Can Central America Ensure its Productive Transformation through Intraregional Trade?
Javier A Gutiérrez, Executive Director, Secretariat for Central American Economic Integration (SIECA)
Emerging regional economies have proved resilient to the slowdown in both economic growth and international trade seen in recent years. For Central America in particular, the challenge involved sustaining the impact of reduced demand for its products from key partners like the United States and the European Union – in 2015 extra regional trade decreased by 11.2%. Despite this, a growth of 1.5% in intraregional trade in the same period has helped the region maintain healthier levels of growth. In line with UNCTAD’s argument that regional trade is an essential part of developing countries’ inclusive development and poverty reduction, Central America has indeed made strides in developing its industries through increased value-added trade within its members. Taking advantage of specialization and complementarities between the different economies in the isthmus, the region has boosted regional production networks to enhance productivity.
After the United States, Central America is the second market for its own products – 32.7% of its exports remain within the region. And while main export products reaching external markets are commodity-intensive (with top products including coffee, sugar, bananas and plantains, and fruits) agroindustry and industrial products make up 90% of trade within the economies in the region. Industrial products alone make up 65.9% of the total, pointing to the increased value-added of intraregional trade in sectors like medicines; plastic packaging items; food preparations; bakery and pastry products; water, mineral and carbonated; paper containers; insecticides, rat poison and anti-rodents.
As trade within the region is more sophisticated and diverse than trade with external partners, economies in the region could leverage intraregional trade to move away from commodity-based economies. Market forces have indeed supported the development of regional value chains in the Central American market. Examples include Unipharm Group, a pharmaceutical company with presence in all countries in the region and in six other markets in Latin America and the Caribbean. With operations based in Guatemala and Mexico, Unipharm develops, produces and trades over 1,200 pharmaceutical products throughout the region.
Because the development of these chains has been spontaneous, however, most of the opportunities the private sector has focused on remain biased to trade between neighbouring countries. The textile production chain, for instance, developed full-package production capacity in Central America’s northern triangle (Guatemala, Honduras, and El Salvador). And most intraregional trade is carried out between neighboring countries – besides the above, for example, Costa Rica and Panama have more intensive commercial links than do more distant peers (see table).
Central America: Intraregional Exports per Country (2015) Participation rates (%)
| Exporting Country | Destination of exports | ||||||
| Costa Rica | El Salvador | Guatemala | Honduras | Nicaragua | Panama | Total | |
| Costa Rica | – | 12.9 | 23.3 | 15.0 | 23.7 | 25.2 | 100.0 |
| El Salvador | 11.3 | – | 33.4 | 33.1 | 16.3 | 5.9 | 100.0 |
| Guatemala | 13.1 | 36.0 | – | 27.1 | 16.5 | 7.2 | 100.0 |
| Honduras | 10.0 | 34.6 | 24.7 | – | 22.7 | 8.0 | 100.0 |
| Nicaragua | 21.2 | 41.8 | 17.9 | 13.6 | – | 5.4 | 100.0 |
| Panama | 54.8 | 9.9 | 10.1 | 7.9 | 17.3 | – | 100.0 |
| Total intraregional trade | |||||||
Source: Secretariat for Central American Economic Integration (SIECA)
Taking advantage of cross-border coordination and exploiting the benefits of economies of scale is crucial to advance in this line. Policymakers addressing this issue have focused on initiatives to reduce the time and cost of international freight, strengthen cross-border coordination, and implementing trade facilitation measures. This points in the right direction. As shown by the experience of the Association of Southeast Asian Nations (ASEAN), the consolidation of the intraregional market – which makes up 24% of total trade – has been a vital factor for it to become the world’s fastest-developing economic region.
