Unit Price of Manufacturing Exports that Process Natural Resources From Latin America.

Lead-in We explore the potential domestic income increase in Latin American exports following unit prices of exported products by processing stage. In various developed countries, manufacturing began through the internal processing of locally available natural resources. Currently, high-income countries participate in world trade by exporting these types of products. The objective of this paper is to demonstrate the level of sophistication of these exports by monitoring the unit price of exports of the petrochemical chain (Argentina, Brazil, Mexico, and Venezuela); copper (Chile and Peru); iron and steel (Brazil and Mexico); and soybean and its derivatives (Argentina and Brazil). We show the potential for elevating domestic income in exports by increasing manufacturing done within a country before export.


I. Introduction
Latin American countries are important exporters of both primary products and manufactures that have undergone a process of transformation. Therefore, it is essential to study ways of improving the bene ts these countries derive from participating in the world trade of manufactures.
The natural-resource value chain connects three phases: the rst consists of preparatory activities for the exploitation of natural resources, followed by a study of the feasibility of exploitation, which includes project engineering and evaluation in terms of economic and environmental impacts. These stages are intensive in technological services. If the preliminary information is positive, the investment of xed capital proceeds in agriculture, mining, or shery. Products obtained thereof are processed by manufacturing. This transformation is simple for food crops and more complex for forest and mineral products. The value-adding process in these chains occurs in two phases: from resource exploration to exploitation, and from primary production to transformation into semi-fabricated and nal products. In this paper we explore the second stage of value creation.
Different ways exist to improve the quality of a country's participation in the global value chain of natural resources. One way is to increase the domestic manufacturing of primary products. The second involves expanding the production of capital goods and inputs that require the exploitation and transformation of natural resources. The third is to promote companies that provide specialized technological services in these activities. These three alternatives can be strengthened with a view to exporting these products and services.
In Mexico, discussion regarding the insu cient domestic value added to the country's exports has focused on the high imported content of some important products contained in its export basket. Often overlooked, another way to increase this value is by strengthening domestic forward linkages between primary activities and the manufacturing that processes primary products, as well as between the manufacturing sectors that successively transform industrial products derived from natural resources. This is an ongoing discussion in South American countries.
The objective of this paper is more limited than the broad topics we have reviewed. We, rst, discuss the importance of the industry that transforms natural resources in the development process of some economies and the current weight of this industry in world trade (section II). Second, we highlight the degree of production of manufactured exports that process natural resources in some Latin American countries (section III), which will shed light on the region's potential for increasing domestic income contained in exports. We analyze four export chains: petrochemicals in Argentina, Brazil, Mexico, and Venezuela; copper in Chile and Peru; iron and steel in Brazil and Mexico; and soybeans in Argentina and Brazil. In order to detect the level of sophistication of these exports and the opportunities open to the countries in the region, our analysis is based on the unit price of exported products by stage of production, comparing Latin American exports with those of other major world exporters of these products (section IV). Finally, in section IV we present our main conclusions in terms of industrial policy.
The methods used in this research can be found in the Online Appendix A.1.
Ii. Background

