Lopez Cordova Moreira Oas Presentation 21nov02
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  • This is what we intend to do, that is to look at the relationship between integration and productivity having two of the largest countries in the region as a case study

Lopez Cordova Moreira Oas Presentation 21nov02 Lopez Cordova Moreira Oas Presentation 21nov02 Presentation Transcript

  • Regional Integration and Productivity: The Experiences of Brazil and Mexico Ernesto López-Córdova and Mauricio Mesquita Moreira IDB - INTITD NetAmericas Conference on “ Integrating the Americas” November 20-21, 2002
  • Motivation
    • What integration does to productivity is a key concern in a region where long term, sustainable growth has been a elusive goal;
    • The literature on trade and productivity does not cover recent agreements;
    • There has been no attempt to compare different integration strategies;
  • Overview
    • Literature review of the links between integration (trade and FDI) and productivity (TFP);
    • Main facts of Brazil and Mexico’s integration strategies;
    • Econometric analysis of the impact of integration on productivity based on plant level, manufacturing data. Mexico post-NAFTA (1993-99) and Brazil post-stabilization (1996-99);
  • What is the Theory?
    • Main Integration-Productivity Channels :
      • Trade
      • Foreign Direct Investment
  • The Trade Effects:
    • macro
    • comparative advantage
    • scale
    • knowledge
    • micro
    • input availability
    • knowledge spillovers
    • import discipline
    • higher turnover
  • The FDI effects:
    • entry
    • competition
    • knowledge spillovers
    • linkages
  • What is specific about regional integration ?
    • The trade channel might operate differently .
    • Comparative advantage : risk of trade diversion, particularly in south-south type of agreements.
    • Scale : potential gains are higher in a non-preferential liberalization but so are the potential losses.
    • Knowledge effects : might reduce the risk of the dislocation of learning/innovation intensive sectors, but might restrict producers access to the best practice.
  • What is the evidence in the region ?
    • Macro level: disappointing….
      • IDB (2001) - TFP  0.6 % a year in the 1990s
      • Baier et al. (2002) - TFP  2.9 % same period.
    • … .but some evidence of knowledge effects.
      • Blyde (2002) - positive technological spillovers through imported machinery
      • Schiff et al. (2002) - Higher North-South technological spillovers .
  • Labor productivity, Manufacturing Sector 1990=100
  • Firm level data
    • Growth
      • Tybout and Westbrook(1995): Mexico (1986-90) TFP 1.8 %
      • Pavnick (2000): Chile (1979-86) . TFP 2.8 %
      • Muendler (2002): Brazil (1986-98). TFP 0.4 %
      • Aw, Chen and Roberts (2001): Taiwan (1981-1991) TFP 3.2 %
    • Causality
      • TRADE . Strong Evidence of the import discipline effect.
      • FDI . Some evidence of the prevalence of vertical over horizontal spillovers (Aitken and Harisson 1999, Kugler 2000, )
  • Brazil and Mexico: stylized facts
  • Brazil and Mexico: stylized facts
  • Brazil and Mexico: stylized facts
  • Brazil and Mexico: stylized facts
  • Estimating Productivity: Strategy
    • Measure TFP using firm- or plant-level data
      • Allow for firm heterogeneity.
      • Compare performance by plant category (foreign ownership, exporters, etc.)
      • Control for unobserved firm characteristics.
      • ...but, intensive data requirements
    • Present aggregate measures of TFP performance
    • Explore determinants of firm-level TFP performance
      • Tariffs, FDI, exporting activities, input availability
  • TFP Estimation: Data
    • Brazil: Panel of 10,900 firms, 1996-99
    • Mexico: Panel of 5,300 plants, 1993-99
    • Data:
      • Inputs, K-stock, investment, shipments, some plant characteristics
      • Industry-level data on tariffs, trade, FDI
      • Industry-wide price deflators
      • Foreign ownership
    • Trade and tariff data at detailed HS level
      • Aggregate weighing by imports or US exports to ROW
  • TFP Estimation: Methodology
    • Cobb-Douglas production function:
      • y it =  o +  l l it +  s s it +  m m it +  k k it + ln TFP it +  it
    • OLS estimation yields biased estimates
      • Sample selection due to attrition
      • Simultaneity in TFP and input choice
    • Solution: Olley-Pakes (Ec. 1996)
      • Firms observe TFP shock, decide to stay or exit.
