By Carlo Pietrobelli, Inter-American Development Bank, presented at the 17th TCI Global Conference, Monterrey 2014.

1. Rethinking Productive Development:
Sound Policies and Institutions
Carlo Pietrobelli
Mexico and Latin American Economies
11 November 2014

2. Rethinking Productive
Development: Sound
Policies and Institutions
Carlo Pietrobelli
Lead Economist
Competitiveness and Innovation Division
Inter-American Development Bank
carlop@iadb.org

3. GDP per capita: Mexico slower than other
emerging countries. The gap with the US widens
-3-
45
40
35
30
25
20
15
10
5
0
30
25
20
15
10
5
0
1960
1962
1964
1966
1968
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
PIB per cápita (miles de dólares de 2005)
Escala logarítmica
Ingreso per Cápita
(1960-2009)
Brasil China
India Corea
México Estados Unidos (eje derecho)
country
GDPpc annual
growth
1960-2009
China 6.53
S.Korea 5.59
India 3.03
Brasil 2.44
USA 2.19
México 1.92

4. Problem in LAC: Low and falling productivity
73.4
52.0
79
74
69
64
59
54
49
1960 1964 1968 1972 1976 1980 1984 1988 1992 1996 2000 2004 2008
Porcentaje de Productividad Total de los Factores de Estados Unidos
País típico de América Latina
Source: Own calculations based on Fernández-Arias (2014).
11/20/2014 4

5. 73.4
66.7
Very different in East Asia
49.4 52.0
79
74
69
64
59
54
49
1960 1964 1968 1972 1976 1980 1984 1988 1992 1996 2000 2004 2008
Porcentaje de Productividad Total de los Factores de Estados Unidos
País típico de América Latina País típico tigres asíaticos
Source: Own calculations based on Fernández-Arias (2014).
11/20/2014 5

6. Many other countries invested much more in
Research and Development
0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5
Israel
Finlandia
Corea del Sur
Suecia
Dinamarca
Estados Unidos
Alemania
OCDE
Francia
Reino Unido
España
Italia
Brasil
Argentina
Costa Rica
México
Chile
Uruguay
América Latina
Ecuador
Panamá
Colombia
Bolivia
Perú
El Salvador
Paraguay
Fuente: OCDE (2010) y RICYT (2013).

7. Countries like Korea used industrial policies
to produce deep economic transformation
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
1984 1988 1992 1996 2000 2004 2008
Source: Author’s calculations based on Hausmann et al (2011).
electronics
garments
machinery
2008
7

8. Latin America underwent little transformation
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
1984 1988 1992 1996 2000 2004 2008
Source: Author’s calculations based on Hausmann et al (2011).
2008
8
electronics
garments

9. Edited by
DEVELOPMENT IN THE AMERICAS
IDB
Rethinking
Productive Development
Sound Policies and Institutions for Economic Transformation

10. 10
Innovation and New
Dynamic Firms Clusters’ synergies
Take full advantage of
Globalization

11. 11
Schools and Skills
Protect the policy process from
capture and rent-seeking
Development Banks? Picking winners?

12. IM
Policies of the past…
H V
12

13. IM
Rice Protection in Costa Rica
H V
 Public policies captured by CONARROZ, dominated
by larger producers and rice processors
 As local demand exceeds local production, import
tariffs at 35% protect non-competitive (local)
production; tariff-free import licenses are then granted
to local rice producers to process it. They import rice
at low international prices and sell it domestically at
higher prices.
 The poor suffer: consumers pay high prices and
processors gain subsidies.

14. …and policies of the future
14

15. Rice Development in Argentina
(new varieties from Entre Ríos)
 Low productivity rice variety was being exported from Entre
Ríos; with Brazil depreciation in 1999, rice exports lose
competitiveness.
 At the same time INTA (in Concepción) was developing a new
higher quality and higher productivity rice variety
 Local producers (through Pro-Arroz, their local foundation) tax
themselves to support INTA’s activities.
 The Local Government helps by limiting free-riding (all gain
from a new variety but nobody is ready to pay for it!!) and
fostering coordination by imposing a new levy to finance INTA.
 Results: new rice variety, increase in competitiveness, INTA
becomes world leader in rice technology.

