Eduardo Fernández-Arias

Ernesto Stein

Jorge Cornick

Ernesto Dal Bó

Gonzalo Rivas

Productive development policies (PDPs) are notoriously hard. They involve a daunting level of technical detail, require public-private collaboration, are in constant danger of capture, and demand time consistency hard to achieve in a politically volatile region. Nevertheless, the potential of PDPs to revitalize the regionâs economic performance and spur productivity growth cannot be ignored. This book takes an in-depth look at 17 cases involving productive development agencies from Argentina, Brazil, Costa Rica and Uruguay, identifying key features of institutional design and agency-level practices that make success more likely in this difficult policy arena. Careful study of these experiences might help successful productive development policies gain currency across the region. The cases in this book should not be seen as the exceptions that prove the rule of lackluster PDP performance, but rather as examples that demonstrate the rule can be broken.

Building Capabilities for Productive Development

Charles Sabel

Alberto Trejos

It takes two to tango. Strong public-private collaboration is key for discovering and implementing effective productive development policies to bring out the best in existing economic activities and to foster economic transformation. The 25 Latin American cases analyzed in this volume show how and why many public and private partners are dancing smoothly while others stumble or follow different drummers. This book is a resource for designing institutions to make public-private interaction a win-win strategy.

Public-Private Collaboration for Productive Development Policies

Two to Tango

February 1996 North-South trade accords can serve as credibility-enhancing mechanisms for the treatment of foreign investment, inducing additional inflows of foreign capital. The presence of sovereign risk changes the tradeoffs between trade creation and diversion, enhancing the potential for welfare-increasing, trade-diverting North-South regional trade accords. North-South integration involves different issues than did previous trade accords, but a nation still does best by the integration that yields the greatest gains from trade. The primary distinction in a North-South trade accord is likely to be that the Southern nation experiences more capital scarcity than its Northern trade partner. So the trade accord's impact on the Southern trading partner's ability to attract capital may have welfare implications for both nations. Fernandez-Arias and Spiegel extend the traditional analysis of customs unions to allow for international capital movements. Their results indicate that trade accords may affect the ability of Southern nations to attract capital and may divert capital between Southern nations. Moreover, the welfare implications of North-South trade accords may differ from those that predict the North American Free Trade Agreement's (NAFTA) minor third-country effects, holding factor endowments constant. The key implications of North-South trade accords such as NAFTA are generally perceived to involve their impact on investment flows. Fernandez-Arias and Spiegel try to understand the channels through which trade accords can affect North-South investment flows. A potential link between trade accords and investment flows may be how the accords affect the ability of the Southern partner government to make commitments about the treatment of foreign investment. They show that these accords can affect both the magnitude and pattern of inward foreign investment and production, implying the possibility that both trade and financial diversion can stem from a bilateral regional trade accord. Novel effects that emerge under sovereign risk must be addressed when assessing the welfare implications of trade accords. The greatest gains from integration are still achieved when integration takes place between the countries with the greatest potential gains from trade. But Fernandez-Arias and Spiegel make a distinction: these gains now include both current trade and inter-temporal trade through foreign investment. This paper -- a product of the International Finance Division, International Economics Department -- is part of a larger effort in the department to analyze foreign investment in emerging markets.

Eduardo Fernández-Arias

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