Economics of G20. Группа авторов
are net foreign assets in local currency divided by GDP in local currency from World Bank World Development Indicators.
We next studied the capital output ratios over different periods in the regions and found that all the regions had low incremental capital output ratios (ICORs) during the boom period of 2001–2007 (Table 6). Subsequently, it has increased in all the regions; it has increased particularly substantially in LAC and MNA. Of course, the ratio was always relatively high in MNA.
Table 5. Reserves as Percent of GDP
Note: R1 is the ratio of reserves in 2007 to those in 1997; R2 is the ratio of reserves in 2016 to those in 2007.
A number of explanations can be given for this increase in the ICORs. All the capacity that had been installed is not being used; therefore, there is excess capacity. Investment is being maintained despite excess capacity because demand may have shifted. Investment is going to sectors where demand has increased. In particular, demand may have shifted from export sectors to domestic sectors. Capacity in export sectors is lying idle; meanwhile, it is being created in domestic sectors where there is excess demand. Since one would expect that in labour-abundant developing countries, the domestic sectors would be more capital-intensive than the export sectors, the shift in production towards domestic sectors would raise the capital output ratio.
In brief, growth has declined substantially in LAC though GFCF as a proportion of GDP has been maintained and is actually higher since the crisis than it was in the boom years of 2001–2007. Also exports, which had declined immediately after the crisis and have recovered even if not to the levels before the crisis, are still much higher than in the two decades of the last century. Furthermore, there has been no sharp deterioration in the CAD. The slower growth may be because of the shifting structure of production towards domestic sectors, which are more capital-intensive.
Table 6. Incremental Capital Output Ratios
Note: Authors’ calculations based on data in World Bank World Development Indicators.
Performance of Individual Countries
(a)Growth: Of the 20 countries, 11 grew faster over the entire period 1965–2015 than the world, and thus, there seems to be mild convergence. Growth rates of the countries are not correlated with size as countries with a smaller population grew as rapidly as those with a larger population.
The debt crisis resulted in a slowing down of the Latin American economies. Only five countries, Chile, El Salvador, Guyana, Jamaica and Uruguay, grew faster in the two decades after the crisis than they had done in the two decades before the crisis (Table 7). But the effect of the debt crisis in slowing growth tapered after two decades or so. If one divides the period 1965–2015 into two, before the debt crisis of 1982 and after, one finds that 10 countries grew faster before the crisis and 10 grew faster after the crisis. Also, except for Chile, El Salvador and Jamaica, the rest of the countries grew faster in this century than they had in the last two decades of the previous century. But even over the period 2001–2015, most countries saw a decline in their growth rates after the onset of the 2008 crisis and then a recovery. Only Bolivia, Guyana and Uruguay grew faster after the crisis than they had done earlier, and only Brazil did not experience a recovery over the 2010–2015 period.
We have seen above that the gap between per capita income in the Latin American region as a whole and the high-income countries did not lessen in the period 1965–2015. We now examine whether there was convergence among the Latin American countries. We ran regressions of the growth of per capita income over various periods, e.g. 1965–2015, 1983–2015, etc. against per capita income in the initial period. We usually did not find any significant relation except for the period 1983–2000 when the Latin American economies grew very slowly. During this period, there was a significant coefficient, at the 5% level, but its sign was positive implying that the economies diverged.
Table 7. Average Annual Growth Rates for Different Periods
Source: World Bank World Development Indicators.
Investment
The pattern of the behaviour of the ratio GFCF to GDP is very similar among the Latin American countries, though here are some exceptions. Generally, the ratio fell after the onset of the debt crisis and was lower in the following two decades (Table 8). But it started increasing and was higher in this century than in the last two decades of the last century. Though the ratio has declined since the financial crisis of 2008, it is still for most countries higher than it was in the decades following the debt crisis.
Table 8. GFCF as Percent of GDP
Source: World Bank World Development Indicators.
The countries have usually grown slowly even though the investment rate has been high. This has resulted in very high ICORs for most of the countries (Table 9). Only Panama and Paraguay have ICORs similar to those of countries in the other regions.
(b)Exports: A total of 17 of the 19 countries for which we have data over the 50-year period show a higher exports to GDP ratio in the period 2011–2015 than in the period 1965–1973 (Table 10). Only Guyana and Jamaica show a fall in the ratio. On the contrary, Bolivia, Chile, Ecuador and Mexico exhibit a very substantial increase.
Table 9. ICORs for the period 1965–2015
Source: Authors’ calculations based on data from World Bank Indicators.
The pattern of behaviour of exports to GDP ratio is again very similar for most of the Latin American countries, though obviously there are some differences. Usually, the percent of exports to GDP fell in the 1980s and 1990s after the debt crisis, then rose in the period 2001–2007 and fell after the financial crisis (Table 10).
However, countries such as Colombia, Ecuador and Jamaica show almost a continuous rise throughout the 50-year period and there is no substantial fall in any period. On the contrary, Bolivia, Nicaragua and Peru show no fall after the crisis.
The increase in exports has affected the economic linkages between the countries in LA and major regions of the world. We regressed the growth rates of the Latin American countries with the growth rates of the other regions and countries and found that a number of these correlations have increased (Table 11).
The correlation with growth rates of the world have increased and become significant at the 5% level from 8 countries to 15 and with the LAC also from 5 countries to 16. Number of countries whose growth rate is significantly correlated with that of the US has increased from 5 to 9, though 5 of these are small Central American countries, and with China from 0 to 7. A prosperous world economy would boost growth in LA. Also, the increasing growth linkages among the Latin American countries suggest that stronger integration among them may be beneficial to these countries.
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