Structural change, integration and manufacturing exports in Mexico and China, 1995 – 2011 Topic: Investigations into Economic Structural Change and Dynamics

Structural change, integration and manufacturing exports in Mexico and China, 1995 – 2011 23rd International Input-Output Conference June 2015, Mexico, Mexico City Topic: Investigations into Economic Structural Change and Dynamics Structural change, integration and manufacturing exports in Mexico and China, 1995 – 2011 José Luis Estrada López Full-time research professor in the Department of Economics at UAM-Iztapalapa. Lesbia Pérez Santillán PhD student. Economics Graduate Department, UNAM. 23rd International Input-Output Conference Structural change, integration and manufacturing exports in Mexico and China, 1995 – 2011 Introduction China and Mexico have integrated to the world economy with quite contrasting economic performance. China opened up to foreign direct investment (FDI), following a variant of the East Asian economic development model with strong State interventionist policies. Its economic growth has averaged 10% in the previous three decades, industrialization has speeded up transforming its rural economy into a modern urban one, with all its collateral environmental problems. It has provided employment to hundreds of millions of people from rural areas, but at the cost of worsening inequalities, both regional and personal. 23rd International Input-Output Conference Structural change, integration and manufacturing exports in Mexico and China, 1995 – 2011 Introduction According to World Bank data, Agricultural value added has diminished from 30.2% In 1980 to 10.1% in 2012, at the same time that the corresponding for services has increased from 21.6% 44.6%; manufacturing valued added has practically maintained around 32-33% since 1990. Between 1990 and 2011, rural population has decreased from 73.6% to 48.2% (which still amounts to more than 650 million people). Following a traditional industrialization pattern, employment´s share has decreased in agriculture from 60.1% to 34.8% during this period. 23rd International Input-Output Conference Structural change, integration and manufacturing exports in Mexico and China, 1995 – 2011 Introduction On the contrary, the Mexican economy has transformed as a result of a series of structural reforms and its adherence to the North American Free Trade Association (NAFTA), but it has had a dissapointing economic performance. By 1980, the Mexican economy had already achieved a middle-income status due to an industrialization phase during previous decades, but was entering a extended period of crisis and stagnation. Per-capita GDP level ( $2, 700 usdls.) was over ten times that of China ($193 usdls.) but its growth rate over the next three decades averaged less tan 1%. Among the main structural transformations of the Mexican economy we see: (a) a sharp shift towards manufacturing exports, as part of its integration into the international segmentation of production, specially with the USA but also with other economies, notably some Asians (China, Japan and South Korea); (b) as a result of its low economic growth, a substantial part of its population has migrated to USA or has engaged in a variety of informal activities. 23rd International Input-Output Conference Structural change, integration and manufacturing exports in Mexico and China, 1995 – 2011 Structural change, integration and manufacturing exports in Mexico and China, 1995 – 2011 The aim of this presentation is to examine the patterns of structural change in Mexico and China, highlighting the role of manufacturing exports, the evolution of its internal organization and its relationship with the international segmentation of production (ISP). It also analyses the sources of these changes in relation to domestic conditions and industrial policies implemented from 1995 to 2011, associated with their specific form of integration into the international segmentation of production. 23rd International Input-Output Conference Structural change, integration and manufacturing exports in Mexico and China, 1995 – 2011 Structural change, integration and manufacturing exports in Mexico and China, 1995 – 2011 The processes of economic growth of China and Mexico, since the late twentieth century have relied on their integration to the global economy, in which dominates the International Segmentation of Production (ISP). A number of patterns can be observed in each economy in intersectoral relationships that show different responses and projects of domestic and global productive integration. 