Economic growth with equity: challenges for Latin America

The publication of this book was made possible by the contributions of the Ford Foundation and the German Federal Ministry for Economic Cooperation and Development (BMZ). The funds of the latter institution are managed by the Deutsche Gesellschaft für Technische Zusammenarbeit" (GTZ). This is an ECLAC and Palgrave Macmillan copublication. Preface From time to time, Latin American countries experience growth spurts, like in the period 2004-05, when the region achieved the highest biennial growth rate of the past 25 years. However, sustained growth has been elusive in the last quarter of a century, and this elusive growth has come hand-in-hand with notorious economic and social inequalities. Concerned by these twin failures, on September 1-2, 2005, the Economic Commission for Latin America and the Caribbean (ECLAC) convened an outstanding group of economists to review the state of the art in the fields of policy and development, with the aim of establishing the best available knowledge regarding how development can get started and how it can then evolve into a sustained trend. Ten papers were prepared for the seminar and revised for the present volume edited by ECLAC. An overview chapter, covering the main issues of growth and equity in the region, opens the volume. The following three chapters tackle the challenge of reviewing recent development experiences, discussing the alternative interpretations of the sources of success stories and failures in both Latin America and other emerging economies. Although development is associated with many branches of public policy, economic and social policies are often designed and implemented independently, without accounting for the complex relationship among them. The following two chapters examine this relationship from the perspective of social policies and their potential impact on growth and poverty. The final aim of these chapters is to establish how policy makers and societies can adopt pro-growth social policies. The last four chapters analyze the policy areas that were two of the main targets of Washington Consensus reforms: respectively, finance and trade. The chapters covering the former focus on domestic capital markets and productive investment, on the one hand, and on the management of the capital account for a development-friendly financial environment, on the other. The chapters covering trade concentrate on the external environment faced by the countries, the impact of the composition of trade on the economies, and the effects of the diversity and stability of exports on aggregate economic growth. The subject of this volume and the topics covered have been at the core of ECLAC's research and policy work throughout its history, as witnessed by the significant contributions made over the years to the study of the determinants of economic development. The Commission has recently emphasized the need to put back public policies at the center of the development agenda, and has insisted on the importance of an integrated approach to social and economic policy issues. The objective of these recommendations is to allow the countries of the region to achieve sustained growth and, at the same time, to be able to distribute more equitably the resulting benefits of this process. This volume, which constitutes a continuation of ECLAC's line of thought, has been produced in the context of growing concern and interest on the inequality prevailing in Latin American societies. Economies with average per-capita GDP of about one-fifth that of developed countries must tackle the challenge of equitable growth, since this appears to be a requisite for reducing the development gap with richer economies. The purpose of the set of papers in this volume on growth-with-equity is to contribute to the debate and action in that direction. We appreciate the contributions of all the authors of the chapters in this book, as well as the revisions of the drafts presented in the September seminar, and the efforts made to incorporate the comments received during and after that event. Naturally, all authors are fully responsible for the content of their respective chapters, which do not necessarily represent the point of view of any of the institutions represented in this volume. We acknowledge the valuable contributions of the discussants and chairpersons that participated in the seminar. The group includes Nancy Birdsall (President, Center for Global Development, Washington, DC), Roberto Bouzas (Professor, Universidad de San Andres, Buenos Aires), Vittorio Corbo (President, Central Bank of Chile), Robert Devlin (Integration, Trade & Hemispheric Affairs Division, IDB), Fabio Eber (Professor, Instituto de Economia, Federal University of Rio de Janeiro, Brazil), Joao Carlos Ferraz (Director, Production Productivity and Management Division, ECLAC), Alejandro Foxley (Minister of Foreign Affairs of Chile, former Senator), Daniel Heymann (Expert, ECLAC Buenos Aires Office), Jorge Katz (Professor of Economics, University of Chile; former Director of the Production Productivity and Management Division, ECLAC), Claudio Loser (Interamerican Dialogue, Washington, DC), Manuel Marfan (Member of the Board, Central Bank of Chile), Juan Antonio Morales (President, Central Bank of Bolivia), Guillermo Perry (Chief Economist for Latin America and the Caribbean, World Bank), Joseph Ramos (Dean, School of Economics, University of Chile), Andres Solimano (Regional Adviser, ECLAC), Augusto de la Torre (Regional Adviser on Finance, World Bank), Andras Uthoff (Chief, Social Division, ECLAC), Dorotea Werneck (former Minister of Industry and Trade and of Labor of Brazil), Roberto Zahler (Former President, Central Bank of Chile). Rodrigo Heresi, Rafael López-Monti and Miguel Torres assisted in the revision of drafts. Lenka Arriagada and Marcela Osses worked efficiently in the presentation and formatting of files. The seminar and the publication of this book were made possible by the generous contributions of the Ford Foundation and the German Federal Ministry for Economic Cooperation and Development (BMZ). The funds of the latter institution are managed by the "Deutsche Gesellschaft für Technische Zusammenarbeit" (GTZ). Ricardo Ffrench-Davis Senior Advisor Economic Commission for Latin America and the Caribbean (ECLAC) José Luis Machinea Executive Secretary Economic Commission for Latin America and the Caribbean (ECLAC) April 2006 Contents List of Tables List of Figures Preface Notes on the Contributors Growth and Equity: In Search of the "Empty Box", Jose Luis Machinea and Osvaldo L. Kacef Part I Recent Successful Experiences on Economic Development What Produces Economic Success? Dani Rodrik Development Success: May History Breed Humility William Easterly The Dual Divergence: Growth Successes and Collapses in the Developing World Since 1980 Jose Antonio Ocampo and Maria Angela Parra Part II. Interrelations Between Growth and Equity Is Greater Equity Necessary for Higher Long-Term Growth in Latin America? Franrois Bourguignon and Michael Walton Pro-Growth Social Policies for Latin America Miguel Szekely Part III. Financial Market Development for Growth Financial Development, Growth and Equity in Brazil Armando Castelar Pinheiro and Regis Bonelli Financial Globalization: From Crises-Prone to Development-Friendly? Ricardo Ffrench-Davis Part IV. Trade for Growth Trade and Growth: Why Asia Grows Faster than Latin America Manuel R. Agosin Trade and Growth: Past Experience and Perspectives for Latin America Marcelo de Paiva Abreu Index"