REGIONALIZATION IN LATIN AMERICA: TRADE, INVESTMENT, AND FIRM BEHAVIOR Barbara Stallings Brown University July 15, 26
SUMMARY OF PRESENTATION Introduction Historical background Intra-regional trade flows Intra-regional investment flows The current situation Conclusions
INTRODUCTION Latin America has long history of regional integration attempts, but they have not been very successful Hypothesis: lack of consistency between ends and means Government agreements, without privatesector involvement, failed to achieve robust economic interactions
HISTORICAL BACKGROUND Attempts at integration go back to postindependence period (early 19th century) Renewed interest in post-wwii period -- 196s-197s: extension of import-substitution industrialization strategy -- 199s-present: open regionalism Both featured sub-regional organizations
INTRA-REGIONAL TRADE FLOWS Intra-regional trade is low in comparison to other regions High points of intra-regional trade were in mid-197s and mid-199s Intra-regional trade has been pro-cyclical Composition of intra-regional exports has emphasized manufactured goods; imports have favored commodities
INTRA-REGIONAL TRADE COEFFICIENTS European Union (15) NAFTA A sia (including Japan) A sia (excluding Japan) ASEAN-1 CARICOM Central American Common M arket Latin A merica and Caribbean Mercosur Andean Community Africa 9.7 9.7 21.8 2.5 16.6 14.8 34.1 41.2 5.1 55.9 64.4 1 2 3 4 5 6 7 198-1984 199-1994 2-24
DESTINATION OF EXPORTS (percent of total) Intragroup Other LAC a United States European Union Asia (including Japan) Other Countries Mercosur 12.9 15.4 18.3 23. 15.7 14.8 Andean Community 1.5 16.8 46.6 11. 9.6 5.5 CACM b 17.7 8.5 57.8 1. 2. 4. Caricom c 17.1 3.9 51.7 14.5 3.1 9.7 Total of the four d 12.7 14.8 32.1 17.7 12.1 1.7 Source: ECLAC, 25 (p. 85) based on oficial country statistics. a Latin America and the Caribbean. b Totales utilizados para el cálculo del coeficiente incluyen exportaciones de maquila y zonas francas. c Includes information from 5 countries: Barbados, Guyana, Jamaica, Suriname, and Trinidad y Tobago (preliminary data for January-September). d Excludes Chile and México.
TRENDS IN INTRA-REGIONAL TRADE 12, 1, 8, 6, 4, 2, 25 2 15 1 5 25 196 1963 1966 1969 1972 1975 1978 1981 1984 1987 199 1993 1996 1999 22 Intrarregional exports Share in total exports
PRO-CYCLICAL PATTERN OF INTRA- REGIONAL TRADE 22 2 18 16 14 12 1 7 6 5 4 3 2 1-1 -2-3 -4 1981 1982 1983 1984 1985 1986 1987 1988 1989 199 1991 1992 1993 1994 1995 1996 1997 1998 1999 2 21 22 23 24 25 Intra-regional trade as share of total trade GDP growth rate
DESTINATION OF INTRA-REGIONAL EXPORTS Exports Region USA EU Asia Others Total Primary products Industrial goods Nat.resource based Low technology Medium technology 14.8 (12.7) 15.5 (13.3) 22.9 (19.7) 18.2 (15.6) 45.1 (38.8) 116.5 (1) 47.4 (35.7) 33.3 (25.2) 22.6 (17.) 16. (12.) 13.4 (1.1) 132.8 (1) 15.4 (25.5) 14.1 (23.4) 12.3 (2.4) 1.2 (17.) 8.2 (13.6) 6.2 (1) 8. (38.9) 6.7 (32.3) 3. (14.5) 1.7 (8.1) 1.3 (6.1) 2.6 (1) 2.3 (49.3) 8.4 (2.3) 5.9 (14.3) 3.3 (8.2) 3.3 (8.) 41.3 (1) 3.6 (33.8) 4.2 (39.6) 1.4 (13.3).8 (7.1).7 (6.3) 1.7 (1) High technology Others.7 (12.9) 2.2 (4.6) 1.3 (24.3). (.1) 1.2 (21.8) 5.4 (1) Total 62.8 (24.7) 51. (2.) 46.9 (18.4) 34.1 (13.4) 59.8 (23.5) 254.7 (1)
INTRA-REGIONAL INVESTMENT Intra-regional investment in Latin America also lags other regions (not true earlier) Lack of strong trade-investment links as in East Asia New trans-latin firms in major Latin American countries since 199 Investments mainly limited to LA; in search of markets and materials; new sectors; tendency to sell out to TNCs
TRENDS IN INTRA-REGIONAL INVESTMENT 15 12 9 6 3 197 1975 198 1985 199 1995 2 Países en desarrollo América Latina y el Caribe Asia en desarrollo
OUTWARD FDI STOCKS AND FLOWS ARGENTINA BRAZIL 6 25 25 18 72 5 2 15 6 3 75 15 12 48 2 5 1 9 36 6 24 1 25 5 3 12 198 1982 1984 1986 1988 199 1992 1994 1996 1998 2 22 24-1 25-5 198 1982 1984 1986 1988 199 1992 1994 1996 1998 2 22 24-3 -12 Flow of outward FDI (left-hand scale) Stock of outward FDI (right-hand scale) Flow of outward FDI (left-hand scale) Stock of outward FDI (right-hand scale) CHILE MEXICO 4 5 16 5 2 4 14 4 5 18 3 5 12 4 16 3 1 3 5 3 14 12 2 5 8 2 5 1 2 1 5 6 2 1 5 8 6 1 4 1 4 5 2 5 2 198 1982 1984 1986 1988 199 1992 1994 1996 1998 2 22 24 198 1982 1984 1986 1988 199 1992 1994 1996 1998 2 22 24-5 -2 Flow of outward FDI (left-hand scale) Stock of outward FDI (right-hand scale) Flow of outward FDI (left-hand scale) Stock of outward FDI (right-hand scale)
COUNTRY EXPERIENCES (1) Argentina: longest history (early 19s), but high volatility; natural-resource based; few remaining Brazil: more recent, but much stronger and more diversified; many firms have invested outside of LA region; natural resources, but also transport, steel, engineering
COUNTRY EXPERIENCES (2) Mexico: situation similar to that of Brazil, but greater concentration in LA and US; services, construction materials, mining, food; only true TNC = Cemex (UNCTAD) Chile: latest to begin investing abroad, based on early reforms; heavily based in services and mostly confined to LA; also trend toward selling out to TNCs in recent years
CURRENT SITUATION IN REGIONAL INTEGRATION Intra-regional trade and investment expanding as growth rates have risen Some governments want to change rules Hemispheric integration momentum has stalled; replaced by bilateral and smallgroup agreements Recognition of need for new joint policy initiatives (e.g., infrastructure, macro harmonization), but little progress
CONCLUSIONS (1) Why is regional integration so weak in LA? Lack of private-sector involvement in economic initiatives, as in East Asia This became especially problematic after privatization Governments can provide incentives, but private firms make decisions on trade and investment
CONCLUSIONS (2) Lack of a political project behind government agreements as in Europe Although there is shared commitment to democracy and conflict avoidance, countries unwilling to sacrifice sovereignty for good of the region as a whole This unwillingness is even more evident at hemispheric level
CONCLUSIONS (3) Does Latin America have lessons to offer? Ironically, as Asian countries move toward government-led integration, it becomes more obvious that this approach has not been very successful in LA Asian countries must be extremely careful not to destroy the intra-regional dynamic based on private-sector initiative that has been an important source of growth