A combination of tariff reform, a strong emphasis on the facilitation of trade flows, and a focus on services have strengthened ASEAN’s participation in global trade. But it has also supported the development of more sophisticated value chains. Singaporean instant food and beverage firm Super Group has expanded its production to over 300 different items for consumption throughout the region in 3 decades. This example also shows how the diversification and specialization through regional production networks increases and shapes the regional trade. Super developed joint-ventures in the Philippines in 2004, built a production base in Malaysia in 2005-2006 and in China in 2010-2011.
Services, too, have become more relevant in intraregional trade. Indonesian company WIKA expanded its operations and diversified its core business, from electrical supplies and pipe fitting to construction, engineering procurement and investments more broadly[1].
In fact, we often overlook the opportunities available in the region, and some key industries have the potential to help insert Central America in global trade more actively. But as we move forward, policymakers need to focus on raising productivity and nurturing the development of higher value-added production networks. To do this, Ministers of Trade and Economic Integration are already working on a region-wide agenda to facilitate trade[2], boost infrastructure investment[3], and foster the development of regional value chains[4]. And they’re also working in tandem with the private sector to explore hitherto unforeseen opportunities. Adapting policies to accommodate these efforts will prove crucial in years to come, and allow the region to harness a larger market size and boost productive capacity.
Useful links
The OECD and Latin America and the Caribbean
OECD Latin America Economic Outlook 2016: Towards a New Partnership with China
[1] ASEAN, 2015. A blue print for growth ASEAN Economic Community 2015: Progress and Key Achievements. Jakarta: ASEAN.
Decán, M. V. P., 2015. Costa Rica, suelo fértil para los startups. Estrategia y Negocios, 7 Septiembre.
ITC, 2012. International Trade Center. Available at: http://www.intracen.org/news/Interregional-and-intraregional-trade-in-emerging-markets-identified-as-key-to-addressing-global-economic-crisis/
Lincoln, E. J., 2004. East Asian Economic Regionalism. New York: Brookings Institution Press.
Matthews, A., 2003. Regional integration and food security in developing countries. Rome: FAO .
Towards Human Resilience: Sustaining MDG Progress in an Age of Economic Uncertainty , New York: UNDP,2011
UNCTAD, 2015. Policy brief: Strengthening the private sector to boost continental trade and integration in Africa, Geneva: United Nations Publication .
[2] http://www.sieca.int/PortalData/Documentos/8F62504B-7CC2-45F5-B01A-9503DD002337.pdf
[3] http://www.sieca.int/Noticias/NoticiasMostrar.aspx?SegmentoId=1&NoticiaId=1411
[4] http://www.sieca.int/Documentos/DocumentosMostrar.aspx?SegmentoId=2&DocumentoId=5285
The gig economy will not abolish working 9 to 5
Stand by your phone
Rory O’Farrell, OECD Economics Department. This article is also being published on OECD Ecoscope
There is little new about the ‘gig economy’. The word ‘gig’ originates from 1920s jazz musicians who played a small concert or ‘engagement’ at a venue. Dolly Parton may have sung about working 9 to 5, but her life was moving from one gig to another. We have always had plumbers, electricians, and lawyers who do temporary work, and are not paid by clients when they are idle. However, do new apps such as Uber or Deliveroo mean the end of the 9 to 5 job, and do these platforms need to be regulated?
Similar to the introduction of the Yellow Pages phone directory, new smart phone apps lower the cost of collecting information and searching for a worker. Apps can show when people are available, their current location, and offer reviews of a worker’s reliability. Such ease of use may increase demand for gig services, and estimates of those working through such apps range from 0.5% to 3.5% of the workforce in advance economies. This, combined with scalability, allows new services to be provided such as food delivery from small restaurants, whereas before the market lacked the depth to be viable.
Though apps have been described as providing large scale efficient marketplaces, they may have market power. Certain aspects can lead apps to become a natural monopolies, and they may warrant regulation. As an app reduces search costs there is little point in having several apps providing related information. Apps benefit from ‘network externalities’, whereby the value of being connected with an app increases with the number of other users. Over time one app could become the access point for a gig service, similar to how supermarkets are for food.