23rd International Input-Output Conference Structural change, integration and manufacturing exports in Mexico and China, 1995 – 2011 Methodological description and data Data used are from the National Input-Output Tables (NIOT) of the World InputOutput Database (WIOD). Using input-output methods that identify the determinants of growth and structural change, associated with final demand, exports, import substitution and technological change, this study estimates their relative contribution. The study of changes in economic output over time, under the input-output analysis is associated with structural decomposition analysis (SDA). In this respect decompose the change of a given variable (the total production, final demand, value added, employment, energy use) in factors that explain that variation (changes in demand, technology, imports). The task of breaking down the total change of a variable into its component provides a way to quantify the relative importance of the different explanatory components of any observed economic change (Miller and Blair 2009). The SDA is important because it provides information to the orientation of economic policies. 23rd International Input-Output Conference Structural change, integration and manufacturing exports in Mexico and China, 1995 – 2011 Methodological description and data For the structural change analysis, the model developed by Syrquin (1975) used in other studies as Jian (1996) and Thaiprasert and Hicks (2011) is estimated. The aim is to decompose the changes in the economy in general and manufacturing in particular, associated with the processes observed in the Mexican and Chinese economies since the late twentieth century. From the perspective of demand, it isolates the effect of the ISP in the sources of growth of manufacturing activities. Syrquin’s model analyzes the growth and structural change using non-competitive National Input Output Tables (NIOT). Structure of NIOT of Non-Competitive Import Type 23rd International Input-Output Conference Structural change, integration and manufacturing exports in Mexico and China, 1995 – 2011 Methodological description and data Syrquin’s model breaks down the determinants of growth and change in industrial structure factors associated with changes in final demand, exports, import substitution (or non-import substitution) and technological change. Changes in final demand Exports Growth and structural change Import sustitution Technological change 23rd International Input-Output Conference Structural change, integration and manufacturing exports in Mexico and China, 1995 – 2011 Methodological description: Model a) Gross production is given by: PBt = Adt PBt + Ydt + Xt (I - Adt) PBt =Ydt + Xt [1] b) PBt = (I - Adt)-1 (Ydt + Xt) [2] Adij = technical coefficient matrix of domestic transactions with � � as elements Yd= column vector of domestic final demand for domestically produced goods Y= column vector of final demand for domestically produced goods and imported goods. X= vector column exports 23rd International Input-Output Conference Structural change, integration and manufacturing exports in Mexico and China, 1995 – 2011 Methodological description: Model c) The import dependency ratio of final demand in each activity is defined as: mFjt = (Yjt – Ydjt)/Yjt (j= 1,…,n) And : �� Diagonal matrix of the final demand import dependency ratio with ��� as j th element (ratio of dependency on final demand import sector or activity j). Then: Ydt = Yt - ��� Dt = (I – ��� ) Yt d) As defined ��� = � − �� as: −� , then equation PBt = (I - Adt)-1 (Ydt + Xt) PBt = � � [(I – ��� ) Yt + Xt] e) Then the change in PB at time t + 1 equals: ΔPB = � �+� [(I – ���+� ) Yt+1 + Xt+1] - � � [(I – ��� ) Yt + Xt] 23rd International Input-Output Conference Structural change, integration and manufacturing exports in Mexico and China, 1995 – 2011 Methodological description: Model Regrouping � � � � � � ) (Yt+1 - Yt) +��+1 (Xt+1 - Xt) +��+1 (��� – ��+1 ) Yt +( ��+1 - ��� ) [(I – ��� ) Yt + Xt] = ��+1 (I – ��+1 � � � � � � = ��+1 (I – ��+1 ) ΔD+ ��+1 ΔX + ��+1 (��� – ��+1 ) Yt +( ��+1 - ��� ) [(I – ��� ) Yt + Xt] [3] In this last expression, the focus is on the fourth term, which follows: � ( ��+1 - ��� ) [(I – ��� ) Yt + Xt] = � � -1] � � [(I – � � ) Y + X ] ( ��+1 [ ��� )-1 – (��+1 � � t t � = �+� (Adt+1 - Adt)PBt [4] As it defined, the term ��� represents the outputs induced directly and indirectly by changes in intermediate demand based on changes in input coefficients of domestic production of goods. In this context, a way to define the matrix Ad is as follows: Ad = A – Am 23rd International