INDIA, BRAZIL AND SOUTH AFRICA: STRATEGIC ECONOMIC OPPORTUNITIES IN THE MAP OF INTERNATIONAL SPECIALIZATION

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2 2 INDIA, BRAZIL AND SOUTH AFRICA: STRATEGIC ECONOMIC OPPORTUNITIES IN THE MAP OF INTERNATIONAL SPECIALIZATION André Nassif Brazilian Development Bank (BNDES)* Av. República do Chile, 100 Sala 1401 Rio de Janeiro (RJ) - Brasil andrenassif@bndes.gov.br Third India, Brazil and South Africa Summit. The Academic Forum: IBSA Partnership for Shared Prosperity and Inclusive Globalization October 2008 New Dehli - India

3 The theoretical approach: The sources of international specialization in a static framework: Comparative advantage (Ricardo, 1817; Helpman and Krugman, 1985) Imperfect competition (scale economies and/or product differentiation) (Krugman, 1987; Helpman and Krugman, 1985) 3

4 4 Trade according to comparative advantage and imperfect competition among developed and developing countries United States Agricultural goods and resourcebased manufacturing Differentiated goods and scale-intensive manufacturing products Intra industrial trade Brazil Intra industrial trade Agricultural goods and resourcebased manufacturing Source: Freely adapted from Krugman (1987) Differentiated goods and scale-intensive manufacturing products Intra industrial trade European Union

5 5 The sources of international specialization in a dynamic framework: Technological change (dynamic comparative advantage) Dosi, Pavitt and Soete (1990) Coordinated investments (big push) (Murphy, Shleifer and Vishny, 1989; Fujita, Krugman and Venables, 1999) Both are driven by industrial and technological policies

6 6 Export composition of goods of Brazil and India according to technological intensity Description Brazil India Primary Products Manufactured Products Resource-based Low Technology Medium Technology High Tecnnology Other transactions Total Exports Note: Elaborated according to the original classification proposed by Lall (2000). For more details, see the Appendix of Lall (2000). Source: Nassif (2007, based on Comtrade data, Unctad - United Nations (

7 7 However, in the case of India, if we add the export of commercial services in the total export: Software, communication and IT services 20,6% Other commercial services 9,8% Other goods 24,8% Food and beverage 6,5% Textile products 8,6% Apparel 7,8% Furniture, toys and jewels 12,9% Chemistry 9,1% Note: Exports of goods refer to 2003 and exports of commercial services refer to 2002 Source: Nassif (2007, based on Comtrade data - Unctad (

8 India, Brazil and South Africa in the map of international specialization 8

9 9 The data: degree of specialization of 159 countries according to Balassa Index (BI) of comparative advantage BI > 1 (industry has comparative advantage) BI < 1 (industry has no comparative advantage)

10 10 Specialization ranked into 4 categories: High specialization: BI > 2 Middle specialization: 1 < BI < 2 Low specialization: 0,5 < BI < 1 No specialization: BI < 0,5

11 11 Industries classified into 4 categories according to OECD taxonomy by technological intensity Natural resource-based industries Labor intensive industries Capital intensive industries High tech and science-based industries What you export matters for development, Hausmann, Hwang and Rodrik, 2007:

12 12 Map 1: Specialization in Natural Resource-Based Sectors 2005* * This year may differ for some countries. Source: UNComtrade (Puga and Nassif, 2008 ).

13 13 Graph 2: Share of Natural Resource Based- Industries in Exports of Selected Countries 2005* (%) % 26% 29% 42% 48% 56% 62% 68% 71% ,3% 15% China USA Mexico Total India Canada Brazil Chile Australia Argentina Russia Farm Products Minning Fuels Food and Beverages Wood Pulp and Paper Non-Metal Mineral Manfct * This year may differ for some countries. Source: UNComtrade (Puga and Nassif, 2008).

14 14 Map 2: Specialization in Labor Intensive Sectors 2005* * This year may differ for some countries. Source: UNComtrade (Puga and Nassif, 2008).

15 15 Graph 3: Share of Labor Intensive Industries in Exports of Selected Countries 2005* (%) 40 38% 35 32% 30 29% 25 23% 20 17% ,4% 6,7% 7,5% 8,5% 10% 11% 5 0 South Africa Brazil USA Germany Mexico Total Poland Italy China Turkey India Textile Apparel Leather and Footwear Metal Products Furniture, Jewels,... * This year may differ for some countries. Source: UNComtrade (Puga and Nassif, 2008).

16 16 Map 3: Specialization in Capital Intensive Sectors 2005* * This year may differ for some countries. Source: UNComtrade (Puga and Nassif, 2008).

17 17 Graph 4: Share of Capital Intensive Industries in Exports of Selected Countries 2005* (%) % 29% 30% 32% 35% 41% 42% 42% 49% 25 24% 24% 24% % China Russia India Mexico Brazil Total USA Chemicals Rubber and Plastics Steel Industry Motor vehicles * This year may differ for some countries. Source: UNComtrade (Puga and Nassif, 2008). Hungry Poland Chile Japan Germany South Africa

18 18 Map 4: Specialization in High Tech and Science-Based Sectors 2005* * This year may differ for some countries. Source: UNComtrade (Puga and Nassif, 2008).

19 19 Graph 5: Share of High Tech and Science-Based Industries in Exports of Selected Countries 2005* (%) 50 47% 48% 51% 43% 40 38% 33% % 10 3,9% 3,9% 8,3% 8,5% 11% 0 Argentina Russia Australia India S. Africa Brazil Machinery and Equipments Office and Computing Machinery Electrical Equipment Comunications Equipments Precision and Optical Instrum. Aircraft, Ships, Raiways Total Germany Mexico USA China Japan * This year may differ for some countries. Source: UNComtrade (Puga and Nassif, 2008).

20 20 Are there opportunities for strategic trade among IBSA? If so, where?

21 There are opportunities in industries with potential of intra-industrial trade and technological cooperation among India, Brazil and South Africa, mainly where the technological gaps are narrow. 21

22 22 Brazil: Política de Desenvolvimento Produtivo (Policy for Industrial Development ) Brazilian Government targeted 35 industries for restructuring and/or industrial & technological policy 3 selected Areas: Policies directed to strategic Areas: ICT Industries, Pharmaceuticals, Nuclear Energy, Biotechnology, among others Policies directed to consolidate leadership: Aircraft, Oil, Ethanol, Metallurgy and Food Industries, among others Policies to boost industrial competitiveness: Machinery and Equipment, Motor Vehicles, among others

23 23 Some potential opportunities for strategic intra-industrial trade and technological cooperation among IBSA: Priority should be given to capital intensive and high tech and sciencebased industries: Chemicals Pharmaceuticals Metallurgy Motor Vehicles Machinery and Equipment Nuclear Energy Software

24 THANK YOU VERY MUCH 24

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