1. Who benefits from free trade in Latin America? Export promotion, poverty and inequality Enrique Ganuza

2. Context  Structural reforms carried out in the region during the 90s  Expectations: Growth: The region’s economies would recover and become more dynamic after the lost decade of the eighties Exports would be the main driver of growth Diversification: Comparative advantages would lead to export diversification (unskilled workers?) Poverty would be reduced

3. Growth?  … that strategy seemed to be working, but its success did not last.

4. GDP GROWTH, annual average 1950-605.120010.4 1960-705.62002 -0.6 1970-805.520031.5 1980-901.1 1990-003.2 1990-973.7 1997-021.2 HALF A DECADE LOST MEDIA DECADA PERDIDA

5. Growth slowed down in the 90s

6. Did exports diversify? LAC

7. Is growth driven mainly by exports?  YES, exports did turn into a growth engine 1985-89: in 9 out of 18 countries 1990-94: in 13 out of 18 countries 1995-00: in 14 out of 18 countries 2000-01: in 16 out of 18 countries  BUT: The growth rate became steadily lower, and the fall of exports was an important recession factor in 13 out of 18 countries during 2000-01 Latin American exports achieved lower penetration on world markets

8. Poverty POVERTY EXTREME POVERTY Mill.% % 198013640.56218.6 199020048.39322.5 199720443.58919.0 200222144.09920.0 200322544.010019.4

9. INEQUALITY ALMOST WITHOUT CHANGE AT VERY HIGH LEVELS 1990-99:Gini increased10 countries Gini without change 5 countries Gini decreased 3 countries 1999-02:Gini decreased 1 country (out of 11)

10. Are these results due to the reforms?  Not necessarily: validation by means of contrafactic simulation is also needed  Generated by means of a CGE (Computable General Equilibrium) model  10 macrosimulations: raise and lower tariffs, increase import and export prices, devaluate, increase external savings, subsidize exports, increase productivity, FTAA, WTO

11. UNDP Project Model the effects of export-driven growth on poverty and inequality  16 countries in the region (MEX, HON, ELS, COS, COL)  16 CGE models  16 applications of the microsimulation method  Are a stronger export orientation and trade liberalization beneficial?

12. What has been the impact of trade liberalization in Latin America ? Unilateral liberalization FTAAWTO GDP ↑ ↑ ↑ Employment ↑↑↑ Labour inequality ↑↑↑ Poverty ↓/0

13. Impact on poverty reduction  Generally positive, but.. Mostly small Real wages are the main transmission mechanism In some cases increased job and wages inequality nullifies the poverty reduction effect. Other effects (unemployment, employment adjustment by line of activity) reduce the final impact on poverty

14. A few conclusions  The reforms have not fulfilled their promises  However, we should NOT attribute poor performance as such to trade reforms  Trade liberalization, FTAA, WTO do produce a positive impact—albeit a very modest one—on growth and employment. ... However, they also produce greater labour inequality. As a result their impact in terms of poverty reduction is extremely limited.  Macro restrictions are critical to define the magnitude of these effects. Results can improve in the presence of sufficient access to external savings.

15. A few conclusiones (cont.)  Growth versus inequality: Trade liberalization makes for greater inequality. This reduces the positive impact on poverty reduction  “Productivity, productivity and productivity” Invest more in education in order to make better use of the opportunities of globalization Invest in infrastructure and other productivity enhancing measures.