Ventana software support forum

Sergio,

I am part of a group of people working on a national model for Argentina and I
also have an economics background. There are certainly several differences
between Brazil or Argentina and the US. We think that a model of a developing
country requires a completely different approach than that of a developed
country, because the very problem to be modeled is not the same. N Forresters
model, for example, concentrates on determining the economic cycle in an
essentially stable economy. That is, an economic system that is not strongly
affected by foreign investment, in which productivity growth is smooth and
completely endogenous, in which social exclusion (and its feedback on
productivity and growth) is out the models boundaries and in which
institutions are sound. Clearly, these are not the cases of Brazil and
Argentina. In Argentina, for example, the inflow of foreign investment, and the
associated transfer of technology, that followed the stabilization policies of
the early 90s caused a leap on productivity and fostered economic growth.
However, this sudden change generated also a massive destruction of jobs, and
therefore fed a stock of unemployed and socially excluded who found it almost
impossible to adapt to the "new economy". The longer these people were
unemployed, the harder it was for them to get a new job and there was no
effective policy to stop this. We believe social exclusion, and its long-term
effects, was one of the main causes of the current crisis.

We live in fragile countries, with institutions that are incapable of providing
the appropriate balancing loops to smooth economic cycles. Therefore, the
balancing loops that set the limits to our "miracles" and "crises" are more
primitive, slow and painful, often generating unnecessary hunger and social
disruption. Our modeling work is at an early stage, but so far we have learned
that traditional macroeconomic or economic growth models are poor frameworks to
tackle the problems of emerging economies. Make sure to include in your model
variables such as poverty and literacy, and be precise on their effects. Be
extremely careful with market adjustment mechanisms, in particular with delays,
and consider the influence of foreign economies, especially through capital
flows. Note that in developed countries, productivity growth, the ultimate
source of long term growth, depends on technological change, while in
developing countries is mainly a problem of catch-up with already established
technologies and practices in the more advanced countries.

I hope this is of some help.

Santiago Braje
From: santiago.braje@citicorp.com