There may also be high switching costs for gig workers, allowing app owners to extract rents. In an information age, reputation can be a worker’s most valuable asset. If a worker has established a reputation (via online reviews) with one platform, this reputation capital may be lost if the worker switches platforms. App owners can extract some of the value of the reputation. However, allowing the “portability” of workers’ existing good ratings from one platform to another would lessen the dependency of workers upon single platforms.
As much work happens in spurts, employers often value flexibility, and apps can help firms outsource tasks. Managers trade off the cost of having a worker on standby against the cost of disruption when a crucial worker is unavailable in a crisis. This is why factories often permanently employ electricians, and banks hire IT specialists. Though apps can lower the length of such disruptions, the effect is likely to be small. Having employees is like insurance, and is cheaper for lower paid workers.
Despite the advantages of flexibility, firms still hire staff. Search costs remain, especially for high-skill jobs. Reviews on apps do not provide the information that a standard job interview does. Once a firm finds a suitable worker, it may be cheaper to offer them a full-time job than pay the costs of constantly searching for staff, and giving firm-specific training. The cost of integrating a worker in a team is also likely to increase with the complexity of the job.
Also, whether someone does a good job can be difficult to monitor, and apps have not overcome this. This is especially the case for high-skill jobs and it can take a long time to discover whether the worker is doing a good job or not. This helps explain why people use legal firms rather than directly employ lawyers for complicated tasks (as the law firm itself has built up a reputation) but a local lawyer for conveyancing or drawing up a will. Self-employment works best when it is easier to assess the service provided than the effort a worker expends on providing it. This is why truck drivers were self-employed before on-board recorders were invented, but now tend to be employees.
Although the ‘gig economy’ refers to self-employed workers, in recent years firms have looked for more flexibility among employees, especially in the low-paid retail and hospitality sectors. There has been a move to an “on demand” or “just-in-time” workforce. While many of these long-term changes were likely driven by changes in regulation (such as for shop opening hours), technology has cut the cost of posting rosters, allowing them to be changed more frequently. Employers can now use software to notify staff of rosters, rather than phoning each member of staff, and it is now common for such workers to be texted their hours at the beginning of the week.
Maintaining a pool of idle workers so as to have such flexibility in the economy is not free, and firms will try to shift such costs on to the workforce and the social welfare system. Ever since employers have had the obligation to pay social security contributions or give paid holidays, there has been a need to define whether a worker is self-employed or an employee. In a recent court case in London, it was found that Uber drivers were employees due to their lack of control over their work, such as the ability to set fares. Though some workers (such as students) may want flexible work, there is strong evidence that most low-pay, low-hours workers want more hours, or at very least certainty over weekly rosters. There is a paradox of flexibility. Irregular rosters can make it more difficult for workers to arrange childcare, take on a second job, or have a normal social life. Apps may help to reduce some of these frictions, but will not eliminate them.
Unfortunately research on the ‘gig’ economy has been hampered by the lack of data. Important questions remain, such as to what degree do consumers benefit from apps, who bears the costs of flexibility, and what level of flexibility is optimal. Such research will likely be an ongoing project, not a one-off gig.
Useful links
It’s a gig, but is it a job? Brian Keeley on OECD Insights
OECD (2016), “Anticipating Change: Work, Skills and Job Quality”, Background Document: Meeting of the Council at Ministerial Level 1-2 June 2016, DELSA/ELSA(2016)8/REV1
Eurofound, (2015), New forms of employment, Publications Office of the European Union,
Katz, L. F. and A.B. Krueger (2016), “The Rise and Nature of Alternative Work Arrangements in the United States, 1995-2015”, National Bureau of Economic Research Working Paper Series, No. 22667
Manyika, J., S. Lund, J. Bughin, K. Robinson, J. Mischke, and D. Mahajan (2016) Independent Work: Choice, Necessity, and the Gig Economy, McKinsey Global Institute.
