Multi-dimensional Review of Uruguay

OECD

• Publisher: OECD
• Year: 2016
• eBook ISBN: 9789264252882
• Topic: Social Sciences
• Subtopic: Sociology
• Index: Social Sciences

Chapter 1. Assessment and recommendations

In recent years, Uruguay has made remarkable progress in strengthening its macroeconomic management and improving its people’s well-being. The recovery from the Argentinian and Uruguayan crisis in 2001-02 saw the country begin its most extended period of economic growth. For most of the 2001-10 decade, stable macroeconomic policies and the favourable external environment allowed for solid growth and counteracted the devastating effects of the crisis. This is reflected in improvements in different dimensions of well-being. The country’s achievements are remarkable both by regional and OECD standards. As one of the few high-income countries in Latin America, and with the lowest levels of poverty and income inequality on the continent, Uruguay scores highly in areas such as life satisfaction, environmental quality, health, trust, perception of government and air quality (Figure 1.1). Nevertheless, some challenges remain, including unequal access to education (particularly secondary), youth unemployment and social exclusion.

Figure 1.1. Well-being in Uruguay compares favourably to the rest of the world

Note: Bivariate regressions were run with the relevant well-being measures as the dependent variable, and GDP per capita as the independent variable, to estimate a coefficient for the relationship between GDP and the outcome in question. The coefficient was then applied to Uruguay’s actual GDP per capita to produce an expected value for the outcome. Uruguay’s actual well-being outcome is expressed as a ratio of the expected outcome measured in standard deviations. PISA: Programme for International Student Assessment; GNI: gross national income.

Sources: OECD calculations based on Gallup Organization (2013), Gallup World Monitor (database); UNDP (2015), International Human Development Indicators (database), http://hdr.undp.org/en/data; UIS (2015), UIS Data Centre (database), http://data.uis.unesco.org/; World Bank (2015), World Development Indicators (database), Washington, DC, http://data.worldbank.org; PISA 2009 data.

StatLink http://dx.doi.org/10.1787/888933329967

While Uruguay’s growth path is currently stable, its history of economic fluctuations urges caution. Over the past decades, Uruguay’s growth performance has seen external conditions and domestic living standards fluctuate rapidly. Volatility in growth rates has been high compared to OECD countries, with Uruguay swinging between periods of strong economic growth, economic crises and subsequent recoveries. Such inherent volatility has increasingly challenged Uruguay’s capacity to maintain previous living standards. Between 1961 and 2014, per capita gross domestic product (GDP) grew by 1.8% annually, significantly below the 2.2% average for OECD economies with similar income levels. Today, the macroeconomic policy framework is solid, but external conditions risk curbing economic growth. Uruguay needs to address the structural issues driving economic and social vulnerability.

This second volume of the Multi-dimensional Review of Uruguay provides an in-depth analysis of Uruguay’s critical constraints to development. It extends the analysis completed in the initial assessment (OECD, 2014a), taking it a step further and proposing concrete recommendations for key policy issues (Box 1.1). The initial assessment stressed the role of Uruguay’s institutional capital in constructing a solid policy framework to deal with external and domestic challenges. These include reducing external vulnerabilities, diversifying the economic structure and preserving a social agenda. Uruguay’s institutional strength – witnessed by high public trust in government, low perceptions of corruption and well-developed social capital – suggests that the country is well-placed to undertake important long-term reforms. Constraints in education and infrastructure underline the need for a long-term perspective in implementing reforms.

Box 1.1. What do multi-dimensional country reviews involve?

The OECD multi-dimensional country reviews are carried out in three phases, which constitute the basis for an exchange with policy makers: The first phase, or initial assessment, provides a general diagnosis of the country’s development model and identifies its main constraints. The second phase, in-depth analysis and recommendations, tackles the most binding constraints identified and examines them in greater depth. Taking into account linkages, trade-offs and synergies across policies, the in-depth analysis provides a series of policy recommendations to overcome these structural barriers. Finally, the third phase of strategy building and implementation incorporates recommendations into a coherent development strategy, proposing an appropriate sequencing for the implementation of policies.

