2014年-世界发展银行全球_Growth_Volatility_in_Paraguay___Sources_Effects_and_Options_80页_2mb

Summary of Report No. 78318-PY: Growth Volatility in Paraguay

Core Content

This report examines the sources, effects, and policy options for managing growth volatility in Paraguay, with a focus on the agricultural sector. It highlights the increasing volatility of Paraguay's GDP growth, its implications for the economy, and the structural and external factors contributing to it.

Main Sources of Volatility

1.1 Stylized Facts

• GDP Growth Volatility: Paraguay has experienced one of the highest GDP growth volatilities in the region, especially since 2000.
• Volatility Trends: From 1960 to 2000, Paraguay's growth volatility was lower than most Latin American countries, but it has increased significantly in the past decade.
• Recent Fluctuations: The economy saw extreme fluctuations, such as a -4% contraction in 2009 and a 13.1% rebound in 2010, followed by similar patterns in 2012 and 2013.
• Volatility Breakpoints: The volatility of quarterly GDP growth increased sharply in the fourth quarter of 2008, as identified by the Inclan and Tiao (1994) method.
• Agricultural Volatility: Agricultural GDP volatility also spiked in 2008, with a standard deviation of 22 percentage points after the break, compared to 6 before.
• Agricultural Share in GDP: The share of agriculture in GDP has increased from about 12% in the 1990s to over 18% in 2010 and 2011.

1.2 Sources of Volatility

• External Shocks: Account for over 50% of GDP volatility. These include:
  • Foreign Demand: About 30% of GDP volatility.
  • World Interest Rate: 20% of GDP volatility.
  • Terms of Trade: 3% of GDP volatility.
• Domestic Shocks: Account for the remaining share, including:
  • Shocks to Real GDP: 25%.
  • Shocks to Investment: 15%.
  • Pro-cyclical Fiscal and Monetary Policies: 3%.
• Agricultural Specific Shocks:
  • Production Shocks: Variations in rainfall, investment levels, and disease outbreaks (e.g., foot and mouth disease).
  • Market Shocks: Commodity price variations, closure of markets due to disease, and fluctuations in prices of imported inputs like fertilizers and pesticides.

1.3 Role of Factor Markets

• Persistent Rigidities: Factor markets remain rigid, limiting the economy's ability to buffer shocks and leading to more pronounced business cycle fluctuations.
• Labor and Capital Mobility: Despite some improvements, labor and capital returns between agriculture and non-agriculture remain large, indicating limited mobility.
• Fiscal and Monetary Constraints: Pro-cyclical fiscal policies and limited access to credit in downturns exacerbate volatility.
• Non-agricultural Efficiency: The non-agricultural sector has shown no signs of improvement, contributing to continued economic instability.

Effects of Growth Volatility

2.1 Propagation of Shocks Within Agriculture

• Rainfall Volatility: Increased rainfall instability has preceded agricultural GDP volatility, especially affecting the soy harvest.
• Correlation with GDP: The cyclical component of rainfall is highly correlated with agricultural GDP, indicating a strong dependence on weather conditions.

2.2 Impact on Other Sectors

• Input-Related Sectors: Sectors providing inputs to agriculture, such as machinery and storage/transport services, are heavily affected.
• Financial and Construction Sectors: These sectors also experience volatility due to fluctuations in agricultural exports.
• Private Consumption: There is some evidence that private consumption plays a role in propagating the effects of agricultural GDP volatility throughout the economy.

2.3 Impact on Macroeconomic Aggregates

• Exchange Rate and Employment: These fluctuate due to changes in agricultural exports.
• Investment and Tax Revenues: Lower investment levels and indirect effects on tax revenues are observed.
• Poverty and Inequality: Volatility slows the reduction of poverty and inequality, which are already significant issues in Paraguay.

Policy Options

3.1 Macroeconomic Toolbox

• Fiscal Rules and Stabilization Funds: These can help manage pro-cyclical fiscal policies.
• Flexible Factor Markets: Policies that improve labor and capital mobility can reduce the impact of shocks.
• Structural Adjustments: Strategies to enhance the role and structure of agriculture in the economy.

3.2 Agricultural Risk Management Toolbox

• Production Risk Mitigation:
  • Animal Health Capacity: Building capacity to prevent foot and mouth disease, as seen in Colombia.
  • Weather Derivatives: Using rainfall index-based tools for drought mitigation, as in Malawi.
  • Weather Contingency Fund (CADENA): A fund to manage weather-related risks, as in Mexico.
  • Index-Based Livestock Insurance (IBLIP): A program to protect against livestock losses, as in Mongolia.
• Market Risk Mitigation:
  • Asparagus Market Development: As in Peru, to diversify export markets.
  • Subsidies for Hedging Contracts: As in Mexico, to support price stability.
  • Agricultural Commodity Exchanges: As in Argentina, to improve market transparency and stability.

3.3 Combining Macroeconomic and Agricultural Risk Management Tools

• Integrated Framework: A comprehensive framework is needed to address all sources of volatility.
• Fiscal Implications: Any policy must consider its effects on sustainability, redistribution, and contingent liabilities.
• Government and World Bank Collaboration: Joint efforts are being made to assess and implement agricultural risk management strategies.

Key Findings

• High Volatility: Paraguay's GDP growth is highly volatile, especially in recent years, with fluctuations exceeding those of many Latin American countries.
• Agricultural Dependence: The agricultural sector, particularly soy and beef, dominates exports and is a major source of volatility.
• External and Domestic Factors: Both external and domestic factors contribute to volatility, with external shocks being the most significant.
• Factor Market Rigidities: These limit the economy's ability to absorb shocks and buffer business cycle fluctuations.
• Need for Resilience: Policies that increase economic resilience and reduce the impact of shocks are essential, especially given Paraguay's low per capita income and high inequality.

Conclusion

Managing growth volatility in Paraguay requires a multi-faceted approach, combining macroeconomic and agricultural risk management tools. The report emphasizes the importance of understanding the interplay between different sources of volatility and designing policies that enhance resilience and reduce the negative impacts on welfare, economic growth, and inequality.