Flagship Report 2015 - 2016

Preface

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The second edition of the Natural Resources and Development Flagship Report addresses two key concerns for the world as a whole and for the South American region in particular. The first has to do with a new scenario in the global economy. For many years South America benefited strongly from a period of high commodity prices and low interest rates, mainly driven by Chinese demand and a “weak” dollar. That world is over. What does it mean for South American countries? The second concern is associated to the structural changes in international trade and its effects on labor markets. The emergency of the global value chains (GVC), population aging and automation are changing not only the type of relations between countries but the performance of labor markets. What are the implications of all these for the countries of the region, commercially biased upstream in global value chains?

I. Natural resource-rich South America confronting a strong dollar

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A period of tight US monetary policy has begun. It represents a shift from a global environment of low interest rates and a depreciated dollar to one of high interest rates and an appreciated dollar. From the perspective of South American countries, in turn, it is certainly bad news. Indeed, it is related to a drop in commodity prices, a deceleration in global growth as it depresses exports worldwide, a dramatic reduction in the internationally-accepted collateral for debt issue and an increase in funding costs. . How well prepared are the countries of the region to confront this new world?

II. Cursed Goods, cursed Jobs, or it’s nothing like that?

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In this chapter we study the linkages between international trade, natural resources and the dynamics of employment in South America, following both macro- and micro-economic approaches. More specifically, we wonder if the bias to upstream tasks in global value chains registered in the countries of the region since the beginning of the XXI century has affected the quantity and quality of employment, and the inequality in labor income.

III. Topics in numbers - Updated data on the different dimensions linking natural resources to economic development

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The change in global dynamics has reopened the debate on the benefits and costs of a development strategy based on natural resources. Therefore, the policy maker faces a number of challenging questions. The information presented here –organized by the different dimensions involved– aims to provide a comprehensive and up-to-date view to respond to these questions.

IV. Country profiles

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The payoff matrix of a development strategy focused on natural resources depends on the specific characteristics of each country. In an augmented version of what Carlos Diaz Alejandro called the “commodity lottery”, the decision maker must take into account that the performance will depend mainly on the interaction between the natural resource endowment and a set of idiosyncratic factors, from the institutional framework in which it operates and the existing rules and conventions, to the very story of what happened in the past in the incumbent country during booms and busts associated to natural resources. Therefore, in this section the analysis of the link between development and natural resources is done from the perspective of each of the countries in the region, trying to quantify -if possible- their performance on the various dimensions involved.