Transcript Gohar Gyulumyan: Accumulation, Competition and

ACCUMULATION, COMPETITION AND
CONNECTIVITY:
RE-ENGINEERING A NEW GROWTH MODEL
FOR ARMENIA
APIRG CONFERENCE
WASHINGTON DC, JUNE 1, 2013
Gohar Gyulumyan
World Bank Senior Economist
AGENDA
• Armenia’s recent Growth Dynamics
• Micro and Macro determinants of the new growth model
• Labor Market Dynamics and Symptoms
• Engaging with Skilled Diaspora
SOME FACTS ON ARMENIA’S RECENT
GROWTH DYNAMICS
STEADY INCREASE IN PER CAPITA GDP SINCE 1995,
THOUGH DECELERATING NOW
GDP, consumption and exports per capita
1600.0
GDP per
capita
(constant
2000 US$)
1400.0
1200.0
1000.0
Consumptio
n per capita
(constant
2000 US$)
800.0
600.0
400.0
Exports per
capita
(constant
2000 US$)
200.0
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
0.0
-10
-20
-30
-40
-50
-60
-70
1995:1
1995:3
1996:1
1996:3
1997:1
1997:3
1998:1
1998:3
1999:1
1999:3
2000:1
2000:3
2001:1
2001:3
2002:1
2002:3
2003:1
2003:3
2004:1
2004:3
2005:1
2005:3
2006:1
2006:3
2007:1
2007:3
2008:1
2008:3
2009:1
2009:3
2010:1
2010:3
GROWTH MOVED FROM SUPPLY-DRIVEN TO DEMANDDRIVEN
CAB, as share of GDP
10
0
2010:4
2010:1
2009:2
2008:3
2007:4
2007:1
2006:2
2005:3
2004:4
2004:1
2003:2
2002:3
2001:4
2001:1
2000:2
1999:3
1998:4
1998:1
1997:2
1996:3
1995:4
1995:1
WHILE INVESTMENT WAS ACCELERATING
Total Investment as a share of GDP
60.0
50.0
40.0
30.0
20.0
10.0
0.0
WITH A WIDENING SAVING-INVESTMENT GAP
50.0
40.0
30.0
20.0
Inv/GDP
10.0
Saving/GDP
S-I Gap
-10.0
-20.0
-30.0
-40.0
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
0.0
AND NEW INVESTMENT CHANNELED MAINLY TO
THE NON-TRADABLE SECTOR
Investment in Tradables vs. Nontradables, as a share of GDP
30
25
20
Investment in
tradables
15
Investment in nontradables
10
5
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
0
THE JOB IMPACT WAS A SLIGHT SHIFT FROM PUBLIC TO
PRIVATE NON-TRADABLE SECTOR
Employment share by sector
70
60
Tradable
50
40
30
Private nontradable
20
10
0
Public nontradable
THE BULK OF THE LABOR FORCE REMAINING IN THE
AGRICULTURE SECTOR
Total employment in the core of tradable sector
900,000
800,000
700,000
Employment in
manufacturing
600,000
500,000
400,000
300,000
200,000
100,000
0
Agriculture,
forestry and
fishing
WHILE FEMALE LABOR PARTICIPATION WAS NOT
TRANSLATING INTO EMPLOYMENT
Male vs. female unemployment
20
18
16
Unemployment
rate, male
14
12
10
8
Unemployment
rate, female
6
4
2
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
0
AND MANUFACTURING WAS LOSING
COMPETITIVENESS
Real Remuneration in Manufacturing
800
250
700
200
600
500
Real wages indices in
manufacturing, AMD
(1994=100) (RHS)
150
400
100
300
200
50
100
0
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
0
Real wages in
manufacturing (in 1994
constant USD)
TO GROW SUSTAINABLY, THERE IS A NEED TO ENGINEER A
SHIFTByTO
THE TRADABLE SECTOR
keeping investments high and channeling them into the tradable sector:
ACCUMULATION
By fostering the reallocation of labor into its most productive use: REALLOCATION
By diversifying products, sectors and trading partners beyond traditional products,
sectors and partners: TRANSFORMATION
ACCUMULATION
MICRO DETERMINANTS OF SAVINGS
We use ILCS for 2004, 2006, 2008 and 2010.