Smith, R., and S. Leberstein (2015), Rights on Demand: Ensuring Workplace Standards and Worker Security In the On-Demand Economy, National Employment and Law Project.
Stefano, V. D. (2016), “The rise of the ‘just-in-time workforce’: On-demand work, crowdwork and labour protection in the ‘gig-economy, ILO Conditions of Work and Employment Series, No. 71 .
Not all poor children can become slumdog millionaires
Today’s blog for Universal Children’s Day is by Olivier Thevenon and Alastair Wood of the OECD Directorate for Employment, Labour and Social Affairs
Some children are luckier than others. The story of Jamal Malik in the 2008 film Slumdog Millionaire is a rags to riches story of a young Indian boy from the slums of Mumbai. Living in extreme poverty, poorly educated, and turning to crime, Jamal’s childhood does not suggest that success is round the corner. But thanks to a rare combination of luck, coincidence and a significant amount of chutzpah he does go on to hit the jackpot as a contestant on Who Wants to Be a Millionaire?. Of course, in reality, such good fortune is extremely rare and disadvantaged children often struggle to turn their life around.
We know that childhood experience has a strong impact on opportunities later in life. In France, for example, 1 in 4 homeless people were in foster care as children[1], showing how crucial it is to support disadvantaged children from an early age. In developing countries, the situation is far worse: almost 385 million children were living in extreme poverty in 2013[2] – meaning that household members were surviving on an average of US$1.90 a day or less per person. In OECD countries, 1 in 7 children are currently living in relative poverty, corresponding to about 45 million children – roughly the size of the population of Spain. Sadly, child poverty has also increased in two-thirds of OECD countries since the Great Recession.
Figure 1: 1 in 7 children on average in the OECD live relative poverty
Share (%) of the total population and of children (0-to-17) with an equivalised post-tax-and-transfer income of less than 50% of the national annual median equivalised post-tax and transfer income. Source: OECD Family database
Far too many children do not get the best possible start in life, and this has important consequences later on. Poor children are, for example, more likely to report poor health and/or be obese, are less likely to do well at school[3], and are more likely to live in deprived areas with higher levels of crime. In many developing or emerging economies, child poverty often means that children are coerced into the informal labour market. High levels of income inequality also reduce the capacity of the poorest population to invest in the education and skills of their children and in most OECD countries social spending devoted to children is actually lower than that for the retired population. All the evidence available suggests that inequalities start to develop early on, and that children will pay a high price for these rising inequalities throughout their life.
Greater investment is needed, but that’s not all. The challenge is daunting, but there are some broad, yet crucial, guidelines for countries in tackling such inequalities among children[[4]]:
- A more comprehensive and holistic approach is needed, one that cuts across the different areas of child well-being (e.g. child support, education, health care, housing). Far too many countries do not have a child-centred policy strategy that addresses children’s diverse needs from the early years of life. Disparate approaches that focus on a single aspect of child well-being are unlikely to be effective if they do not address other barriers to child development.
- Investment in children should start early and be sustained throughout childhood. Successful early-life interventions are so critical to the development of a range of cognitive (e.g. language and numerical skills) and social (e.g. self-confidence) skills, especially for disadvantaged children.
- Policies should also adapt to the changing living environments of children. Most children still grow up with two parents; but more and more live in single-parent households or divide their time between the two households of their separated parents. A key challenge, therefore, is getting policies to meet the needs of these new family formats.
Society will reap the benefits of a better educated and healthier population in the future, with potentially less social support needed, lower health care costs as well as a greater capacity of individuals to reach their potential. Expanding policies towards children therefore offers a win-win opportunity for children, their parents and society as a whole and is a key element of an inclusive growth strategy. It is time for countries to take more affirmative action and adopt a more inclusive approach that encompasses all children. After all, only very few people are lucky enough to hit the jackpot and become a Slumdog Millionaire and we cannot rely on miracles to save children from lives in poverty and disadvantage. Policy action is needed now to ensure the best future possible and equal opportunities for children around the world.
