TFP demand of railway infrastructure is almost tripled.

TFP and GDP growth
was relatively stable until the outbreak of the economic depression: in average
5.29 and 6.37 per year, respectively, between 1991-1998. The sharp reduction in
exports and the loss of competitiveness of domestic producers that followed the
debt crisis eventually led to declining productivity. All the infrastructure
sectors suffered from the reverberations of the crisis as it can be observed in
Figure 11: negative CAGR1
between 199-2002 was experienced for Ports
(-14.6 percent) and Airports (-24
percent), and also Energy, Railway and Telecoms declined in 2002. On the other hand, the recovery witnessed
lower export prices that facilitated external trade, hence fostering
infrastructure performance and growth. Air and maritime transport reached the
pick in 2004 (70 percent volume increase on the previous year) and new openness
to FDI favoured investments in manufacturing and technology. The road network
was also significantly enlarged to facilitate internal operations (13.1 percent
of CAGR over 2002-2008), especially around the area of Buenos Aries.

It is
interesting to observe how airport infrastructures have been much more
responsive to market stimuli in the last 5 years. In 2010, in fact, Aeropuertos Argentina 2000, the entity
in charge of controlling the 33 airports network across the country, financed
the realization of an international terminal at the Ezeiza Airport. The airport boosted cargo shipping by 31 percent
and smoothed the internal logistic operations, generating important gains for the
country’s productivity (Aeropuertos Argentina, 2011).

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Finally, telecommunication
services, which have been found to significantly influence Argentinian TFP, are
now facing a stagnant stage of growth. After a rapid development between 2002
and 2013, with the number of MBS per 100 persons increasing from 17 to 162, the
rate is currently slowing down. However, recent changes in the bureaucratic and
infrastructure environment prepare the ground for large investments in the
sector. Steps ahead have been made by speeding up the administrative procedures
and with the installation of FTTH (Fiber-to-the-home) networks to increase the
bandwidth offer; a positive impact on TFP is expected (Di Paola,
2017).

Brazil witnesses
a history of enormous economic potential, but continuously plagued by severe
macroeconomic mismanagement and political failures. After the “lost decade” of
stagnation and hyperinflation characterizing the 1980s (and that protracted
until the mid-1990s), contractions in GDP can be observed in Figure 12 in relation to the emerging-markets
turmoil of the 1997-98 and the 2008 great crisis. TFP volatility has ranged
within a quite narrow interval between -5 and +5 percent.

Beside the
influence of trade-related externalities, many economists have seen in the lack
of adequate logistic infrastructure a strong barrier to productivity growth in
Brazil. Railways, after having represented the vital engine of the country’s
economy in the XIX century, are now the main issue. Between 1995 and 2010, the
gap between the supply and demand of railway infrastructure is almost tripled. The
graph illustrates the flatten trend regarding the length of operative
rail-line. This factor is having a strangling effect on trade. The absence of
rail-lines in many parts of the country forces producers to use roads, which
costs twice as much as by rail and four times as much as by water. Brazilian
farmers pay more than 25 percent the value of their soya to reach the ports, 3
times more than the Iowa’s competitors, for instance. The bottleneck at ports
create significant delays, crowding out potential customers (The Economist,
2013). Inadequate roads for quantity and quality contribute to make the
situation critical: the length of road network is even decreased by 6 percent
over 1991-2015.Port and airport
infrastructures position themselves relatively well compared to the rest of the
region. Being the largest economy in LAC, Brazil has the largest number of
airports in LAC and it is the third market for domestic commercial aviation. Airport
infrastructure have improved especially over the 1990s (5.6 percent of CAGR
between 1992 and 2001). Regarding ports, the country displays 37 sites along
the coast and the regulatory system has experienced important improvements in
terms of decentralization and trade openness. From 1992 to 2014, Container Port Traffic in Brazil has
improved in average by 13.11 percent per year: indeed, about 20 percent of all
containers in LAC were moved in Brazil in 2012.

Finally, ICT services
and electricity are fairly developed. For Telecommunications,
the sector productivity is constrained by structural and institutional factors,
such as the huge diversity in service provision between urban and rural area
(especially in the North-East where internet access is below 20 percent), and
the lack of competitive regulation upon the retail of public fixed-line telecom
services and roaming rates. The number of MBS
per person in Brazil is indeed lower than Argentina and Chile. As per the
energy sector, instead, the cavil is related to the centralization of the
sector in state’s hands. Very little improvements have been made in terms of electricity generation capacity over the
last 25 years. However, the Petrobras crisis may open business opportunities
for potential new entries in the marketChile is a small
open economy with strong fundamentals in terms of markets regulation,
institutions and public policies. Trade liberalization and the movement toward
a free market economy that started in the mid-1970s brought important TFP gains
until the outbreak of the debt crisis. However, in the last 25 years, the
country has been able to tackle external shocks with counter-cyclical policies
and proper investments in infrastructure. GDP restored and grew in average by 4.2
percent per year between 2000 and 2015 (Figure
13). However, TFP trend during the last 15 years is controversial and it
has been holding back the Chilean economy.Chile witnesses
an efficient, high-quality highway system that vertically connects the whole
country and intersects with Argentina. Over the 1990s, 82 projects were
implemented with 2.500 kilometres of highway being either realized or renewed.
In 2010, however a severe earthquake in the area of Concepción, the second
largest city on Chile, devastated many miles of road (the event is not
considered in the trend). Regarding the rail infrastructure, instead, the
sector exhibits high volatility and instability due to three main issues: complex
geography, that makes difficult and time-consuming the maintenance of the
rail-lines, administration problems, and slow project planning and execution. The
railroad is arbitrarily managed by few leading corporations, which privilege
large operations upon long-term contract, against small volume loans and general
cargo: in several occasions, especially in 1999 and 2009 large routes were
temporarily dismissed.Airport and Port
infrastructure exhibit similar patterns. Trade flows rapidly and significantly
grew over the 1990s and then declined during the last 15 years. From 1990 to
1999, CAGR for Airports and Ports was, respectively, 10.5 percent
and 15.4 percent. Conversely, between 2000 and 2015, CAGR was 0.37 percent for Airports and 7.4 percent for Ports.Interestingly,
the energy sector for Chile has experienced the greatest volatility in the
sample group. Falling ore grades, energy shortages and industrial disputes have
contributed to the fluctuations, with significant impacts on productivity. The
Chilean energy problem is multifaceted. The country has virtually no oil and
gas, and the sector relies predominantly on thermal and hydro power generation.
 Skyrocketing import prices and climatic
contingencies have often caused severe shortages. In 2008, the electricity generation capacity fell by
18 percent. Subsequently, the first liquefied natural gas terminal and
re-gasification plant was built to secure energy supply (WTC, 2014).

