The document discusses shortcomings in prevailing economic theories regarding natural resource-based growth in Latin America from an evolutionary perspective. It addresses topics that received theories have not adequately explored, including: 1) The impact of macroeconomic management on economic structure and growth, 2) Environmental sustainability and natural resource-based growth, 3) Expansion of the natural resource frontier and lack of public goods, 4) Social exclusion and governance. Future research topics are identified regarding natural resource industries, sectoral institutions, expanding frontiers, and developing domestic capabilities.

1. FUNDACION RAMON ARECES
The new agenda for innovation studies
Madrid, March 2014.
Jorge Katz
FEN, University of Chile

2. A brief visit to received theory.
The theory of Economic Growth exhibits two quite different research
agendas that do not speak to each other.
The first one, the neoclassical equilibrium growth agenda, was started
by R.Solow in the 1950’s and further developed by R.Barro and Salas I
Martin, P.Aghion and many others.
The second one, based on Schumpeter and evolutionary economics,
has been developed by R.Nelson, G.Dosi, C.Freeman and others.
Large conceptual differences prevail mong them concerning what
economic growth is all about. The first agenda comes from Newtonian
physics, the second one from Darwinian ´natural selection´.
Both have little to say when looking at natural resource based growth,
a central topic in Latin America today. Environmental sustainability
and social inclusiveness demand a conceptual framework and public
policies which both agendas have not so far illuminated.

3. MAJOR TOPICS IN WHICH, FROM A LATIN AMERICAN PERSPECTIVE,
REVEIVED THEORY HAS NOT SO FAR ADEQUATELY EXPLORED.
1. Impact of macro management upon the structure and growth of the economy.
-Mundell-Fleming (coming from Hicksian IS/LM) describes an equilibrium aggregate
in which the structure of the economy is absent. It is the conceptual basis of inflation
targeting policy regimes in most of LA. When sectors are at different distance of the
technological frontier it is not much of a help to discuss the economics of ´catch up´.
-Dutch disease and recent ´commoditization´ of the LA production structure.
2. Impact of natural resource based growth upon environmental sustainability
-Tragedy of the commons and institutions in CPRs.
-Impact upon lost of biodiversity, desertification, climate change and else.
-KIBS and high tech activities in the value chain of natural resource based industries.
3. Expansion of the natural resource based exploitation frontier and lack of public goods.
4. The price of environmental services and Ricardian rents.
5. Social exclusion and democratic governance.
-The emergence of a new middle class, demanding education nd health services,
energy and transport facilities, residencial housing and else. The 1/3 – 2/3 societies
and democratic governance.

4. From Hicksian IS-LM to Mundell-Fleming
(Short term equilibrium in a closed/open macro model).
1.IS-LM describes the equilibrium relation between i (the interest rate) and Q
(output) in a closed economy, with rational agents, no market failures, no
uncertainty and no institutions (besides the market itself).
2. Mundell-Fleming expands the above into an open economy model and
explores short term equilibrium between the nominal exchange rate and
output. MF assumes free capital mobility and shows that the authority can
not maintain a fixed exchange rate and an autonomous monetary policy.
This is called the ‘impossible trinity’. Floating the exchange rate in
equilibrium the local i has to converge to the international interest rate.
3.Following MF most countries in LA opted for an ‘inflation targeting’ macro
policy regime, floating the exchange rate, allowing for free capital mobility
and using the interest rate to regulate aggregate demand.
4.This isn’t easy when the external cycle affects the interest rate and induces
short term capital movements. These movements appreciate (depreciate)
the local currency, affecting competitiveness, the structure of GDP, the local
relative price of tradable and non tradable sectors and the rate of inflation.

5. Hicksian IS-LM to Mundell-Fleming (2)
• In the logic of MF an increase in monetary supply shifts LM downwards, reducing local i vis vis the
international I rate; this induces local capital to move out, the exchange rate depreciates and
domestic goods become cheaper abroad. This expands exports. The expansion of Xs moves the IS
curve outwards and i falls until it reaches the external interest rate. A similar analysis can be done
if we consider a change in public expenditure (which moves the IS curve), a change in wages, in the
external interest rate, and else.
• Why does this discussion matter to us? It does because the evidence says that changes in RER -
undervaluation (overvaluation) - induce changes in the growth rate. (Rodrick,2008). Inflation
targeting is used as a short term policy regime, but it affects rate and structure of GDP (R.Frenkel)
What is the alternative?. Consider the case of a fixed exchange rate policy. (Argentina after the
2002 devaluation). SCRER alone is not enough
a. The lesson seems to be : A SCRER is a necessary but not sufficient condition. A mix of monetary,
exchange rate and fiscal policies is needed, but also sector specific industrial policies in the way
Korea orTaiwan used in the 80´s. (Amdem). So much for the macro. How about structure?
b. MF does not consider the structural heterogeneity of the economy . If we bring it in, jointly with
a pro-growth macro policy regime we need sector/region –specific policy interventions.