Positive impact of income: an increase of 10% in the household income leads to 3.9%
increase in the savings rate of the households
Positive impact of volatility of expected income proxied by education level and access to
borrowing
Larger households tend to save less, probably in response to a more diversified income
stream
At high savings rates, increases in income have a much lower impact on savings rates than
at lower levels of income
ACCUMULATION
MACRO DETERMINANTS OF SAVINGS
We use quarterly data over 2002-2011 to estimate an Error Correction Model which
combines long run and short run dynamics.
The long run dynamics is:
s = - 2.88 + 0.37y + 0.02tdr – 0.36reer -0.2crisis
The short run dynamics is:
∆s = -0.012 + 0.49 g + 0.15 ∆openness – 0.94 ECM-1
ACCUMULATION
BOOSTING DOMESTIC SAVINGS
Job creation measures: households will increase their saving as their income
increase
Financial market development: households will increase their saving as it become
easier to use bank service and deposit rates are attractive
Macroeconomic policy: sound macroeconomic policy reducing volatility and a
competitive exchange rate will stimulate aggregate saving
ACCUMULATION
FILLING THE SAVING GAP
50.0
% of GDP
40.0
30.0
Savings
20.0
Investments
10.0
CAB
Deficit
I-S
-10.0
-20.0
-30.0
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
0.0
ACCUMULATION
FILLING THE SAVING GAP
FDI share in total investment, 1994-2011
1,200
75
1,000
Total FDI, mln.
50USD
800
600
FDI share in
25total
investments, %
(RHS)
400
200
0
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
0
ACCUMULATION
FILLING THE SAVING GAP
FDI by economic sector:
Share to tradable sector has declined from 2003 to 2008
100
80
9
13
28
53
47
47
40
43
41
32
61
60
Non Tradable, %
91
72
47
53
53
60
57
59
2010
20
87
2009
40
68
39
2011
2008
2007
2006
2005
2004
2003
2002
2001
0
Tradable, %
ACCUMULATION
FILLING THE SAVING GAP
More effort to attract FDI is needed
Inward FDI Flows (% of GFCF)
120
Armenia
100
Georgia
80
Moldova
60
Latvia
40
Kazakhstan
20
Bulgaria
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
0
ACCUMULATION
WHERE TO LOCATE INFRASTRUCTURE?
Accessibility
Poverty
ACCUMULATION
WHERE TO LOCATE INFRASTRUCTURE?
Agriculture potential
Agriculture efficiency
ACCUMULATION
WHERE TO LOCATE INFRASTRUCTURE?
Productive projects differentiated to
meet local needs and problems
Conditional Cash Transfers and
Nutritional Programs
The inclusion of socioeconomic
characteristics and access in the
analysis allows for the
identification of bottlenecks in
areas of high potential but low
or medium efficiency
What are the principal differences
between high and low efficiency
households in the area?
Typology
High potential and low
average efficiency
Diagnostic High poverty areas
from
Poverty map
Low potential and low
average efficiency
High poverty areas
Productive and Efficiency
potential based on market,
socioeconomic, bio-physical
and access characteristics.
ACCUMULATION
WHERE TO LOCATE INFRASTRUCTURE?
Areas of high potential and efficiency should be studied to
identify key factors behind their better performance
In areas of low efficiency and high potential, bottlenecks
should be identified:
 Reductions of transaction costs
 Access to optimal productive technologies through access to
human capital and relevant technical assistance
 Strategies to diversify income
 Investments in infrastructure (accounting for their
complementarities)
ACCUMULATION
WHERE TO LOCATE INFRASTRUCTURE?
In low potential areas the bottlenecks that prevent expansion
to the productive frontier should be identified:
 The introduction of transfer of knowledge and new technologies to
the area
 Problems in input and goods markets
 Access to more dynamic urban or international markets
 Land management and soil quality features
 Natural risks (e.g. weather variability and strategies to mitigate
risk such as insurance).
ACCUMULATION
WHERE TO LOCATE INFRASTRUCTURE?
In critical areas the focus should be on social
interventions. Thus short term assistance should be
provided along the following
Social networks
Conditional transfer programs
School nutrition programs
LABOR MARKET
Starting Point
• “To grow sustainably, there is a need to engineer a
shift to the tradable sector…By fostering the
reallocation of labor into its most productive use.”
