Discussant Comments on “Revisiting Economic Growth in Colombia: A Microeconomic Perspective” Ben Clements International Monetary Fund IADB Project on Competitiveness and Growth in Latin America September 21, 2007

1 Plan of Presentation I. Summary Assessment II. Is the Diagnosis Right? –Overall picture –Diagnosis by component

2 I. Summary Assessment Paper makes a valuable contribution by examining a number of new angles Builds on Cardenas (2005, 2007) on importance of security May be understating role of macroeconomic factors in determining growth outturns and future growth prospects Paper makes good use of international comparisons; could be extended further

3 II. Is The Diagnosis Right? Overall picture –Paper argues that constraints on growth are access to finance; lack of security; tax system; (possibly) weaknesses in competition policy; and transportation costs –What is not a binding constraint: international finance; macro risks; market failures; low human capital; non-transportation infrastructure

4 Is Diagnosis Right? (cont.) Broad agreement on diagnosis of individual factors What will constrain growth over the next few years? After the investment boom, productivity growth must carry the load

5 Output gap is positive; can more investment be absorbed in short run?

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7 Are macroeconomic risks a constraint on growth? Macroeconomic and financial sector vulnerabilities limited earlier growth episodes Reducing macroeconomic risks could help support higher growth –Public debt, at over 40 percent of GDP, still above average of investment grade countries –Immediate challenge is addressing overheating pressures and high current account deficit

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9 Assessment of individual constraints In some cases, further international comparisons could be useful: –An Emerging Asia aggregate (benchmark for fast growing region) could easily be constructed Is competition policy better or worse in Colombia than other emerging economies? Are concentration ratios high or low by international standards?

10 Assessment of individual constraints (cont.) Additional evidence on infrastructure performance (including international comparisons) would be helpful Improving the efficiency of infrastructure spending will be important—public investment already at a high level

11 Country Adjusted Public Efficiency 1/2/ Adjusted Rank Adjusted Level of Public Efficiency Mexico0.8241High Chile0.7322High Peru0.5983Medium Argentina0.5304Medium Brazil0.4325Medium Colombia0.2536Low Bolivia0.0367Low Source: Clements, Faircloth, and Verhoeven, “Public Expenditure in Latin America: Trends and Key Policy Issues,” forthcoming in CEPAL Review. 1/ Efficiency in various sectors (transport, electricity, water, telecommunications) aggregated using the share of public investment in each applicable sector. 2/ Adjusted by the effect of private sector spending on the efficiency score in each sector. Aggregated Efficiency Scores Efficiency of infrastructure investment