Transcript Regional poverty practice 30 November 2012 Agenda

Sustainable development and the
“European middle-income country trap”
Ben Slay
Poverty practice team leader
UNDP Regional Bureau for Europe and CIS
Minsk, 16 May 2013
Six questions
1. What’s a “middleincome country”?
2. What is the “middleincome country” trap?
3. Why does this happen?
4. Why has this narrative
not been applied to
transition economies?
5. Should it be?
6. Sustainable
development
implications?
(1) What’s a middle-income country?
Ask the World Bank
Country classification
Low-income country
Middle-income country
- Lower-middle income
- Upper-middle income
Upper income country
Per-capita GNI*
Below $1026
Between $1026 and $4035
- Between $1026 and $4035
- Between $4036 and $12,475
Above $12,475
* Using Atlas exchange rates
“ . . . Based on the Bank’s operational lending categories”,
reflecting “comparative estimates of economic capacity”.
Most of the region’s transition,
developing economies are MICs
* As per UNSC resolution 1244 (1999). Source: World Bank.
Tajikistan
Lowincome
countries
Kyrgyzstan
Uzbekistan
Moldova
Georgia
Ukraine
Armenia
Kosovo*
Albania
Lower middle-income countries
BiH
Turkmenistan
FYRoM
Azerbaijan
Serbia
Belarus
Montenegro
Kazakhstan
Turkey
Per-capita GNI (2011)
$11,000
$10,000
Upper middle-income countries
$9,000
$8,000
$7,000
$6,000
$5,000
$4,000
$3,000
$2,000
$1,000
$0
Some other MICs
$10,720
$10,650
Per-capita GNI (2011)
$6,960
Most of the
world’s poor
$6,640
$4,940
$2,940
$1,420
Brazil
Russia South Africa Bulgaria
China
Source: World Bank.
Indonesia
India
$1,280
Nigeria
(2) What’s the “middle-income
country trap”?
“OECD-DAC”
Per-capita GDP
“South Korea”
UIC
MIC
“Argentina”
“Middle-income
country trap”
LIC
Time
(3) Why does this happen?
Traditional explanation
• Some MICs “get stuck”—unable to transition:
– Away from natural resource-based production, exports,
based on low-/semi-skilled labour . . .
– . . . To manufacturing sectors that:
• Absorb cutting-edge technology
• Are integrated into global value chains
• Produce goods that are competitive on OECD-DAC markets
• Corollary results:
– GDP growth does not significantly exceed population
growth
– Industrial structures remain undiversified
– Education, health systems remain far from global best
practices
• Under-investment in human capital
(4) Why hasn’t this narrative been
applied to transition economies?
• Separation/compartmentalization of “economics
of development” from “economics of transition”
• Conflation of “Europe” with “upper income
countries”
– EU-15 countries are largest group within OECD-DAC
– Most EU enlargements took in UICs
– Countries (e.g., Greece, Portugal) that were MICs at
time of accession quickly obtained UIC status
• Implication: “If you’re in Europe, you don’t have
to worry about the middle-income country trap”
(5) Should the MIC trap paradigm be
applied to Europe? YES
• “Europe is not a silver bullet”
– Transition economies face many traditional MICtrap issues
•
•
•
•
Natural resource-based development models
Undiversified industrial structures
Major competitiveness issues
Concerns about quality of education, social services
– Inherited pre-transition human capital not enough
• “European contagion”: European MICS are
vulnerable to economic stagnation in EU
Vulnerability to European economic
stagnation: Key drivers
• Trade: Slow, or
stagnant export
growth
• Finance: Weak
bank financing for
subsidiaries
• Labour market:
Slow or stagnant
growth in
remittances
“European MIC trap” kicks in with
the global financial crisis (2008)
100
GDP (2008 = 100)
95
Armenia
BiH
90
Croatia
Montenegro
Serbia
85
Ukraine
2008
2009
2010
2011
Source: IMF World Economic Outlook database, UNDP calculations.
2012
EU membership “no silver bullet”
100
GDP (2008 = 100)
Cyprus
Czech Rep.
95
Bulgaria*
Estonia
Hungary
90
85
Latvia
Most deeply
integrated
into European
supply chains
Lithuania
Romania*
Slovenia
80
2008
2009
2010
2011
2012
* UMIC. Source: IMF World Economic Outlook database, UNDP calculations.
By contrast: Some economies are not
much affected by the crisis
150
Azerbaijan
Kazakhstan
Turkmenistan
Uzbekistan
Tajikistan
140
130
“The more resource-based, the better”
120
110
GDP (2008 = 100)
100
2008
2009
2010
2011
Source: IMF World Economic Outlook database, UNDP calculations.
2012
Social dimension: Unemployment
rates—high and rising . . .
35%
2008
2009
2010
30%
25%
20%
15%
10%
5%
0%
Sources: IMF World Economic Outlook database, ECOFIN.
2011
. . . Especially for vulnerable groups
65%
62%
54%
55%
53%
49%
43%
Youth
44%
37%
29%
Unemployment
rates (2011)
Roma
36%
National
31%
23%
27%
20%
14%
23%
13%
Sources: ILO, national statistical offices, UNDP Roma vulnerability database.
21%
10%
(6) Implications
• A “European MIC trap” does seem to be emerging
• Key characteristics:
– Traditional MIC-trap “competitiveness” problems . . .
– . . . Vulnerability to European economic stagnation . . .
– . . . Or both
• Being a resource-based economy may not be such
a bad thing—if the resource is energy
• European accession/integration:
– Not a silver bullet—particularly in the short term . . .
– . . . But longer term, wealth and geography matter
Sustainable development implications
• The region needs to concentrate on the
“economic growth” pillar
– Without this—social pillar is also at risk . . .
– . . . Especially in light of inequality, vulnerability,
employment concerns
• Environmental pillar—wise management of
fossil fuels bounty needed
– Reductions in fossil fuels subsidies?
Empowered lives.
Resilient nations.
Thank you very much!
[email protected]