The in-depth analysis contained in this report focuses on three key areas for intervention: First, Uruguay’s need to improve its international integration strategy, by harnessing new opportunities in global value chains, improving the investment framework and developing its services sector (Chapter 2). Second, the present state of infrastructure development in Uruguay, and the existing institutional barriers to improving the national transport system (Chapter 3). Third, the current challenges for consolidating the education and skills systems, the economic and social costs of current deficiencies and the education policies required to improve performance, equity and other educational outcomes (Chapter 4). This chapter reviews these constraints and summarises the main policy recommendations identified to mitigate them.

Building stability through better international integration, infrastructure and education

The initial assessment found that Uruguay’s binding constraints were in the areas of international integration, infrastructure development and education. “Binding constraints” are defined as those with the largest effect on the development outcomes under analysis. As a first step, the Better Life framework,1 an overall assessment of Uruguay’s living standards, allowed for a preliminary appraisal of Uruguay’s main constraints. The initial assessment also focused on three dimensions: the evolution of Uruguay’s structural trends and productivity, the patterns of inequality (in income, access to public goods and employment) and the sustainability of the current macroeconomic and fiscal framework. All things considered, three policy areas for future action were identified:

1. International integration, through trade and investment. Uruguay’s reliance on exporting goods and services, its involvement in various intraregional platforms and its willingness to develop new economic sectors and become a regional hub should put the integration agenda at the forefront of public policy.
2. Infrastructure development, especially in the transport sector. Uruguay’s infrastructure gap could be putting an important brake on economic growth. Its efforts to strengthen its transport network reflect its ambition to become a logistics focal point in the region. Despite a high coverage of road and railroad networks, quality improvements and a consolidated long-term national plan for transport will be critical for fulfilling the country’s productive and integration strategy.
3. Education, especially secondary and post-secondary education. A better-performing and more equitable education system can provide more opportunities to broader segments of the population, strengthening the country’s human capital and skills, reducing pervasive inequalities and favouring social mobility.

Low diversification, a rigid regulatory framework and the sub-optimal use of trade arrangements hinder Uruguay’s integration in global markets

Uruguay is an open, liberalised economy with an investor-friendly regime and is increasingly participating in international trade. The country’s recent record of solid economic growth has been partially driven by its dynamic external sector. Doubling in less than a decade, Uruguay’s export sector remains an important pillar of the economy, with about one third of GDP embodied in exports, while the same share of jobs depend on external demand (Ferreira and Vaillant, 2014). Nonetheless, the benefits from Uruguay’s trade and investment profile are still relatively limited compared to other economies. This suggests that there is considerable scope for stronger integration and greater competitiveness in new sectors. For this, as stressed in the initial assessment, Uruguay’s integration model needs to be reinforced. Until recently, regional and plurilateral agreements have allowed the country to strengthen links with its neighbours. Today, however, new challenges demand a more ambitious integration strategy. Global value chains (GVCs) have reconfigured the patterns of international trade – harnessing new opportunities to participate in them has become a priority. In addition, the regional context, with a more uncertain macroeconomic environment means it is critical for Uruguay to forge trade ties with commercially relevant partners outside Mercosur. Uruguay is therefore increasingly inserting itself beyond the region through its services sector, including transportation, tourism and business services, but existing barriers to international integration in services could undermine this process (Figure 1.2).

Figure 1.2. FDI restrictions by sector in Uruguay remain high in some sectors, 2013

Note: OECD 2013 FDI Regulatory Restrictiveness Index: closed = 1, open = 0.

Source: Authors’ elaboration based on OECD (2015), FDI Regulatory Restrictiveness Index, www.oecd.org/investment/fdiindex.htm.

StatLink http://dx.doi.org/10.1787/888933329971

Low diversification, a rigid regulatory framework and the sub-optimal use of trade arrangements could hinder Uruguay’s integration in global markets. Uruguay’s capacity to diversify its trade towards new markets and sectors remains an important challenge. The recent development of a “global services” sector, less sensitive to distance and economic downturns, is a move in the right direction. However, Uruguay’s regulatory profile for domestic services remains relatively restrictive, undermining other sectors of the economy and hampering its connectivity to world markets. Besides regulation in the services sector, Uruguay has yet to tackle modern, behind-the-border disciplines (or rules) essential ...

Table of contents

• Title page
• Legal and rights
• Foreword
• Acknowledgements
• Acronyms and abbreviations
• Executive summary
• Chapter 1. Assessment and recommendations
• Chapter 2. International integration, investment and services in Uruguay
• Chapter 3. Transport infrastructure for development in Uruguay
• Chapter 4. Towards greater equity in education in Uruguay
• About the OECD