Finally, the
country is foremost in integrating ICTs in the educational system. The effectiveness
of policies for the expansion of ICT in education, together with the
collaboration amongst public institutions, developers and private businesses,
is laying the foundations for an improved labour market that is likely to
enhance the domestic TFP. The number of MBS
per 100 persons has increased by 19.4 percent per year, in average, from
2000 to 2012. A slight decline is now arising.Over the last 25
years, Peru has been one of the most prominent performers in LAC entering the
sphere of the largest economies in the region (LAC 6). Peru’s rapid economic
growth has averaged 5.3 percent per year since 2001. Market reforms in
strategic sectors, especially telecoms, energy and mining, implemented over the
1990s facilitated the economic growth. The geography of the country is
incredibly complex, making Peru highly vulnerable to climatic hazards and rising
connectivity challenges and delivery costs.The logistic network is inadequate to fulfil the country’s export
potential of natural resources. Logistic costs, considering timeliness and cost
of shipments, account for almost 30 percent of GDP: 34 percent of the value of
goods exported from Peru corresponds to logistic costs, while the regional
average is 24 percent and 9 percent in OECD countries (Guasch and Kogan, 2006). Improving the logistic infrastructure to
OECD standards may boost Peru’s productivity about 35 percent (OECD, 2015). The supply of
adequate roads and highways to connect coastal markets and inland regions has
not sufficiently improved over the last 25 years, as it can be evinced by the flat
trends of Roads and Railways. A light rail mass
transportation system was initiated around Lima in the mid-1980s, yet
interrupted during all the 1990s and only partially restarted over the 2000s.
Rural areas are still deeply unconnected from the coast. Maritime transport has importantly backed the commodity-driven trade that
supported the country constant growth between 1999 and 2013. In fact, after two
significant falls in container port
traffic volumes, first in 1989-1990 (Peruvian Inti hyperinflation) and then
in 1997 (international financial crisis), Peruvian terminals’ TFP witnessed an
average annual increase by 2,4 percent over 2004-2010 (Chang and Tovar, 2014). As it can be observed on Figure 14, container port traffic in Peru grew almost steady during that
period, experiencing a CAGR of 11,5 percent.The most unstable Peruvian infrastructure is the airport system. Until
2006, only 20 percent of the national airport have been stably and suitably
used over the years. The inefficient management of the airport network was
accompanied by volatile fuel costs and unfavourable legal framework. In longer
terms, the air-transport of freights
seems to be improving. From 1988 to 2000, the trend was negative: – 11.6 of
CAGR and overall trade contraction by 80 percent; afterwards, the indicator
exhibits positive tendency with 12 percent of CAGR over 2001-2015.The energy sector is recently experiencing improvements in terms of electricity generation capacity. The
indicator exhibits annual 5,6 percent growth, in average, since 2005. Due to
the availability of local sources of energy, including both hydro and natural
gas, the Peruvian electricity sector is among the few in the region that has
not faced shortages in recent years. Finally, the ICT sector in Peru is still
underdeveloped if compared to other regional peers. MBS per capita is the lowest in the sample and it is stagnating
(only 0.29 percent of average growth rate over the last 4 years).

In conclusion, the
quantitative analysis help understand the behaviour of TFP trend and
infrastructure development in Latin America, and the interaction amongst them. For
all the countries analysed, at least one infrastructure sector has been found
to be positively correlated to TFP growth, and with statistical significance at
95 percent. Generally, Telecommunications,
Railway, Ports and Airports are
the infrastructure variables displaying greatest magnitude in coefficients.
Negative correlation has been found in some cases, but with no statistical
significance. However, the regression presents structural defects and gives
only limited contribution to the overall analysis. The results critically
depend on the specific way infrastructure are measured (i.e. flows rather than
physical stocks). In fact, it is not surprising that Ports, as well as Airports, correlate
strongest with TFP, since both are closely related to trade flows and GDP.
Moreover, significant correlation among infrastructure variables has been
found, meaning that unexplained patterns between two or more explanatory
variables disturb the function. Moreover, since the observations concern
consequent annual values of TFP, and the current residuals are likely to be
dependent on previous (historic) values, the risk that the regression model
suffer from autocorrelation is high. As a matter of fact, a more qualitative
approach is hence needed to support the explanation of the infrastructure-TFP
relationship and overcome the limitations expressed above