1. Institutions, Growth and Poverty in Bolivia: Obstacles to broad-based growth George Gray Molina Fernanda Wanderley Gilberto Hurtado May, 2007

3. I. Stylized Facts on Growth, Poverty and Competitiveness

4. Bolivian and Latin American economic growth GDP growth, 1980 - 2003

5. Public and private investment rates

6. Productivity rates of labor, capital and total factor productivity

7. Productivity, investment and growth Bolivia in 90’s: investment -16.8 % and growth of TFP -1.2 % Bolivia today: investment 13% and growth of TFP 0% TFP growth contribution (%) Investment (% of GDP) 12 14 16 18 20 22 24 0,0 1,9 2,1 2,3 2,5 2,7 2,9 3,1 0,5 2,5 2,7 2,9 3,1 3,3 3,5 3,7 1,0 3 3,2 3,4 3,6 3,8 4 4,2 1,5 3,5 3,8 4,0 4,2 4,4 4,6 4,8 2,0 4,1 4,3 4,5 4,8 5,0 5,2 5,4 2,5 4,6 4,9 5,1 5,3 5,5 5,7 5,9 3,0 5,2 5,4 5,7 5,9 6,1 6,3 6,5 3,5 5,7 6 6,2 6,5 6,7 6,9 7,1 4,0 6,3 6,5 6,8 7 7,2 7,5 7,7

8. 70 years to converge on competitiveness indicators (World Economic Forum)

9. II. Growth Diagnostics for “Pockets of Growth”

10. The export sector Exports composition, 1980 – 2005 (millons of dollars)

11. No traditional products composition, 1980 – 2005 (% of total) The export sector

12. Export profile of Bolivia in 1980 - 1984

13. Export profile of Bolivia in 1985 - 1989

14. Export profile of Bolivia in 1990 - 1994

15. Export profile of Bolivia in 1995 - 1999

16. Export profile of Bolivia in 2000 - 2004 Wood Articles of jewellery Cotton Leather

17. III. Case studies

18. Jewelry Export Industry Exportadores Bolivianos (EB) cost structure

19. Rafaela Pitti’s (RP) cost structure Jewelry Export Industry

20. Manufactured wood products Mabet’s cost structure

21. Manufactured wood products Soex’s cost structure

22. How do institutions matter for “pockets of growth”? Commodities Price-Sensitive Quality Sensitive Public goods (low) Public goods (low) Public goods (low) Legal security (low) Legal security (low) Legal security (low) Illegal contraband Illegal contraband Supply chain coord. Supply chain coord. High cost finance High cost finance Managerial expertise Human resources All: comparative advantage is frequently based on cheap labour and cheap natural resources

23. Growth strategies for “pockets of growth” Commodities P-Sensitive Q-Sensitive Markets Bilateral trade Multilateral Multilateral Compete price Comp. price Comp. Quality Scale Large Large/medium Medium/small Formal Formal/informal Formal/Informal Managerial Backward integ. Backward coord. Low linkages High linkages All: Use institutional/managerial strategeis to get around binding contraints

24. IV. Conclusions

25. Conclusions Analytical: The pockets of growth approach allows us to control for structural constraints common to all export products. While “everything matters” at the aggregate level, specific institutional binding constraints matter the most for price-specific and quality specific industries. This allows us to “unpack” the weight of specific institutional determinants of growth and poverty reduction (pending).

26. Conclusions Policy: If “pockets of growth” emerge in low growth, low-investment and low-productivity economies, than policies that attack specific binding constraints allow a certain degree of “leap-frogging” convergence constraints. Bolivia should pursue a “three-gear” policy strategy for commodities, price-sensitive industry and quality sensitive industry that discriminates between “basics” and “tailored” policy impact (pending).