Industrialization based on transforming natural resources
There are many critical opinions about the specialization of economies in the production and export of primary products. Adam Smith called it a lottery game with very little chance of winning (Smith 1977, 741-742). Prebisch's (1949) opinion that countries exporting primary products tend to grow more slowly than those specialized in industrial production is well known. Also, prices of these products experience signi cant uctuations, which exacerbate the instability of these economies. Recently, the expression the "natural resource curse" has been used to refer to the fact that these economies tend to grow more slowly than those with a diversi ed export base Warner 1997 and2001;Auty 2001), particularly the large oil exporters (Hausmann and Rigobon 2002); that such countries are more unequal (Higgins and Williamson 1999); or that they are prone to the "Dutch disease"; or that mining tends to be an enclave sector (Frischtak and Beluzzo 2014); or that these countries are prone to have socio-political and institutional characteristics that hinder balanced growth (Rosser 2006).
There are, however, several highly developed countries that achieved great economic success based on natural resources. Their example gave rise to the staple theory of economic development used as the basis for interpreting the evolution of economies characterized by great wealth and diversity in natural resources, i.e., Australia, Canada, and the United States (Altman 2003). These countries have moved from primary activities to the manufacturing transformation of these resources and the production of technological services for such activities.
The fact that natural resource wealth does not necessarily condemn countries, but rather can be the basis for economic development, has been highlighted in research on the industrialization of Denmark, the Netherlands, Norway, Finland, Switzerland, and Sweden during the 20th century. These countries entered world trade through the export of primary products and then diversi ed their exports into manufacturing that transforms natural resources and the production of equipment and technological services for these industries (Berend and Ránki 1982;Senghaas 1985, 152;Blomström and Kokko 2007; Meller 1991).
The United States and Canada also underwent this type of industrial evolution. According to Kindleberger (1962), while at the beginning of the 20th century more than 90% of their exports consisted of raw materials, in the 1940s exports of nal goods were 40% and those of semi-processed products 28%.
Currently, the most representative rich countries exporting primary products and technology for these sectors are Australia, Norway, New Zealand and, to some degree, Canada. Presently, Australia is a leading country in mining technologies (Frischtak and  South America's wealth of natural resources and its export pro le has encouraged discussion of a development strategy for countries in the region centered on the manufacturing transformation of natural resources (Ramos 1998). It has been argued that, compared to Asia, Latin America has a greater availability of natural resources and a lower abundance of labor resources (Wood and Berge 1997). Pérez (2010) argues that the region's advantages are not in manufactures that are fragmented by the production of parts and components that thereafter assembled (electronics, automobiles, clothing), but in the "process industries" that transform a natural raw material into increasingly sophisticated products (from steel, paper, and plastic to products derived from advances in materials, chemistry, and biology). Maloney (2007) stressed that technological innovation in the natural-resources sector is the key element for spurring development of countries rich in mineral resources.

Foreign trade in manufactures that process natural resources
This section is divided into two parts: The rst identi es the products considered here as manufactures based on the transformation of natural resources; the second part analyzes the foreign trade of these types of manufactures in 19 countries, both large and small, developed and middle-income, including six Latin American countries.
2.1. Identi cation of products based on the transformation of natural resources Lall (2000) classi es natural-resource-based manufacturing exports into two groups: products derived from agriculture and forestry and from other resources, basically minerals. The Standard International Trade Classi cation (SITC), Rev. 3, include food, beverages and tobacco, rubber, wood, pulp and paper, and some textiles in the rst group. The second group comprises the metallurgical, non-metallic minerals, and chemical industries. Furthermore, Lall's category of low-tech manufactures includes products that transform a natural resource, but in which the design or engineering content is important. This group is subdivided into two: textiles, clothing, and footwear, and other products, which include paper goods, ceramics, glass, some iron and steel products, furniture, and plastic goods. The category of mediumtechnology manufactures (Lall) includes process industries that transform natural resources, have a high engineering component, and are capital-intensive. Among the products included are synthetic bers, fertilizers, plastics, iron and steel, and pipes.
In this paper we use two concepts of natural resource-based manufacturing: In the narrow sense, which covers only those manufactures that Lall considers as such, and in the broad sense which, in addition to these, includes low-technology and medium-technology process-based manufactures.

