How much are we investing in our industries? Most Argentinians nowadays complain that the government's policies are affecting their investments as they cannot import these goods. This idea can be exploited to evaluate the capital investments of most countries. Even though direct measures of equipment installed in a country by type are not available, Eaton and Kortum have shown that most of the world’s capital is produced in a small number of R&D intensive countries. The rest of the world generally imports its equipment. Two other economists, Caselli and Wilson, then have concluded that, for most countries, imports of capital of a certain type are an adequate proxy for overall investment in that type of equipment. Before leaving Argentina, I thought it was a good time to test how capital imports (and hence investments) compare over a selection of Latin American countries.
The United Nations has a dataset COMTRADE which holds information on all trade for each country, in a quite disaggregated way. (Notice that for some countries one big benefit of this source is that the information collection is independent of their governments). For example, we can check the number, price and weight of male suits made of linen that are exported from Egypt to Germany each year. And this happens for almost any good, year and set of countries you can imagine. Then, by identifying which of these imports are capital, we can identify the value of capital imports every Latin American country has done over the last 20 years. Figure 1 shows this as a share of GDP. It is clear that Bolivia (really Evo?), Chile and Paraguay are some of the highest capital investors/importers. On the other hand, the rest of Latin America seems to be pretty similar, importing/investing below 10% of GDP (I was surprised by Brazil's low numbers as well). Just to get an idea Asia has had a stable average ratio of capital imports to GDP of close to 16% over the same period.
But not all capital is the same when looking at investments. Aircraft or computers are not the same as cars or even more basic electrical equipment. Hence, we can even use COMTRADE data and evaluate the uses of capital investments of each of these countries. For the sake of clarity, in Figures 2, High R&D refers mainly to aircraft, computers and communication equipment; Medium R&D refers to other electrical and non-electrical equipment (includes professional goods like photographic ones); and Low R&D refers to motor vehicles and fabricated metal products. And now we can see how each Latin American country has invested in the last two decades.
Figure 1: Capital Imports as a share of GDP.
Figures 2: Capital Imports Composition, by country.
Let me start with my own country. Argentina has seen a big switch in the early 2000s from High R&D towards Low R&D. Imports of motor vehicles and fabricated metals seem to have taken place over equipment with more advanced uses like computers and other office goods. (This seems to go against what the Argentinean government keeps saying about building our own motor industry.) A similar pattern can be seen in Chile, though in much milder terms. Paraguay is on the opposite end, switching away from Low R&D towards more Medium and High R&D goods. Interestingly, some of the countries with the best recent reputation (like Brazil, Peru or Uruguay) have had a much more stable path. Figures 2 have many stories to tell and probably depend a lot on each country's policies, which I am most likely unaware of. Nevertheless, they do let us test whether the comments our politicians make on industrial and other forms of investment hold in the data. So pick your favorite country and check it out!
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