6. Macroeconomic volatility as a determinant of
microeconomic ´defensiveness´. 1990-2004.
Figure I.2
Latin America (19): GDP and aggregate demand, 1990-2004
(annual growth rates, %)
-4
-2
0
2
4
6
8
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
GDP growth
Aggregate demand growth

7. The exchange rate, the orthodox view.

8. Argentine exchange rate after the
currency board regime.

9. Real exchange rate and industrial wage.
(Argentina after the CBR,Lucangelli, 2013)

10. Real exchange rate, Argentina, Brasil and
Chile 2003-2010
104,2
106,1
108,9 110,2
102,7 101,9
97,0
76,7
67,8
63,0
60,9 62,0
53,8
94,8
90,0
88,1
89,7 89,3
92,7
87,994,4
100,0
40
60
80
100
120
2003 2004 2005 2006 2007 2008 2009 2010e
Argentina Brazil Chile

11. Export growth, Argentina, Brasil and Chile 2003-2010.
138,4
132,2
159,4
119,0
134,6
125,4 125,4
138,2
128,7
120,8
105,0
123,2
100,0
138,1
141,6
134,9
129,6
131,8
133,1
116,3
124,2
121,0
90
100
110
120
130
140
150
160
170
2003 2004 2005 2006 2007 2008 2009 2010e
Argentina Brazil Chile

12. Rate of Inflatión, Argentina, Brasil and Chile 2003-2010
6,1%
12,3%
9,8%
13,0%
22,0%
13,8%
23,1%
5,7%
3,1%
4,5% 4,3%
5,6%
2,4%
3,7%
2,6%
7,8%
7,1%
-1,4%
2,5%
3,7%
5,9%
7,6%
9,3%
1,1%
-5%
0%
5%
10%
15%
20%
25%
2003 2004 2005 2006 2007 2008 2009 2010e
Argentina Brazil Chile

13. Growth in the neoclassical agenda.
(A Latin American perspective)
tttt
tttt
lkya
LKAY
·1·
1
The model incorportes factor accumulation and a ´residual´not
expalined by capital and labour growth. There are no institutions in
the model, uncertainty or market failure. What we describe is a
Long term steady state growth process.

14. TPF in Latin america
-3
-2
-1
0
1
2
3
4
5
1950 1953 1956 1959 1962 1965 1968 1971 1974 1977 1980 1983 1986 1989 1992 1995 1998 2001 2004
PTF sin ajustar PTF ajustada
(Aravena et.al. ECLAC 2006)

15. 15
Fuente: Basado en datos de CEPAL.
15
17
19
21
23
25
27 1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
23,5
17,6
18,5
17,6
21,3
Gross capital formacion 1970-2011

16. Inter-country differences in PTF.
(Aravena et.al. ECLAC, 2006)
0
1
2
3
4
5
6
Argentina Bolivia Brasil Chile Colombia Costa Rica Ecuador Mexico Peru Venezuela
1950 - 2005
Capital Trabajo PTF

17. Fuente: Basado en Ffrench-Davis, Ricardo (2003), Entre el neoliberalismo y el crecimiento con equidad: tres
décadas de política económica en Chile, J.C. Editor, Tercera Edición, Santiago.
Chile: PIB efectivo y potencial, 1 9 7 4 -2 0 0 3
(escala logarítm ica, 1 9 9 6 =1 0 0 )
93.0
94.0
95.0
96.0
97.0
98.0
99.0
100.0
101.0
102.0
103.0 1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
PIB potencial PIB efectivo
20%
11%
21%
Crecimiento del PIB y tasa de subutilización. 1974-2002
(%, promedios anuales)
1974-89 1990-98 1999-2002
PIB efectivo 2,9 7,1 2,1
PIB potencial 2,9 7,2 4,0
PIB subutilizado 10,3 0,0 8,9

18. The Chilean case.

19. Structural change and doubts about
the TPF(Astorga,20012).

20. A non-orthodox interpretation of the Chilean TPF.
New Industries, diversity and competitiveness.
• Diversity Creation(Saviotti)
Sector 1 Mining
Sector 2 Salmon farming
Sector 3 Retail
.New plants
.Professional management
.Increased competitiveness.
.New sectoral institutions.
.The transition to mature oligopolies
GDP
Tiempo

21. The structuralist approach:
Co-evolution between Organizations and Institutions
Example: salmon farming in Chile.
• Firms, regulatory agencies, Banks, R&D institutes, Municipalities, Trade
Unions, and else belong in a sectoral cluster.
Firms
Differences in Structure,
Strategiy and capabilities.
Public
Regulatory
Agencies
Universities
R&D centers.
1.Banks.
2.Venture
Capital funds.
External
Knowledge
Suppliers.
Intermediate
Input providers
Trade Unions
Municipal auth.