      • If firm stays, then it chooses investment (thus capital) based on observed productivity shock.
  • Brazil: Annual TFP Growth 1996-99 2.2 14.0 0.9 12.4 1.9 0.5 4.9 -0.8 0.4 -0.1 2.3 -2.2 2.4 8.3 0.0 4.3 8.2 -0.9 -2.4 6.5 5.1 2.4 -3.5 -0.5 2.5 5.5 8.5 11.5 14.5 Furniture; other manufacturing Other transportation equipment Motor vehicles Precision instruments Radio, television and communication equipment Electrical machinery Office, accounting and computing machinery Machinery and equipment Fabricated metal products Basic metals Other non-metallic mineral products Rubber and plastics products Chemicals and chemical product Refined petroleum and nuclear fuel Publishing Paper and paper products Wood products Leather Apparel Textiles Food products and beverages Total manufacturing Annual total factor productivity growth (%) Source : López-Córdova and Moreira (2002)
  • Mexico: Annual TFP Growth 1993-99 2.1 3.1 -0.3 3.3 4.8 0.6 5.9 4.6 2.5 -3.0 3.2 -0.3 2.4 -1.1 1.9 1.5 2.7 2.0 2.2 1.1 -0.1 1.1 -3.5 -2.5 -1.5 -0.5 0.5 1.5 2.5 3.5 4.5 5.5 Furniture; other manufacturing Other transportation equipment Motor vehicles Precision instruments Radio, television and communication equipment Electrical machinery Office, accounting and computing machinery Machinery and equipment Fabricated metal products Basic metals Other non-metallic mineral products Rubber and plastics products Chemicals and chemical product Refined petroleum and nuclear fuel Publishing Paper and paper products Wood products Leather Apparel Textiles Food products and beverages Total manufacturing Annual total factor productivity growth (%) Source : Author's calculation
  • Aggregate TFP Results
    • TFP growth might vary to the extent that regional integration differs across industries
      • However, other factors might be behind TFP growth (e.g., high tech vs. low tech industries)
    • Nonetheless, outward oriented industries firms exhibit faster TFP growth in both countries
      • Import-competing or exporting vs. non-traded industries
      • In Mexico, foreign-owned plants
  • Brazil: Annual TFP Growth 1996-99 by Industry/Plant Characteristics 1.49 2.93 3.35 2.16 1.33 2.19 2.29 2.14 1.90 3.07 2.42 2.36 2.43 0 0.5 1 1.5 2 2.5 3 3.5 4 MNC Domestic manufacturers Non-users of imported inputs Imported-input users Non-exporters Mercosur exporters All exporters Non-traded industry Exporting industry in Mercosur Exporting industry Importing industry in Mercosur Import-competing industry Total manufacturing Annual TFP Growth ( % ) Source : López-Córdova and Moreira (2002)
  • Mexico: Annual TFP Growth 1993-99 by Industry/Plant Characteristics Source : López-Córdova and Moreira (2002) 0.8 1.4 1.6 1.3 1.0 0.6 1.4 1.4 1.7 3.2 4.4 1.1 0.0 0 0.5 1 1.5 2 2.5 3 3.5 4 4.5 5 Domestic manufacturers MNC: Rest of the world MNC: North America Non-users of imported inputs Imported-input users Non-exporters Exporters Non-traded industry Exporting industry in North America Exporting industry Importing industry in North America Import-competing industry Total manufacturing Annual TFP Growth ( % )
  • Productivity Decomposition
    • Within-plant TFP growth or resource reallocation toward more efficient producers?