Input-Output Conference Structural change, integration and manufacturing exports in Mexico and China, 1995 – 2011 Methodological description: Model Thus, changes in the technical coefficients of production of domestic goods, can be broken down as follows: Adt+1 – Adt = (At+1 – At) - (Amt+1 – Amt) [5] Substituting equation [5] in equation [4] leads to the following equation: = � �+� (Amt+1 - Amt)PBt + � �+� (At+1 - At)PBt Taking up this equation, you can disaggregate the change in gross output (PB) of the follows: � � � � � � � ) ΔD+ ��+� ΔX+��+� (��� – ��+� ) Yt +��+� (Amt+1 - Amt)PBt+ ��+� (At+1 - At)PBt ΔPB = ��+� (I – ��+� � � ) ΔD ��+� (I – ��+� � ��+� ΔX � � ��+� (��� – ��+� ) Yt � ��+� (Amt+1 - Amt)PBt � ��+� (At+1 - At)PBt 1) Effects of structural changes in the domestic final demand 2) Effects of structural changes in exports 3) Effects of import substitution on domestic final demand 4) Effects of import substitution of intermediate demand 5) Effects of technological changes 23rd International Input-Output Conference Structural change, integration and manufacturing exports in Mexico and China, 1995 – 2011 Methodological description: Model The NIOT are deflated to get comparable real terms over time. For this purpose, are used price indices of the Socio Economic Accounts (SEA) also published by the WIOD and disaggregated in 35 sectors, but only available until 2009. The base year is 1995. We estimated NIOT in real terms using a similar process of deflation to the proposed by Dietzenbacher and Hoen (1998) and use the GRAS method proposed by Temurshoev, Miller, and Bouwmeester (2013). The results of structural change are presented in current and in constant prices. 23rd International Input-Output Conference Structural change, integration and manufacturing exports in Mexico and China, 1995 – 2011 Results for Mexico Figure 1. Mexico: contributions of components to structural change, 1995-2009 and 1995-2011 (percent) 80.0 74.7 70.0 1995-2009 Deflacted Total 70.0 60.0 1995-2009 Deflacted Average manufacturing 58.2 62.0 51.8 1995-2011 Non deflacted Total 54.5 50.0 40.0 30.6 27.2 30.0 20.0 10.0 12.8 5.1 1.3 0.1 0.0 -14.0 -0.7 -1.6 -2.6 -2.6 -2.8 -10.0 -15.3 -8.8 -20.0 Domestic final demand Exports Imports substitution domestic final demand Imports substitution domestic intermediate demand Technological changes Source: Authors’ calculations based on México NIOT of WIOD. 23rd International Input-Output Conference Structural change, integration and manufacturing exports in Mexico and China, 1995 – 2011 Table 1. Mexico: contribution to structural change components, sub-periods 1995-2009 and 1995-2011 (percent) Domestic final Exports demand Sub-period 1995 - 2000 Deflactaded 2000 - 2005 2005 - 2009 1995 - 2000 Non deflacted 2000 - 2005 2005 - 2011 Total Total Total Total Total Total Imports Imports substitution substitution domestic domestic final intermediate demand demand Technological changes 74.1 37.5 -1.8 -4.4 -5.3 127.6 30.1 -58.4 -4 4.8 76.1 5.4 -7.1 13.7 11.9 78.8 24.9 0.8 -1.5 -3.0 42.3 20.5 36.8 -1.9 2.3 12.5 34.4 57.2 -5.4 1.3 Source: Authors’ calculations based on México NIOT of WIOD. 23rd International Input-Output Conference Structural change, integration and manufacturing exports in Mexico and China, 1995 – 2011 Table 2. Participation of manufacturing in the factors of structural change, sub-periods 1995-2009 and 19952011 (percent) Deflactaded Non deflactaded Imports substitution domestic intermediate demand Technological changes Periods Domestic final demand Exports Imports substitution domestic final demand 1995 – 2000 36.1 77.6 82.1 86.5 -44.1 2000 – 2005 40 78 67 67.5 -97.1 2005 – 2009 -0.2 260.9 85.4 122.3 -128.8 1995 – 2009 23.4 80.1 50 56.2 -252.3 1995 – 2000 26.7 66.5 39.7 87.1 5.7 2000 – 2005 -24.4 54.7 69.6 67.4 -51.5 2005 – 2011 -88.7 62.6 41.0 43.5 -171.2 1995 – 2011 20.9 61.4 18.0 59.4 80.8 Source: Authors’ calculations based on México NIOT of WIOD. 23rd International Input-Output Conference Structural change, integration and manufacturing exports in Mexico and China, 1995 – 2011 Results for China Figure 1. China: contributions of components to structural change, 1995-2009 and 1995-2011 (percent) 80.0 73.2 70.0 60.0 1995-2009 Deflacted Total 65.9 63.4 1995-2009 Deflacted Average manufacturing 58.1 1995-2011 Non deflacted Total 50.0 40.0 35.6 33.4 38.5 30.0 25.8 20.0 10.0 0.1 0.1 0.6 1.1 0.3 1.8 3.7 0.9 0.6 0.0 -1.8 -1.5 -0.1 -10.0 Domestic final demand Exports Imports substitution domestic final demand Imports substitution domestic intermediate demand Technological changes Source: Authors’ calculations based on