledge effects: might reduce the risk of the : might reduce the risk of the dislocation of learning/innovation intensive sectors, but dislocation of learning/innovation intensive sectors, but might restrict producers access to the best practice.might restrict producers access to the best practice.
What is the evidence in the What is the evidence in the region ?region ?
• Macro level: disappointing….Macro level: disappointing…. IDB (2001)IDB (2001) - - TFP TFP 0.6 % a year in the 1990s0.6 % a year in the 1990s Baier et al. (2002)Baier et al. (2002) - TFP TFP 2.9 % same period.2.9 % same period.
• …….but some evidence of knowledge effects..but some evidence of knowledge effects. Blyde (2002)Blyde (2002) - - positive technological spillovers through positive technological spillovers through
imported machineryimported machinery Schiff et al. (2002)Schiff et al. (2002) - Higher North-South technological Higher North-South technological
– Muendler (2002):Muendler (2002): Brazil (1986-98). Brazil (1986-98). TFP 0.4 %TFP 0.4 %– Aw, Chen and Roberts (2001):Aw, Chen and Roberts (2001): Taiwan (1981-1991) TFP 3.2 Taiwan (1981-1991) TFP 3.2
%%
• CausalityCausality– TRADETRADE. Strong Evidence of the . Strong Evidence of the import discipline effect.import discipline effect.
– FDI . FDI . SomeSome evidence of the prevalence of evidence of the prevalence of vertical over vertical over horizontal spillovershorizontal spillovers (Aitken and Harisson 1999, Kugler 2000, ) (Aitken and Harisson 1999, Kugler 2000, )
Brazil and Mexico: stylized factsBrazil and Mexico: stylized facts
TFP Growth: National Accounts Data
1.9
0.9 0.8
0.1
-2.28
1.731.9
0.4
-1.5
-2.5
-2.0
-1.5
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
1940s 1950s 1960s 1970s 1980s 1990s
Brazil Mexico
Soruce: Bacha and Bonelli (2001) and World Bank (1988)
Brazil and Mexico: stylized factsBrazil and Mexico: stylized factsAverage Manufacturing Tariff
Imports Brazil Imports Mexico Exports Brazil Exports Mexico
Note: Import penetration divided by domestic consumption. Export ratio is exports divided by output. Data for Mexico does not includes maquilas.Source : Own calculations based on IBGE and INEGI Manufacturing Surveys.
Import Penetration and Export Ratios in Manufacturing: Brazil and Mexico, 1988-2000
• Trade and tariff data at detailed HS levelTrade and tariff data at detailed HS level– Aggregate weighing by imports or US exports to ROWAggregate weighing by imports or US exports to ROW
• Cobb-Douglas production function: Cobb-Douglas production function: yit = o + llit + ssit + mmit + kkit + lnTFPit + it
• OLS estimation yields biased estimatesOLS estimation yields biased estimates– Sample selection due to attritionSample selection due to attrition
– Simultaneity in TFP and input choiceSimultaneity in TFP and input choice
• Solution: Olley-Pakes (Ec. 1996)Solution: Olley-Pakes (Ec. 1996)– Firms observe TFP shock, decide to stay or exit.Firms observe TFP shock, decide to stay or exit.
– If firm stays, then it chooses investment (thus capital) If firm stays, then it chooses investment (thus capital) based on observed productivity shock. based on observed productivity shock.
• TFP growth might vary to the extent that regional TFP growth might vary to the extent that regional integration differs across industries integration differs across industries – However, other factors might be behind TFP growth However, other factors might be behind TFP growth
(e.g., high tech vs. low tech industries)(e.g., high tech vs. low tech industries)
• Nonetheless, outward oriented industries firms Nonetheless, outward oriented industries firms exhibit faster TFP growth in both countriesexhibit faster TFP growth in both countries– Import-competing or exporting vs. non-traded Import-competing or exporting vs. non-traded
industriesindustries
– In Mexico, foreign-owned plantsIn Mexico, foreign-owned plants
• Within-plant TFP growth or resource reallocation Within-plant TFP growth or resource reallocation toward more efficient producers?toward more efficient producers?
– Increased availability of imported inputs: Inputs/CostsIncreased availability of imported inputs: Inputs/Costs
• FDIFDI– Foreign K in plant’s own industry (horizontal spillovers) and ...Foreign K in plant’s own industry (horizontal spillovers) and ...
– In industries that buy/sell inputs to plant’s industry (vertical spillovers)In industries that buy/sell inputs to plant’s industry (vertical spillovers)
Integration and TFP: Integration and TFP: Econometric StrategyEconometric Strategy
• Controls: Controls: – Age, age squared, size, industry output, capacity utilization, Age, age squared, size, industry output, capacity utilization,
industrial and geographic concentration, U.S. consumption, industrial and geographic concentration, U.S. consumption, ln(XR*US PPI), and year dummies.ln(XR*US PPI), and year dummies.
ConclusionsConclusions Sizeable productivity gains from integration in both Sizeable productivity gains from integration in both
Brazil and Mexico (mainly import discipline);Brazil and Mexico (mainly import discipline); How much of these gains were level or growth How much of these gains were level or growth
effect is difficult to telleffect is difficult to tell;; Signs that North-South integration was a more Signs that North-South integration was a more
powerful boost to trade and productivity than its powerful boost to trade and productivity than its South-South counterpart;South-South counterpart;
““Integration shock”, though, has not produced, so Integration shock”, though, has not produced, so far, East Asian levels of productivity growth.far, East Asian levels of productivity growth.