Useful links
OECD Centre for Opportunity and Equality
[1] Placement dans l’enfance et précarité de la situation de logement
[2] UNICEF/World Bank (2016), Ending Extreme Poverty: a Focus on Children.
[3] How is life for Children?” in How is Life? 2015. OECD Publishing, Paris.
[4] OECD (2016), “Enhancing Child Well-Being to Promote Inclusive Growth”, Meeting of the Council at Ministerial Level, 1-2 June 2016
December 8, 2016: Closing date for the crowdfunding campaign for the John Maynard Keynes writings project
Professor Rod O’Donnell, University of Technology Sydney, Australia
I thank, from the bottom of my heart, all those who have backed the campaign, with donations ranging from USD5 to USD1,000. Almost everyone has said complimentary things about the proposed edition (‘great idea’, ‘wonderful project’, ‘best of luck’ etc), but far fewer have followed up with contributions.
The bottom line is this. Funds are essential if the edition is to be realised. The people undertaking the large and necessary tasks of word-processing documents and background research need to be paid. All the money raised by crowdfunding will be devoted to document preparation, not to travel for document collection.
It is now time for the many supporters of the project to get serious about whether they want also to be backers and so help make the edition a reality. Time is running out − only about 3 weeks remain before the crowdfunding campaign ends. Recent events have made understanding Keynes’s economics, politics and philosophy even more important.
If you would like to provide material support, please go, before December 8, to
https://www.indiegogo.com/projects/jmk-writings-project-stage-1
This link also gives more information about the project, the campaign and the editor.
Remember the overall aim: to benefit the world by completing the publication of all of Keynes’s writings of academic significance, only about one third of which are presently available.
THANK YOU IN ADVANCE FOR YOUR BACKING OF THE JMK WRITINGS PROJECT.
Professor Rod O’Donnell, University of Technology Sydney, Australia.
Contact: [email protected]
See also https://www.uts.edu.au/staff/rod.odonnell
Useful links
Transitioning from post-conflict to resilience, and the search for active labour market policies and equitable growth in Timor-Leste
The demographic dividend
Emmanuel Asomba is a development policy researcher working within the nexus of poverty reduction strategies, human development and systematic reviews of public policies and programs.
Connectivity, complexity, and changing relations of power have transformed the way that Timor-Leste is drafting its post-conflict recovery agenda. Against this backdrop, there is an increasing claim by a diverse constituency in the nation regarding the notion of shared responsibility as the central mainstay of its societal format and development structures.
Timor-Leste therefore embarked on a voluntary journey to bring together a coalition of public, business, and civil constituencies, pooling resources to address common societal aims and buttress its country-led planning mechanisms by joining the G7+ platform in 2010. As a country transitioning from conflict, the idea is to shape inclusiveness by tapping into peer-to-peer partnerships (“fragile-to-fragile” support), to institutionalise a framework of cooperation to prime the formation of decent work programmes. This process constitutes a crossover whereby national and regional NGOs, networks of individual employers, and other commercial actors can explore social partnerships, contextualising how public agencies can devise a set of targeted measures to increase sectoral and inter-sectoral cooperation to enhance labour market inclusion.
For the UNDP, this background is relevant in many ways, for example, the role of employers and trade unions to sustain peace across the different stages of the country’s development. In such a case, the role of the economic agent is to have responsibility for anyone, thereby strengthening social ties across the country. This prompts a logical call to enrich empirical analysis looking into how the activities of public and private organisations and firms can harmonise efficiency and equity, to combine development objectives with social justice to attain sustainable growth.
This line of thinking could help broaden the notion of “economic agent”, considering the social structure of work to fully understand the consequences of wage differentials across jobs. This means the implications for well-being in terms of work-choice outcomes and the need for marginalised groups, especially women and youth to have access to decent living standards.
