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Growth Diagnostics in Peru

Author

Listed:
  • Ricardo Hausmann

    () (Center for International Development at Harvard University)

  • Bailey Klinger

Abstract

This paper presents a growth diagnostic of Peru. It notes that although Peru has recently enjoyed high rates of economic growth, this growth is actually a recovery from a significant and sustained growth collapse that began in the 1970s. The growth collapse was caused by a decline in export earnings due to the fall in international prices and an inadequate investment regime in export activities that led to a fall in market share. This situation led to collateral damage in the form of a balance of payments, fiscal and financial crisis, accompanied by hyperinflation and violence, but these aspects were corrected in the 1990s. However, the transformation of the export sector has been surprisingly small: the same activities that declined – mining and energy – are the ones that are leading the current recovery in exports to levels that in real per capita terms are similar to those achieved 30 years ago. We argue that the lack of structural transformation is associated with Peru’s position in a poorly connected part of the product space and this accentuates coordination failures in the movement to new activities. In addition, Peru’s current export package, is very capital intensive and generates few jobs, especially in urban areas where the bulk of the labor force is now located. This limits the welfare benefits of the current growth path. The key policy message is that the public sector must act to encourage the development of new export activities that better utilize the human resources of the country. This involves action on the macro front to achieve a more competitive real exchange rate, improvements in the capacity to solve coordination failures in the provision of specific public sector inputs and programs to stimulate investment in new tradable activities.

Suggested Citation

  • Ricardo Hausmann & Bailey Klinger, 2008. "Growth Diagnostics in Peru," CID Working Papers 181, Center for International Development at Harvard University.
  • Handle: RePEc:cid:wpfacu:181
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    File URL: https://www.hks.harvard.edu/sites/default/files/centers/cid/files/publications/faculty-working-papers/181.pdf
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    References listed on IDEAS

    as
    1. James J. Heckman & Carmen Pagés, 2004. "Law and Employment: Lessons from Latin America and the Caribbean," NBER Books, National Bureau of Economic Research, Inc, number heck04-1, June.
    2. Hausmann, Ricardo & Rodrik, Dani, 2003. "Economic development as self-discovery," Journal of Development Economics, Elsevier, vol. 72(2), pages 603-633, December.
    3. Jaffe, Adam B, 1986. "Technological Opportunity and Spillovers of R&D: Evidence from Firms' Patents, Profits, and Market Value," American Economic Review, American Economic Association, vol. 76(5), pages 984-1001, December.
    4. Ricardo Hausmann & Bailey Klinger, 2007. "The Structure of the Product Space and the Evolution of Comparative Advantage," CID Working Papers 146, Center for International Development at Harvard University.
    5. Kenneth J. Arrow, 1962. "The Economic Implications of Learning by Doing," Review of Economic Studies, Oxford University Press, vol. 29(3), pages 155-173.
    6. Ricardo Hausmann & Bailey Klinger, 2006. "Structural Transformation and Patterns of Comparative Advantage in the Product Space," CID Working Papers 128, Center for International Development at Harvard University.
    7. Ricardo Hausmann & Rodrigo Wagner & Francisco Rodriguez, 2006. "Growth Collapses," CID Working Papers 136, Center for International Development at Harvard University.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Growth diagnostics; Peru;

    JEL classification:

    • O54 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Latin America; Caribbean

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