Relaunching investment for growth: policy options

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
Investment and growth a robust relationship
Source IMF, own calculations
3
How Intel boosted Costa-Ricas 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
FDI attracts FDI
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
Source Moody and Wheeler, JIE 1992
5
Business environment quality cost of living
NY
Tokyo
Hong Kong
Frankfurt
Seoul
Mexico
Miami
SP
Bangkok
Santiago
Buenos Aires
Source UBS, own calculations
6
Business environment quality various indicators
Source World Bank 2004 (data based on executive
surveys)
7
Business environment quality various indicators
Source World Bank 2004 (data based on executive
surveys)
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
Fueling growth education matters
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.
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
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.