Foreign trade of primary products and manufactures processing natural resources
Tables 1 and 2 illustrate the weight of primary exports and of manufactures that process natural resources in 19 countries, grouped into three categories. Table 1 groups 13 high income countries divided in two sets: four high-income countries where primary exports account for a very high proportion of total exports (Australia, Canada, New Zealand, and Norway; total primary exports USD billion 72.9; 102.3; 75.9; and 13.1, respectively) and a second set groups together eight high-income economies (United States, Germany, Finland, France, Italy, Sweden, Japan, and Korea) plus China. In these countries, the weight of exports of raw materials and of the manufactures that process them is notably lower than in the previous group, but still not negligible. Table 2 is made up of six Latin American countries (Argentina, Brazil, Chile, Colombia, Mexico, and Peru), in which the weight of relevant exports is similar to that of the countries in the rst group.
In the rst group of countries, the weight of primary exports ranges from a minimum of 27% in Canada to 70% in Norway. Adding manufactures that process natural resources in a narrow sense, the contribution to exports ranges from 46% in Canada, and from 70-80% in Australia, Norway, and New Zealand. When low-technology and process-manufacturing exports are added, the shares range from 59% in Canada to more than 79% in the other three countries in this group (Table 1). All these countries have surpluses in trade in primary products and in manufactures that process them in a narrow sense, except for Norway.
Trade in low-tech manufactures and process-based products posts negative balances in all countries in the group. However, the surplus in trade in primary products and resource-based manufactures in the narrow sense exceeds the de cit caused by trade in low-tech and process-based products.
Turning our attention to the high-income countries plus China, all net importers of primary products, the weight of primary exports in the total is signi cant only in the United States (10%; USD 120.7 billion), but in absolute terms it is also important in Germany, China, and France. The importance of trade in manufactures that process natural resources in the narrow sense is rather more relevant, ranging from 9% in Japan to 33% in Finland. Adding these two product categories together, the weight in total exports is 38% in Finland, and between 20% and 30% in the United States, France, Italy, and Sweden. Adding lowtech and in-process exports, the weight of natural resource-based manufactured exports in the broad sense in total exports is 27% in Japan, between 30% and 40% in Germany and Korea, between 40% and 50% in the United States, France, and Sweden, and more than 50% in Italy and Finland. The data for China are as follows: The most relevant exports are those of low-technology manufactures (31% of the total), followed by those of manufactures that process natural resources in a narrow sense and those of processes (8.1% and 5.2%, respectively). All these countries post de cits in trade in primary products and the United States, China, Germany, Japan, Korea, and France also show de cits in trade in manufactures that process natural resources in the narrow sense, while Italy, Finland, and Sweden have surpluses. In trade in process manufactures, the United States, Germany, France, Japan, and Korea are in surplus, while Finland, Italy, Sweden and China are in de cit. Of all these countries, only in China does the surplus in trade in low-tech manufactures exceed the de cit in trade in primary products. Source: Prepared by the authors based on data from UNCTAD (2020).
Within the group of Latin American countries, Mexico is notably different from the rest. In the South American countries, the contribution of primary exports to the total ranges from 31% in Brazil to 57% in Colombia, while in Mexico it amounts to 14%. Adding manufactures that process natural resources in a narrow sense, the percentages range from 62% in Brazil to 90% in Chile, while in Mexico it is 22%. When low technology and process manufactures are added, the percentages range from 77% in Brazil to 96% in Chile. In Mexico, it is 36% (  Source: Prepared by the authors based on data from UNCTAD (2020).

Iii. Results And Discussion
The big exporters of these products are divided into two categories: 1) countries endowed with natural resources and which, to a greater or lesser extent, have developed a manufacturing industry that processes them; and 2) countries that lack the natural-resource base, which import them and have built up a large, sophisticated manufacturing export industry that processes them (Germany, Japan, and Korea). In Brazil, the weight of these exports increased to 16.2%, while in Mexico they barely reached 2.3%. However, we include the data for Mexico because the composition of exports by level of iron and steel processing in Mexico is considerably more complex than in Brazil. Finally, soybean chain products are a signi cant part of Brazil and Argentina's export baskets, accounting for 10% and 25.3%, respectively.