• “Poor labor market outcomes are an important cause
of poverty in Armenia. High unemployment, inactivity,
and low-paid employment significantly reduce social
welfare.”
THE LABOR FORCE PARTICIPATION RATE IS
COMPARABLE TO THE REST OF ECA…
…but there are longer-term challenges
to Armenia’s labor supply
The economically active population
is projected to decline—if there are
no demographic or policy changes—
from 2012 onwards
Source: World Bank (2011) “Demographic Change and Implications
for Social Policy and Poverty”
SOME EVIDENCE THAT INTERNATIONAL
MIGRATION MAY ALSO AFFECT LABOR FORCE
PARTICIPATION
Source: Ongoing work led by Saumik Paul (2012)
These bars represent the labor force
participation of households with migrants
relative to households without migrants.
THE EMPLOYMENT RATE IS LOWER THAN
IN MOST EUROPEAN COUNTRIES
Source: Rutkowski 2012
…and the unemployment rate (near 20 percent in 2010) is
among the highest in the region and is of long duration
THE UNEMPLOYMENT RATE IN URBAN AREAS
AT 28 PERCENT IS VERY HIGH…
Source: Rutkowski 2012
Source: Tiongson 2012
…and people have little incentive to move from rural to
urban areas, or to move in general, like most of ECA
AS A RESULT, MOST WORKERS REMAIN
IN LOW-PRODUCTIVITY JOBS
Source: World Bank 2012 Main CEM Presentation
Source: Rutkowski 2012
…which also tend to be low-paid, seasonal, part-time
WORLD UNDEREMPLOYMENT IS 17% IN 2011…
Source: Gallup 2012
…but Armenia’s underemployment rate (35%+)is among the
highest in the world
LABOR FORCE PARTICIPATION RATE IS AT PAR
WITH ECA AND SOCIAL PROGRAMS DO NOT
APPEAR TO CREATE WORK DISINCENTIVES. ..
• No evidence to date that social programs, such as the
Family Benefit Program (FBP), creates disincentives to
work
• Members of beneficiary households versus nonbeneficiary households: essentially the same labor
market characteristics
Source: World Bank (2011) “Social Assistance Programs and Work Disincentives”
IMPROVING LABOR MARKET OUTCOMES
RESTS ON THREE PILLARS
Strengthening labor demand and creating productive jobs
Enhancing labor supply and improving workforce skills
Improving job-worker matching
Source: Rutkowski 2012
JOB CREATION/LABOR DEMAND
AMONG FIRMS, INCIPIENT JOB CREATION LED BY NEW
PRIVATE FIRMS WAS OVERTAKEN BY A SERIES OF GLOBAL
CRISES…
Source: Tiongson 2012
…and latent entrepreneurship is not particularly encouraging.
This requires a better understanding of impediments to firm entry
and business start-ups
SKILLS/LABOR SUPPLY
WORKFORCE SKILLS ARE SEEN BY FIRMS AS A CONSTRAINT
TO THE CREATION OF NEW, MORE PRODUCTIVE JOBS…
Source: Rutkowski 2012
…and innovative and modern firms suffer from skill shortages the
most
SKILLS/LABOR SUPPLY 2
THE LARGEST GROUP AMONG THE UNEMPLOYED ARE THOSE WITH
SECONDARY GENERAL EDUCATION WITH NO TECHNICAL SKILLS,
ALTHOUGH MANY POSSESS SECONDARY TECHNICAL AND TERTIARY
EDUCATION. …
Source: Rutkowski 2012
This suggests that unemployment has two dimensions:
those with no job-specific skills and those who do have skills but are still jobless.
This requires helping the first acquire critical employable skills and helping the second
find jobs that match their qualifications.
MATCHING
FEW UNEMPLOYED WORKERS TURN TO THE PUBLIC
EMPLOYMENT SERVICES (PES) OFFICE WHEN SEARCHING
FOR A JOB…
Source: Rutkowski 2012
…and the effectiveness of job matching services provided by PES is
limited because of the high unemployment/vacancies ratio.
