Transcript Implications of New Structural Economics

Statistics and National Development
Implications of New Structural Economics
International Forum on Monitoring National
Development: Issues and Challenges
Volker Treichel
Lead Economist, Operations and Strategy,
Office of the Senior Vice-President and Chief Economist
September 27, 2011
Where has development economics brought
us? Is it serving us well?
(President Robert Zoellick, October 2010)
 The world is a riskier place than we previously imagined
 New economic powers are emerging to create a multipolar world
 But not everyone has benefited, and we can no longer
assume that there is a single model for development
 This is a time for new paradigms and new approaches
 New paradigms and approaches have implications for data
WHY DO WE NEED TO RETHINK
DEVELOPMENT
3
Economic Crisis and
Crisis in Economics
Rethinking
Economics
Economic Theory
Failure to:
Explain Observed
Economic
Phenomena
Failure to:
Guide Economic
Policies or
Choices
4
How has economic development theory
evolved?
Successful East Asian
Tigers: Export Promotion
China, Vietnam and Mauritius:
Dual-track approach to
transition
Rethink
Development
Market based economies with proactive role for government
Structuralist Approach
Focus on Market Failures:
Import Substitution Strategy
Miserable results
1950
1960
1970
Liberalization Approach
Focus on Government Failures:
Privatization and Marketization
Mixed Results
1980
1990
2000
5
2010
THE ROLE OF STRUCTURAL
CHANGE
6
Fast, Sustained growth is a recent phenomenon
30,000
Western Europe
Western Offshoots
Eastern Europe
Former USSR
Latin America
Japan
Asia excl. Japan
Africa
25,000
20,000
15,000
10,000
5,000
0
1
1000 1500 1600 1700 1820 1870 1913 1950 1973 2001
• The fast and sustained income growth in industrialized countries is a
result of continuous technological innovation as well as structural change
7
Major features of Structural Change
Kuznets identified four features of modern economic growth:
• There is a change in the sectoral composition of the economy as the share of the
non-agricultural sectors increases and that of the agricultural sector decreases.
• This sectoral shift is mirrored in the pattern of employment. i.e. the proportion
of the labor force employed in the non-agricultural sectors rises, while that in
the agricultural decreases.
• There is redistribution of the population between the rural and urban areas.
• There is an increase in the relative size of the capital-labor ratio.
Major conclusion: “Some structural change, not only in economic but also in
social institutions and beliefs, are required without which economic growth
would be impossible.” (Kuznets, 1971).
The Power of Structural Change
• Labor productivity gaps between different sectors are
typically very large
• If Malawi, labor productivity in mining is 136 times larger
than that in agriculture.
• If all of Malawi’s workers could be employed in mining,
Malawi’s labor productivity would match that of the United
States.
• In the process of growth, labor and other resources move
from less productive to more productive sectors.
• We need to ensure that labor moves to more productive
activities; otherwise structural change will reduce growth.
WHERE DO WE STAND IN
DEVELOPMENT ECONOMICS
10
New Framework for Research at the World Bank
 Transformation: stimulating structural transformation
 Opportunities: broadening opportunities
 Risks: increasing risks and vulnerability
 Results: focusing on results in policies and aid impacts
Growth and Transformation:
Understanding Structural Change
• Understanding the relationship between structural change and
broader development goals, including poverty reduction
• Role of states, markets and the private sector in promoting
structural transformation and upgrading. Related governance
issues.
• Appropriate policies at each stage of economic development
• Governance issues for industrial upgrading and structural
change
• Role of agriculture versus other sectors, sectoral priorities and
trade-offs
• An example of policy problems in this area highlights the
statistical and data challenges
The Process of Economic Integration (Imbs and
Wacziarg)
• Sectoral diversification in early stages of
development is accompanied by geographic
agglomeration.
• Sectoral concentration in later stages of
development accompanied by geographic deagglomeration.
• Reduced range of activities produced across all
regions. Location of activity does not seem to
matter. Regions become increasingly similar.
• How to accelerate this process?
HOW TO BRING ABOUT
STRUCTURAL CHANGE:
GROWTH IDENTIFICATION AND
FACILITATION
14
“Aim before you fire”
• The key lesson, from the new structural
economics, is that for an industrial policy to be
successful, it should target sectors that conform
to the economy’s latent comparative advantage.
