1. 1 Re-launching investment for growth: policy options Two axes for discussion: More trade deals/industrial policy Trade deals: with whom? What are they worth? Infrastructure & business environment Regulations Infrastructure Education

2. 2 Investment and growth: a robust relationship Source: IMF, own calculations

3. 3 How Intel boosted Costa-Rica’s growth Source: Central Bank of Costa Rica, cited in F. Larrain, Luis F. Lopez-Calva, and Andres Rodriguez-Clare, “Intel: A Case Study of Foreign Direct Investment in Central America”.

4. 4 All manufacturing Estimatet-statistic Comparative-advantage variables Labor costs a 0.211.49 Infrastructure b 1.573.31 Market size c 1.249.16 Agglomeration variables Existing FDI stock1.565.77 Industrialization d 1.403.25 Policy variables No war risk e 0.160.75 Corporate taxation f 0.191.02 Political risk g (reverse scale)0.081.12 Openness h -0.13-2.25 Dependent variable: Log inward FDI flows from US Observations: 255 R-square: 0.71 Method: OLS Notes a) Average hourly wage in manufacturing b) Quality of transport, communications and energy infrastructure (survey data) c) GDP d) Manufacturing & mining as percent of GDP e) Survey data (expatriates assessment) f) Assumes no tax holiday, $1 million profit, 50% remitted abroad (BI data) g) Composite of 13 variables; most closely associated with corruption (correlation coefficient of 0.88) h) Composite of 9 variables; most closely associated with local-content requirements (0.84), controls on the repatriation of profits (0.83), and import restrictions (0.82) Panel of 42 countries, 23 of which are developing ones;  FDI attracts FDI Source: Moody and Wheeler, JIE 1992

5. 5 Business environment quality: cost of living Source: UBS, own calculations Buenos Aires Santiago Seoul Frankfurt Miami Hong Kong NYTokyo Bangkok SP Mexico

6. 6 Business environment quality: various indicators Source: World Bank 2004 (data based on executive surveys)

7. 7 Business environment quality: various indicators Source: World Bank 2004 (data based on executive surveys)

8. 8 Cutting deficits, okay... but cutting on infrastructure... a good idea? Source: Cesar Calderon, William Easterly, and Luis Serven, “Infrastructure Compression and Public Sector Solvency in Latin America”, Banco Central de Chile, Documento de Trabajo 187, 2002.

9. 9 Estimatet-statistic Convergence variables log per capita GDP0.1244.593 log per capita GDP squared-0.010-5.278 Accumulation variables log fertility rate-0.025-5.340 Investment rate0.0592.682 Schooling years0.0074.235 TFPG variables Govt consumption/GDP-0.149-6.478 Rule-of-law index0.0173.245 Democracy index0.0541.862 Democracy index squared-0.048-1.846 Inflation rate-0.037-3.700 Terms-of-trade growth0.1655.893 Dependent variable: log per capita GDP growth Observations: 87 R-square: 0.67 method: OLS Schooling: average years of school attainment at secondary and higher levels for males aged 25 and above. Female education levels have no significant effect (presumably because of lower participation rates). Rule of law: seven-level index computed by Political Risk Services. Democracy: seven-level index of electoral rights computed by Freedom House. Fueling growth: education matters

10. 10 Education efficiency: math test scores compared Source: Doug Harris, « Diminishing Returns to Scale: Addressing some Basic Unanswered Questions about the Production of Education, mimeo, Florida State University, 2004; GDP per capita figures from World Bank (2004), regression line from own calculations.

11. 11 Inputs into the education system: comparison with companion group Source: Doug Harris, « Diminishing Returns to Scale: Addressing some Basic Unanswered Questions about the Production of Education, mimeo, Florida State University, 2004; GDP per capita figures from World Bank (2004), predicted math score from own calculations.