16. Modern Industrial policies:
Can be done successfully…if done right
Rice Productivity
200
175
150
125
100
75
50
Argentina
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012
Production Index by hectare (1990=100)
Sources: Own calculations based on FAO (2013).
Costa Rica
16

17. Need to rethink a modern approach to
industrial development and structural change
 In LAC ambiguous approach to industrial policies: often
used in the 1970s and 1980s, then abandoned in favor of a
“Washington Consensus”.
 Indiscriminate rejection of old policies was not a solution either:
the Washington Consensus was not enough for satisfactory
growth.
 Yet other countries implemented industrial policies cleverly and
successfully.
 How to tell apart the good policies from the bad ones.
 A pragmatic approach to help promote economic transformation
and Competitiveness in a globalized world.

18. Three basic tests for policies
1. Market Failures: Why is it that the market
does not do by itself what appears desirable?
2. Policy Design: Is the policy intervention a
proper remedy for the market failure? “wrong”
interventions would not help.
3. Institutions: Does the country have the
required institutions to adopt the policy
effectively? (Government failure may be
worse)

19. What to do…
Policy
Design:
…and not to do
11/20/2014 19

20. Public
Inputs
A Typology of PDP Interventions
Market
Interventions
Horizontal Vertical
One-stop shop for
business
registration
R&D subsidies
Phytosanitary
controls
Tax exemptions
for tourism
R&D subsidies
20

21. Not best practices but best matches
 Industrial policies are complex and risky. They
require:
• Process of discovering right policies
• Collaboration with private sector
• Efforts to avoid capture and rent seeking
• Cooperation across government agencies
 Institutions key for success, but vary greatly across
countries
• Policies that work in one context do not necessarily work in
others
 Rather than best practices, adopt policies that best
match capabilities and institutions
21

22. What do Cluster Development Policies
have to do with this?
 Local examples of clever and modern
industrial policies.
 Mechanisms to:
 “discover” what policies are needed
 improve coordination (private-private,
private-public, public-public)

23. Why Cluster Development Programs?
 In a cluster externalities and coordination
failures naturally emerge, but also opportunities
to remedy them.
 The correction of information asymmetries, of
externalities, of coordination failures, are the
guiding principles for cluster development
policies.
 Help to exploit the advantages of linkages.

24. IDB Cluster Programs in LAC
Organization No. of
clusters
US$ Characteristics
IDB 180 300 M. (180
M. from IDB)
18 Loans supporting
competitiveness, to Governments
(often at sub-national level). In
each Investments in approx. 10
clusters
IDB 30 70 M. approx. Some cluster-specific loans (DR,
Gua, Hon, Panama, Haiti, Ecua)
MIF 72+40 US$120 M.
approx.
Since 2007, grants to the private
sector. First clusters (72), then
local economic development
(LED) (40).
Total IDB Group 322 490 M.
approx.
Since 2000, always with local co-financing

25. Lessons from Experience
 In fact cluster development programs have represented tools to
coordinate microeconomic policies.
 They have often been flexible enough to adapt to local
circumstances and needs.
 Through their participatory approach they have often helped to
identify the missing public inputs, the public policies needed, to
prioritize policies, and create consensus. (“Discovery” of the
right policies).
 Many programs created local conditions for a better coordination
and collaboration among firms and with public entities.
“Platforms” to facilitate coordination and joint actions.
 “Capture” of subsidies and “rent-seeking” appear to have been
lower than one would fear. “Checks and balances” were built
thanks to multi-stakeholder participation.

26. Do they Work? IDB Ongoing Impact Evaluation Efforts
E.g. in Brazil: Positive direct and significant effects on:
26
o Employment: about 20% increase in 3-5 years;
o Probability to export: about +5% per year;
o Export levels: increase 50%-80% for each exporter, with
persisting and growing effects overtime.
Indirect effects on firms localized in the area of influence of
clusters, especially on the export probability and levels.
Analysis of linkages, networks, and their influence on firms and
clusters performance through Social Network Analysis
In Maffioli, Pietrobelli, Stucchi (Eds.), 2015, The Evaluation of Cluster Development Programs,
Washington DC: IDB, a summary in:
http://www.iadb.org/document.cfm?id=37925857&pubDetail=1&wt_docType=Technical
Notes&wt_docnum=37925857&wt_language=en&wt_department=IFD/CTI&lang=en

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