    • TFP decomposition:
      • Within-plant TFP gains
      • Within-industry reallocation
      • Reallocation across industries
    • Results
      • Reallocation is a major force behind productivity growth
      • Intra-firm gains in outward-oriented industries/firms
  • Brazil: Productivity Decomposition -50% -30% -10% 10% 30% 50% 70% 90% Domestic MNC Non-users of imported inputs Imported-input users Non-exporters Rest of the World exporters Mercosur exporters Non-exporters All exporters Non-traded in MERCOSUR Traded in MERCOSUR Non-traded Traded Manufacturing Within plant effect Reallocation within industry Reallocation across industries Source : López-Córdova and Moreira (2002)
  • Mexico: Productivity Decomposition -100% -80% -60% -40% -20% 0% 20% 40% 60% 80% 100% Domestic MNC: Rest of the World MNC: North America Non-users of imported inputs Imported-input users Non-exporters Exporters Non-traded in North America Traded in North America Non-traded Traded Manufacturing Within plant effect Reallocation within industry Reallocation across industries Source : López-Córdova and Moreira (2002)
  • Integration and TFP: Econometric Strategy
    • Estimation equation:
      • TFP ijt =  t TRADE ijt +  f FDI ijt + controls +  ijt
    • Trade variables:
      • Import competition (Mexico): World tariffs, imports/output
      • Market access (Mexico): Preferential treatment in US over ROW
      • Exporting activities: Exporter dummy, exports/sales
      • Increased availability of imported inputs: Inputs/Costs
    • FDI
      • Foreign K in plant’s own industry (horizontal spillovers) and ...
      • In industries that buy/sell inputs to plant’s industry (vertical spillovers)
  • Integration and TFP: Econometric Strategy
    • Controls:
      • Age, age squared, size, industry output, capacity utilization, industrial and geographic concentration, U.S. consumption, ln(XR*US PPI), and year dummies.
    • Unobserved plant characteristics  Fixed effect
    • Endogenous trade variables  2SLS, IVs
      • For Mexican and US tariffs: NAFTA negotiated tariffs
      • For import penetration: Fitted import values from a gravity equation
  • Brazil: Econometric Results Independent variables Reg 1 Reg 2 Reg 3 Reg 4 Reg 5 Reg 6 Reg 7 Reg 8 Reg 9 Reg 10 Exporting activity World exporter 0.0062 (0.0080) Mercosur exporter 0.0105 (0.0080) Exports/sales 0.0011 (0.0003)*** Mercosur exports/sales 0.0008 (0.0009) Imported intermediate goods Imported-input/material costs -0.0006 -0.0004 (0.0002)*** (0.0002)* Imports/material costs 0.0004 0.0003 (0.0001)*** (0.0001)*** FDI spillovers Intra-industry -0.2013 -0.2031 -0.2004 0.1224 0.1221 0.1210 0.1229 0.1222 0.1212 0.1223 (0.0903)** (0.0903)** (0.0902)** (0.0920) (0.0920) (0.0920) (0.0919) (0.0920) (0.0920) (0.0919) From forward linkages -0.9624 -0.9528 -0.9732 -0.2096 -0.2094 -0.2098 -0.2108 -0.2111 -0.2041 -0.2155 (0.1673)*** (0.1673)*** (0.1672)*** (0.1705) (0.1705) (0.1705) (0.1705) (0.1705) (0.1705) (0.1705) From backward linkages 1.5844 1.5754 1.5939 0.3729 0.3739 0.3700 0.3888 0.3715 0.3680 0.3814 (0.2444)*** (0.2444)*** (0.2443)*** (0.2492) (0.2492) (0.2492) (0.2492) (0.2492) (0.2492) (0.2492) Observations 28329 28329 28326 28329 28329 28329 28329 28329 28329 28326 Number of firms 10393 10393 10392 10393 10393 10393 10393 10393 10393 10392 Within R-squared 0.0278 0.0283 0.0287 0.6016 0.6016 0.6016 0.6018 0.6016 0.6016 0.6017 Ho: Sum FDI spillovers=0 - F statistic 3.37 3.35 3.37 1.50 1.51 1.45 1.66 1.47 1.49 1.53 Log TFP Dependent Variable: Dependent Variable: Change in Log TFP