• We see this from the historical experience (e.g.,
next slide).
• But how to do it?
15
Most Industrial Policies failed
• Most governments in the developing world used industrial policies but
failed. The reason was:
– Attempt to develop industries that were too far advanced compared
to their of development and went against their comparative
advantages
– The firms were non-viable in competitive markets and required
government policy supports for their initial investment and continuous
operations. This led to rent-seeking, corruption, and political capture.
Real GDP pc
Latecomer
Country
Real GDP pc
Leading
Country
Income Ratio
Follower versus
Leader
Country
Industry
Time
Main producer
at Time
China
Automobile
1950s
USA
577
10,897
5%
DRC
Automobile
1970s
USA
761
16,284
5%
Egypt
Iron, Steel, Chemicals
1950s
USA
885
10,897
8%
India
Automobile
1950s
USA
676
10,897
6%
Indonesia
Ships
1960s
Netherlands
983
9,798
10%
Senegal
Trucks
1960s
USA
1,511
13,419
11%
Turkey
Automobile
1950s
USA
2,093
10,897
19%
Zambia
Automobile
1970s
USA
1,041
16,284
6%
Source: Author's calculations based on data from Maddison (1995).
16
But sectoral production and input data are scarce:
“Estimating sectoral measured TFP requires data on
total output, employment, capital stocks, and
intermediate input usage, all in real terms, by
sector..The set of countries and sectors for which
this measured TFP can be computed is not
large..There are only 12 countries with all the
required data in at least some sectors…”
--From Levchenko and Zhang, February 2011
Facilitating State and Industrial Policy
• Industrial policy is a useful tool for the state to
play the facilitating role:
– Type of coordination will be different,
depending on industries.
– The government’s resources and capacity
are limited. The government needs to use
them strategically.
– To facilitate formation of clusters and obtain
agglomeration effects.
18
From Open Data to Open Development
 We cannot understand the world without good data
 As governments and the private sector act on new
knowledge and pursue new policies, the demand for data
will grow
 Building the capacity of national statistical systems to
respond to these challenges is part of the transformation
process
 We have seen many advances in national and
international statistics over the past decade, and we will
be there to work with you in the decade ahead – that is
the spirit of Open Development.
A Statistical Framework For Understanding
Growth And Structural Change (page 1)
Endowments
(Stocks)
Understanding
Growth and
Structural Change
Other Inputs
Outputs
Policies
Social and
Demographic
Characteristics
A Statistical Framework For Understanding
Growth And Structural Change (page 2)
 Endowments (Stocks) by Sector
1)
2)
3)
4)
5)
Natural resource stocks (mineral; marine; forests; soil; water)
Human capital (schooling, skills)
Physical capital (machinery, equipment, structures)
"Hard" infrastructure (transportation, information and
communication, water and sanitation)
"Soft" infrastructure (social cohesion, inequality, institutional
capacity, business environment)
 Other Inputs by Sector
1)
2)
3)
4)
Labor force (employment by industry, skill levels, gender)
Raw & intermediate materials (energy, material inputs)
Capital services (depreciation)
Financial (investment, domestic and international credit markets)
A Statistical Framework For Understanding Growth
And Structural Change (page 3)
 Outputs
1) Output and value added by industrial sector
2) Output and value added by household sector
3) Prices of inputs, outputs: needed to calculate multifactor productivity
(TFP)
4) Exports and imports of goods and services by sector
 Policies
1) Taxes and subsidies
2) Interest rates
 Social and demographic characteristics
1)
2)
3)
4)
Population by age and gender
Age-specific morbidity and mortality rates
School enrollment and completion rates, achievement levels
Migration rates
Data Needs for Understanding why Transformation
does not happen in Africa
• Sectoral composition of output and employment
in urban and rural settings
• Sectoral data on capital stocks and other inputs,
enabling productivity calculations
• Details on output and input (wages) prices
• Data on infrastructure (roads), irrigation. One
explanation for the puzzle is that high
transportation costs make food expensive in
cities, limiting the size of urban populations.