22. Technological complexity,local capabilities and the
technology gap.
.
Productos y procesos nuevos a
escala mundial.
Mejoras ´mayores´ de productos
y procesos.
y procesos.
Capacidad
tecnologica
Latino-
americana
Estado
del arte
Brecha
Tecnologica
I&D basica ´de frontera´
Mejoras ´menores´ de productos
Ingenieria adaptativa.
Operación rutinaria

23. A view as from evolutionary economics.
• Rutinas
• Incertidumbre
• Racionalidad limitada
• Aspectos tácitos del conocimiento
• Irreversibilidad del cambio técnico y path dependency
• Herencia schumpeteriana de la creacion destructiva.
Very little of this analytical framework has been so far used in the exploration of
natural resource based industries. The dialogue between economics and the
ecology is still in its infancy and both a theoretical framework and adequate policy
instruments are lacking to deal with market failure in relation to sustainability and
inclusiveness. A ne set of supporting institutions is still demanding to be
developed.

24. TOPICS FOR A FUTURE RESEARCH AGENDA ON
NATURAL RESOURCE BASED GROWTH
• The firm in natural resource processing industries. Subcontracting
minin, aquaculture, agriculture.
• Sectoral institutions. Royalties and cannons on the use of environmental
services.
• Public sector regulatory institutions Interdependencias entre lo macro, lo
micro y la estructura.
• The expansion of the natiural resource exploitation frontier and public
goods.
• The role of Corporate social responsibility in the expansion of the frontier.
• External demand, prices and resource overexploitation.
Optimal ‘loading capacity’ and the need for location-specific R&D.
• KIBs in the production chain and domestic capabilities. Local Universities.

25. HOW TO SELECT ACTIVITIES ?
THE CASE OF CHILE
0.00
0.01
0.02
0.03
0.04
0.05
0.06
0.07
0.08
0.09
0.10
0.11
0.12
0.13
0.14
0.15
0.16
0.17
1.3 1.5 1.7 1.9 2.1 2.3 2.5 2.7 2.9 3.1 3.3 3.5 3.7 3.9 4.1 4.3 4.5
Horticultura
primaria
Metalurgia
Consultoría
Farmacéutica
Medicina
especializada
Bovino
y ovino
Industrias
creativas
Serv.medio
ambiente
Acuicultura
Silvicultura
Comercio minorista
Outsourcing
Turismo1
Porcicultura y avicultura
Celulosa
y papel
Productos
de madera
Educación superior
Comunicaciones
Vitivinicultura
Logística y
transporte
Plástico
Fruticultura
primaria
Minería del
cobre y
subproductos
Construcción
Lácteo
Alto
Bajo
Medio
Potencialde
crecimiento(%)
Servicios
financieros
Plataforma de negocios para LA
Industria
química
Minería no metálica
Alimentos
procesados de
consumo humanoSectores que se
destacan
1 billón de pesos
Crecimiento PIB en 10 años
Esfuerzo para lograr la
competitividad necesaria
Medio BajoAlto
Alimentos proc. para
consumo animal
Figura 5
(1) Dentro del sector de Turismo fue considerado el subsector de Turismo de Intereses Especiales, que tiene un dinamismo mucho mayor que el sector de Turismo
tradicional

26. Stages in ´cluster´evolution and construction of
domestic technological capabilities.
• Inception period.
Rol of the Public Sector solving market failure in knowledge generation and difussion.
• Period of rapid industry expansion.
Local SMEs and market failure in long term financing.
• The arrival of foreign capìtal, M&A and the growing participation of external firms.
From a domestic competitive structure to a mature oligopoly incerted in the global
production chain. KIBs in natural rsource based industries.
The development of local capabilities in service industries. Subcontracting
mining, aquaculture, agriculture. The role of local Universities.
. The ecology and environmental sustainability.
World prices and over explotation of domestic natural resources. Lack of collective action
and of law enforcing capabilities from the part of public sector agencies.
. The expansion of the natural resource exploitation frontier, public goods and CSR.