Petroleum and petroleum products
The oil-transformation chain is complex. From crude oil, once re ned, inputs are derived for the basic petrochemical industry, from whose products intermediate and nal petrochemicals are obtained.
The largest exporters of oil and petroleum products in the region are Venezuela (USD 40.4 billion on average for the years considered), Mexico and Brazil (USD 35.5 billion and USD 17.9 billion, respectively).
In Table 4 we have also included data from Argentina which, although it exports much less (USD 5.5 billion), has a composition of exports by product that is quite different than that of the rest of the countries in the region. While in Venezuela, Mexico, and Brazil, the largest share is made up of crude oil (78.1% in Venezuela; 79.3% in Mexico and 64.4% in Brazil), in Argentina this proportion is substantially lower (28.6%). In Argentina re ned oil and petrochemicals account for 46.5 and 20.5% of total exports of oil, natural gas, and their derivatives. The opposite extreme occurs in Venezuela. Although its exports of re ned oil are an important proportion of the total (19.6%), petrochemical exports are marginal. In the petrochemical chain, Mexico has an export composition like that of Venezuela, but with less re ned oil (9.9%) and more petrochemicals (10.3%). Brazil is in an intermediate situation between Argentina, on the one hand, and Venezuela and Mexico, on the other: Its re ned oil and petrochemical exports account for 35.3% of the total.  Other major exporters of oil, natural gas, and their re ned and petrochemical derivatives are Saudi Arabia (USD 207 billion); Russia (USD 194.8 billion), and the United States (USD 116.6 billion). Saudi Arabia basically exports crude oil; Russia exports crude and re ned oil; and the United States divides exports between re ned oil and petrochemicals. In a second category are the Netherlands (90.6 billion), Norway (69.4 billion), and the United Kingdom (52.9 billion), countries where raw materials account for more than 20% of the chain's exports. But while Norway exports mainly raw materials (86.1% of its exports), the Netherlands and the United Kingdom also have strong re ning and petrochemical industries. Other countries do not have raw materials, i.e., they import them, process them, and export oil derivatives in signi cant quantities (Germany, Korea, China, and Japan: 63.4,59.7, 38.1, and USD 35.9 billion, respectively).  Our sample of countries can be grouped into three categories: ve are in the lower left part of the gure (Norway, Venezuela, Russia, Saudi Arabia, and Mexico), whose exports are dominated by crude oil and lightly processed re ned products with a low unit price (from 0.40 USD for Norway and Mexico to 0.46 USD per kilo for Saudi Arabia). All these countries have oil trade surpluses. The second group is in the upper right-hand side of the gure (Japan and Germany), which are in de cit in oil and oil products trade, importing low-processed oil products and exporting secondary and nal petrochemicals with high unit prices (1.01 and 1.30 USD per kilogram in Germany and Japan, respectively). The third group is made up of a scattered group of eight countries, heterogeneous both in terms of their location along the abscissa and ordinate axes. Note that due to the composition of exports, they are between stages 2 and 3 (Brazil, Great Britain, Argentina, India, and Holland), with unit prices between 0.46 (Brazil) and 0.73 (Holland), and stages 3 and 4 (United States, Korea, and China), with unit prices ranging from 0.47 dollars in the United States to 0.84 in Korea. All these countries are in de cit in the oil and petroleum-products trade.

Copper
Copper can be sold as concentrate, which contains approximately 30% of the metal. When smelted, blister copper is obtained with 96% copper, which, once re ned, become copper anodes with a purity of 99.4% -99.6%; these then go through another re ning process to obtain copper cathodes with 99.99% purity. The re ned copper is used to produce semi-fabricated and end-use copper products. Table 6 shows the composition of copper exports from Chile and Peru according to their degree of processing. The main conclusions that can be drawn from these data are the following: First, most of their exports are ores and concentrates and re ned copper. The sum of these varieties totals more than 90% of copper exports in the two countries. Of the total exported by Chile, 38% is copper concentrate and 54% is re ned copper. The respective percentages for Peru are 70% and 24.4%. Second, the weight of exports of copper plus primary copper is substantially higher in Peru's exports than in Chile's. Further, the weight of exports of re ned copper products is marginal in the two countries.  Chile is an exporter of concentrated and re ned copper to China (37% and 57.5% of total exports to China). In Peru's exports to China, primary copper is much more important: 83.2% is concentrate and 15.8% is re ned copper. Japan's imports are more than 90% copper concentrate. In the case of Peru, its exports to Germany and Korea are also dominated by concentrate. In contrast, in Chile's exports to Germany, Korea, Brazil, and, particularly, the United States, re ned copper accounts for between 43.9% and 96.8% of total copper exports. Source: Prepared by the authors based on data from Gaulier and Zignago (2010).
Copper importing countries are simultaneously exporters of copper products. They are importers of concentrate and re ned copper, while their exports are dominated by semi-fabricated and nal copper products. Among the major importers, the largest exporter of copper products is China, 85.1% of which are nal products. The second place by exports goes to Germany, which divides them in similar proportions between semi-fabricated and nal products. Third place goes to the United States, 63.5% of whose exports are made up of nal products and 23.5% of semi-fabricated products. Japan and Korea are next and their exports are of nal products (40.8% and 46.6%, respectively); semi-fabricated products (28.4% and 37.6%); and re ned copper (30.6% and 15.3%). Although all these countries have a de cit balance in the total trade of copper products, the specialization in the processing of these products means that trade in nal products is in surplus in China, which is also the case in Germany, Japan, and Korea with the exchange of semi-fabricated copper products.
As we have seen, in Chile and Peru the weight of exports of semi-fabricated and end-use products is marginal. This is not the case in Brazil where the combined contribution of these products amounts to 36% of total copper exports, with an average price of semi-fabricated copper alloys of USD 9.2/kilogram (vs. USD 4.6 for the same product exported by Chile and USD 5.3 for those exported by Peru). Figure 2 is constructed using the same criteria as in Figure 1. The abscissa axis distinguishes ve types of exported copper according to phases in its production process: 1. Ores and concentrates; 2.
Blister copper; 3. Re ned copper; 4. Semi-fabricated products; and 5. Final products. Peru and Chile are on the lower left, that is, their exports are concentrated between phases one and two with a weighted average unit price of USD 1.7 and USD 3.2 per kilogram. Japan, Germany, United States, China, and Korea are found at the top right, all de cit traders in copper, importers of low-processed copper and exporters of semi-processed and processed copper products, which have a signi cantly higher price. Japan's unit price of processed copper products is the highest (USD 9.3 per kilogram), followed by Germany's (USD 8.3).
For Chile, the unit price of concentrate is USD 1.9 per kilogram; re ned copper, USD 5.5; and semifabricated products, USD 5.6. There is a notable dispersion in the unit price depending on the exporting country. The price differentials for the same products exported by different countries indicate that they are products with different qualities. Thus, the price of semi-fabricated products exported by Japan is USD 9.5 per kilogram, 70% higher than the price of these products exported by Chile and 46% higher than the same product exported by Germany. Depending on the speci c product, prices can be very different from one another.