In terms of programmatic interventions and donor coordination, the integration of the New Deal method steered by UNDP offers a very interesting blend, with much attention to mutual interrelations to appreciate the socio-economic context in fragile situations. With a focus on governance and state building, this framework can help scrutinize the impacts of the internal dynamics of cooperation to balance short-term versus long-term objectives in donor programming.
The purpose is to promote the incorporation of adaptive principles for capacity development to take root. As technical assistance is fundamental to peacebuilding and state building, development interventions have to take into account the nature of the local context in Timor-Leste. At this juncture, it means that accountability occurs as a complex chain of relationships where support from UNDP can assist the government gauge policy experiences to strengthen governance and lessen fragility. In other words, tailoring interventions to context can bring more thorough risks-analysis, allowing donors to contribute to long-term sustainability, especially crucial for the government to tap into policy coordination to improve efforts in local-level programming.
As the transition moves forward, the state seeks to handle wider welfare issues to uphold and promote peace and security, particularly considering how to harmonise social spending to align the capabilities of its citizens around the notion of inclusive growth. Linked to this developmental goal is the awareness that development planning has to match the evolving realities of the country, thus suggesting the adoption of more complex patterns of cooperation to enrich stability, accountability, and human development.
Simultaneously, over the years we have witnessed in the country a mounting discussion about the place of youth in the transformation from post-conflict recovery to long-term development. With half (46%) of the population aged under 18, the prevailing concern for policy-makers has been to find a way to galvanize young people as agents of change to improve good governance, and tackle policy-formulation that can engage them in productive and decent employment.
What matters for long-term growth are smart investments to steer a progressive future. For instance, these inputs can be decisive public investments in infrastructure, health, education, and diffusion of a value chain in vocational training as well as technology enabling young people to act on their potential, especially if the state also endeavors to consolidate female labour-force participation.
Consequently, new thinking about these issues comes naturally from the link between population growth, the quality of life, and the organisation of the employment regime for young people. Around 30% of Timorese citizens are between 15-29 years old, offering policy-makers and development partners a transformational lever to target high growth, and ultimately poverty reduction, to make sure the demographic dividend can be used to balance a population bubble, ensuring that most citizens have access to productive work.
For that reason, a substantial strategy is to improve the standards of development of enterprise-based schemes creating a more reliable relationship between education and employment to promote inclusive growth in the country, on the basis that access to employment and education opportunities can help reduce household poverty, enlarge young people’s human capital base, and at the same time link local-level initiatives with local-level actors to enhance the extension of multiparty social partnerships. This is a fundamental departure from traditional welfare-state solutions to harness public negotiations on the concept of employment and equal opportunities, thus allowing freedom of choice to be explicitly exercised.
This model combats disadvantage by increasing investments in human capital and productive systems, and fights discrimination based on people’s earnings and gender. The state should provide guarantees to marginalised groups, women and youth to inspire them to contribute in the labour market, in order to overcome the polarisation, fragmentation, and atomisation of Timorese society. To make it work across all segments of the population, the government has to assimilate sustainable policies involving all the actors in networks exchanging best practices through strategic donor coordination and dialogue.
The logic of the argument is to ensure a smooth transition to results-based monitoring to enhance development effectiveness making sure, for example, that the health system can overcome disparities in services, and deliver basic health packages including family planning; or that national education centres can support the provision of quality education. Over the long-term, these efforts can lead to better wages, and the integration of a responsive labour market whereby optimised employment and self-employment programmes can scale-up access to non-formal training services to stimulate equitable growth.
Useful links
This analysis is the abridged version of a concept note for the United Nations Development Programme (UNDP) Bangkok Regional Hub addressing youth employment, livelihoods, and the demographic dividend in Timor-Leste.
International Support to Post-conflict Transition