China NIOT of WIOD. 23rd International Input-Output Conference Structural change, integration and manufacturing exports in Mexico and China, 1995 – 2011 Table 3. China: contribution to structural change components, sub-periods 1995-2009 and 1995-2011 (percent) Sub-period Deflactated Non deflactated Domestic final demand Exports Imports substitution domestic final demand Imports substitution domestic intermediate demand Technological changes 1995 - 2000 Total -101.7 20.6 195.7 1.5 -16 2000 - 2005 Total 60.9 53 -19.3 -7.5 12.9 2005 - 2009 Total 36.9 18.3 24.7 13 7.1 1995 - 2000 Total 77.5 21.2 0.9 -0.3 0.7 2000 - 2005 Total 60.6 39.3 -0.4 -4.2 4.7 2005 - 2011 Total 74.1 21.9 0.4 2.2 1.5 Source: Authors’ calculations based on China NIOT of WIOD. 23rd International Input-Output Conference Structural change, integration and manufacturing exports in Mexico and China, 1995 – 2011 Table 4. Participation of manufacturing in the factors of structural change, sub-periods 1995-2009 and 19952011 (percent) Deflactated Non deflactated Imports substitution domestic intermediate demand Technological changes Period Domestic final demand Exports Imports substitution domestic final demand 1995 – 2000 70 74.7 63.3 57.1 37.1 2000 – 2005 60.8 80.7 93.2 81.5 91.2 2005 – 2009 42.1 87.4 88.8 84.4 108.6 1995 – 2009 60.1 83.7 98 77.8 165.6 1995 – 2000 38.4 67.1 62.8 50.9 64.1 2000 – 2005 42.7 71.5 57.7 58.7 45.5 2005 – 2011 45.0 73.7 82.6 91.9 68.7 1995 – 2011 44.9 73.1 83.2 -180.7 58.4 Source: Authors’ calculations based on China NIOT of WIOD. 23rd International Input-Output Conference Structural change, integration and manufacturing exports in Mexico and China, 1995 – 2011 Table 5. Effect of selected variables on gross output change, China and Mexico, 1995-2009 (deflacted) Total final domestic demand Exports China deflactado 100 65.95 33.43 -1.80 0.60 1.82 Mexico deflactado 100 74.74 30.58 -2.81 -2.62 0.11 China average manufacturing 58.11 38.54 -1.46 1.09 3.72 Mexico average manufacturing 62.03 54.48 -13.96 -15.32 12.78 Import substitution on Import substitution on final demand inputs Source: Authors’ calculations based on China and Mexico NIOT of WIOD. 23rd International Input-Output Conference Change in coefficients Structural change, integration and manufacturing exports in Mexico and China, 1995 – 2011 Conclusions Both in Mexico and China, the main sources of structural change in the period are linked to domestic final demand and exports. However, given the structure of economies between 1995 and 2009 it shows that the growth and change are supported by final domestic demand in China (related more to the gross capital formation). In Mexico the structural change is supported by private consumption. In both economies, the second most important source of growth and structural change lies in exports. In this regard, it stresses that the main activities that contribute to this factor are manufacturing. Moreover, the contribution of technological change plays a positive role in both economies, at least at the aggregate level. Once the focus is on manufacturing activities in Mexico technological change has not contributed, or represents a negative factor in the growth and structural change in such activities. 23rd International Input-Output Conference Structural change, integration and manufacturing exports in Mexico and China, 1995 – 2011 Conclusions In China, the contribution of technological change is concentrated in manufacturing and is a positive factor in explaining the growth and structural change. Again, this issue reflects the policy positions that have characterized that country in the period in connection with the advancement in technology and sophistication of its total manufacturing exports. Moreover, when the analysis is done from NIOT without deflating, the main factors of structural change, domestic final demand and exports remain as the most important, both in the total economy and manufacturing. The effects associated with import substitution and technological change, the results differ from the analysis with NIOT in constant terms and NIOT in current terms, accentuated in the case of Mexico. This leads to suggest concentrating, whenever possible, in the deflated NIOT to have a clearer view of the sources of structural change without the implied distortions in the framework at current prices. 23rd International Input-Output Conference Structural change, integration and manufacturing exports in Mexico and China, 1995 – 2011 Thanks! jestrada10@hotmail.com; jlel@xanum.uam.mx lesbia.psantillan@comunidad.unam.mx 23rd International Input-Output Conference