Iron and steel
Iron, from the extraction of the ore to its transformation into steel that is incorporated into other products, goes through ve phases. The rst is the extraction of the ore and its rst processing, from which 60percent iron content concentrate is obtained. Next is the iron processing stage, from which pig iron is generated (94% concentration), and then the steelmaking and smelting stage (more than 98% concentration). Subsequently, the steel and cast iron are transformed into rolled products, such as coils, pipes, and tubes. These products are then used to manufacture nished steel products and end-use goods (Wang, Müller and Graedel, 2007).
Total exports of Brazil's iron-steel chain far exceed those of Mexico, totaling, on average for 2005, 2010, and 2016, 16% of Brazilian exports vs. 2% of Mexico's (see Table 4). In the analysis that follows, data from Mexico are included since its exports are markedly more elaborate than Brazil's. Sixty-three percent of Brazil's exports correspond to ores and concentrates, while Mexico's exports are mostly distributed among rolled products (27%); nished products (31%); and end-use products (27%). (See Table 8).   Exports of iron and steel products from Brazil and eight other major exporters (China, Germany, Japan, the United States, Australia, Italy, Korea, and the Netherlands) amount to USD 367 billion (annual average 2005, 2010, and 2016), most of which is made up of rolled products (40% of the total), followed by nished products, end-use products and concentrates (25%, 15%, and 13% of the total, respectively). The major exporters of concentrates are Australia and Brazil (accounting for 98% of the total) and the major importer is China (70% of the total imported by these countries). With respect to rolled products, the largest exporters are China, Japan, Germany, and Korea (22%, 20%, 18%, and 13% of total rolled products exported by these countries). In nished steel products and end-use products, the countries with the greatest weight in exports are China and Germany (in nished products, 37% and 20%, and in end-use products, 35% and 26% of the total of these products exported by the nine countries, respectively).
The nine countries, except for the United States and the Netherlands, have trade surpluses in the exchange of steel products. The case of China stands out, whose surplus is the result of the large trade surplus in rolled products and nished and end-use iron and steel products, which more than offsets the trade de cit in concentrates. The same can be said of Germany, Japan, Korea, and Italy. In Australia, the opposite situation occurs: It is the surplus in the trade of concentrates that exceeds the de cit in the exchange of more processed products. The Brazilian steel industry shows a higher degree of maturity than the Australian one. Although most of its surplus comes from trade in concentrates, it also has a surplus in pig iron and alloys, steel and cast iron, and rolled steel. Mexico's trade is in de cit in all products, except for steel and cast iron. The U.S. trade de cit is the largest of the countries considered and is in de cit in all products, except for trade in concentrates. Figure 3 depicts the information for the iron and steel chain presented in the same terms as Figure   1. Here, six phases in the production chain can be distinguished: 1. Ores and concentrates, 2. Pig iron and alloys, 3. Steel and cast Iron, 4. Rolled steel products, 5. Finished steel products, and 6. End-use steel products. Australia and Brazil are in the lower left zone of the gure, that is, they are exporters of primary iron with low unit prices (USD 0.07 and 0.09 per kilogram, respectively). At the upper right end are the countries exporting high-priced steel products, led by Germany and Italy, whose exports have a price of USD 1.85 and 1.67 per kilogram. Some of these countries have surpluses in the iron and steel trade, although they do not have rich deposits of the mineral, so they are importers of primary iron and exporters of steel processed to a greater extent than the steel they import. Note that China is in this group of countries, which shows that it is vigorously developing its re ned-products steel industry. Mexico's position in the export chain is very different from that of Brazil. Although it is a relatively small exporter, it exports products with an average unit price of USD 1.11 per kilogram, 12 times the price of the product exported by Brazil.
More detailed data con rm what we have already highlighted in the case of copper, i.e., for the same product, unit prices can differ considerably depending on the exporting country. This indicates that the market for these products has a clear segmentation by quality.