  • Mexico: Econometric Results Explanatory variables: Reg 1 Reg 2 Reg 3 Reg 4 Reg 5 Reg 6 Reg 7 Reg 8 Reg 9 Reg 10 Competition from imports Mexican tariff on total imports -0.0050 -0.0087 -0.0085 -0.0088 -0.0110 -0.0111 -0.0110 -0.0112 -0.0106 -0.0110 (0.0022)** (0.0021)*** (0.0021)*** (0.0021)*** (0.0020)*** (0.0019)*** (0.0019)*** (0.0019)*** (0.0018)*** (0.0019)*** Imports/industry output 0.0187 0.0092 (0.0057)*** (0.0054)* Exporting activity Exporter -0.0088 (0.0045)** Exports/Sales -0.0111 (0.0134) US Tariff (Mx - RofW) -0.0042 -0.0048 -0.0049 -0.0050 -0.0026 -0.0025 -0.0026 -0.0027 -0.0013 -0.0025 (0.0019)** (0.0019)** (0.0019)** (0.0019)** (0.0018) (0.0018) (0.0018) (0.0018) (0.0017) (0.0018) Imported intermediate goods Imported inputs/Total non-labor costs 0.0554 -0.0281 (0.0146)*** (0.0136)** FDI spillovers Intra-industry -0.1439 -0.1402 -0.1450 -0.0146 -0.0129 -0.0160 -0.0116 -0.0142 (0.0533)*** (0.0533)*** (0.0533)*** (0.0495) (0.0495) (0.0495) (0.0474) (0.0495) From forward linkages 0.3611 0.3739 0.3637 0.2880 0.2945 0.2913 0.2533 0.2870 (0.0739)*** (0.0739)*** (0.0739)*** (0.0687)*** (0.0688)*** (0.0687)*** (0.0665)*** (0.0687)*** From backward linkages 1.1316 1.0759 1.1270 0.6345 0.6076 0.6316 0.6140 0.6360 (0.1629)*** (0.1635)*** (0.1629)*** (0.1517)*** (0.1522)*** (0.1517)*** (0.1466)*** (0.1516)*** Observations 26146 26146 26146 26146 26146 26146 26146 26146 25462 26146 Number of plants 5107 5107 5107 5107 5107 5107 5107 5107 5014 5107 Within R-squared 0.0160 0.0155 0.0174 0.0158 0.3694 0.3704 0.3708 0.3701 0.3742 0.3706 Ho: Sum FDI spillovers=0 - Chi2 statistic 53.32 50.27 53.09 27.87 26.72 27.79 26.55 27.94 Dependent Variable: Dependent Variable: Log TFP Change in Log TFP
  • Productivity and Integration: Summary of Econometric Evidence + + Competition from imports Tariff elimination + + Import penetration + + Foreign Direct Investment Foreign ownership of the firm + + Spillovers Intra–industry – 0 – 0 Through backward linkages + 0 + + Through forward linkages – 0 + + Net effect 0 0 + + Channel Brazil Mexico TFP level TFP growth TFP level TFP growth Exporting activity Exporter status 0 Exports / sales + Mercosur exports / sales 0 – 0 Preferential access to the US market + 0 Imported inputs – – + –
  • Conclusions
    • Sizeable productivity gains from integration in both Brazil and Mexico (mainly import discipline);
    • How much of these gains were level or growth effect is difficult to tell ;
    • Signs that North-South integration was a more powerful boost to trade and productivity than its South-South counterpart;
    • “ Integration shock”, though, has not produced, so far, East Asian levels of productivity growth.