This requires improving the proportion of all vacancies that is reported to PES
Enhancing Armenia‘ Growth
by Engaging its Skilled
Diaspora
Setting the Stage
In many countries, diasporas played a critical role in
knowledge-based growth: China, India, Israel
Example: Chinese approach to attract back high level
migrants -- Specialized technology parks
Three ingredients of success:
• Change in the ‘’status quo’’ at home: a window of
opportunity to open up and shake vested interests
and entrenched elite (often after a major crisis)
• First generation ‘ high achiever’ (highly successful
individual) from the skilled diaspora who lends his
status to the country rather than seeks it from it
• Dynamic segments of economy at home which
utilize contributions of diasporas
INSTRUMENTAL VIEW OF INTERNATIONAL
MIGRATION AND DIASPORAS





As a pragmatic tool to advance domestic agenda
‘Diaspora for what?’ – as a second step (never the first) in
the argument. In our case: diasporas for growth and
institutional development
Key focus: domestic institutions and constraints (rather
than migration flows)
Key question: how can diaspora members help to design
and implement actions to alleviate the constraints
Paradoxes:
o
o
Diaspora members as antennas and mentors to reveal and foment
dynamic segments of the home country institutions (particularly
governments)
Diaspora as part of the country: who know the country but not (yet)
part of the entrenched elite
Example and a key policy question
Creating a credit reporting agency
American-American real estate businessmen
Business opportunity seen by others, but no investment had
taken place yet
Need for cultural intermediation and use of search networks
2004: ACRA Credit reporting LLC is founded:
Involvement of WB, KfW, and Diaspora members in ACRA’s
advisory board, foreign-educated, local management team
2005: Outside, private Investors get involved in ACRA
2007: Online reporting launched
Policy question
A number of isolated examples like this exist in Armenia
• Which policies would facilitate their emergence?
• How to scale up and diffuse promising experiences ?
Conceptual framework: search networks
Search networks are networks that allow you to rapidly identify people
or institutions that are solving (part of) a problem closely related to the
one you are trying to solve
1.
2.
3.
Instrument
to identify and link exceptions
to institutionalize exceptions
to solve concrete problems
Antennas to construct a strategic shared vision of the future
Knowledge for Development, WBI
Hierarchy of Diaspora Impact
Institutional
Reform
Knowledge & Innovation
Investments
Donations
Remittances
Setting the Stage: Armenia
Armenia: huge diaspora (6 mln.)
Unparalleled heterogeneity (by generation, skills etc):
the need for ‘high resolution’ strategy for engagement
•Significant remittances and large philanthropic
contributions which were important for poverty
reduction but may have been counter-productive for
growth: shock-absorbers delaying reforms
• Yet engagement in the institutional development has
been modest but promising
First mover role: bringing new business, educational and
management practices (e.g. Marriot hotel)
POLICIES FOR ENGAGEMENT WITH
DIASPORAS
In the long run: need for good business environment
(investment climate). It is desirable but rarely present
In the short and medium-run: focus on dynamic segments of
the economy. Engage diasporas with these better
performing dynamic segments of the economy
Medium-term is pragmatic: take advantage of the
realignment of the domestic elites
Better performing segments of Armenian economy
Higher education: American university, Slavic university
Industry and services: IT cluster, jewelry cluster, tourism industry
Public Sector: Enterprise Incubator Foundation (EIF), Armenia
Development Agency (ADA)
POLICY IMPLICATIONS FOR ARMENIA
Three-prong approach:
1. Facilitate a diversity of initiatives from the bottom-up: ‘let one thousand
flowers bloom’
Bringing cutting edge international expertise into higher education (particularly
into new universities, such as AUA)
Innovation clusters and venture capital (leveraging EIF expertise)
‘What is at stake’ scenarios of country long-term future – Armenia 2035
2. Provide a framework for information sharing and lessons-learning from
promising projects: contests and networks
Contest between domestic actors to leverage diaspora members for long-term
projects
One or two pilot sector-specific diaspora networks (IT and innovation,
education or health)
3. Establish an overall framework for engagement with diaspora which
recognizes its heterogeneity: Diaspora for Growth Strategy
Being humble and ambitious at the same time
Humble: recognize huge heterogeneity of diaspora and design multiple nuanced
messages
Ambitious: focus on big challenges and growth issues rather than remittances
and donations