Soybeans
The value chain of soybean production and its derivatives is short. Once harvested, soybeans are ground to obtain two products: oil, which is used in the food industry, and soybean cake, which is used to produce fodder, an essential product for the livestock industry.
The largest soybean producers are the United States, Brazil, and Argentina, while the largest importer is China. Table 10 shows that, together, the three countries contribute 80.4% of world soybean exports (United States, 30.8%; Brazil, 27.2%; Argentina, 22.5%). Argentine exports are of more processed products than those of Brazil and the United States. Argentina accounts for 44% of world soybean oil exports and 37% of soybean cake exports, while Brazil and the United States concentrate on soybeans (45% and 33%, respectively, of world soybean exports).  Table 11). Source: Prepared by the authors based on data from FAO (2020). Figure 4 shows the export pro le of the three major producers of soybeans and their derivatives. In the graph, phase 1 corresponds to the seed; phase 2 to the production of soybean cake, and phase 3 to soybean oil. We have placed the oil in phase 3 because it is the most processed product, although this does not mean that this product is derived from soybean cake. The gure displays the unit price of soybean exports by type of product exported by the three countries. The seed is exported by the three countries at average prices of between USD 0.32 (Argentina) and USD 0.39 (United States) per kilogram, while the average price of oil is between USD 1.18 (United States) and USD 1.57 (Brazil). The price of soybean cake is lower because it is the residual product of the grinding stage. The United States has higher prices than Argentina and Brazil for soybean seed and soybean cake, suggesting that US exports of these products are of better quality.

Iv. Conclusions
(1) Natural resources are not always a curse. There are high-income countries where exports of primary products and the manufactures that transform them are a substantial part of their exports.
(2) In many highly developed countries that are not particularly rich in natural resources, there is a powerful industry for exporting manufactured products that process natural resources that are imported and to which value is added in these economies.
(3) Latin American countries are characterized by a concentration of exports of primary products and manufactures based on them with a low level of transformation.
(4) One of the relevant lines of industrial policy for Latin American countries is to promote the domestic processing of natural resources with a view to exporting higher value products and, therefore, with a higher domestic income content.
(5) In recent years, China has developed into the most important market for the natural resources exported by Latin American countries, becoming at the same time a major world exporter of manufactures based on the transformation of these resources. Latin America needs to avoid being forced, for the second time in history, to become a supplier of raw materials for other countries.
(6) Any industrial policy implemented by Latin American countries that references the above conclusions will face formidable obstacles requiring very strong companies with an export vocation, whether they be private, public, or mixed.

Declarations
Ethics approval and consent to participate Not applicable Consent for publication Not applicable