Transcript Presentation by Mr. Michael Klein, World Bank Vice President for

Constant 1985 US$ (billions)
Growth achieves more than redistribution
250.0
200.0
150.0
100.0
50.0
0.0
1960 1965
1970
1975
1980
1985
1990
1995 2000
Ko rea, M anufacturing Value A dded
Official Net Reso urce Flo ws to Dev. Co untries
To tal Grants to Dev. Co untries, Excl. Tech. Co o p.
Source: World Bank WDI Database.
Market-friendly growth –
The hope for poverty reduction
— Catch-up is possible —
Time to double income:
Pre-industrial:
Britain (1780-1830)
Britain in 19th century
Fast growers since WWII
350 years
175 years
65 years
10 years
Botswana, Ireland, Chile….) or less
(Japan, China, Thailand,
POSSIBLE
“CATCH-UP”
A world free from poverty?
Share of world population living in poverty, 1820-2000
Chart Title
Poor/Total (World)
Poly. (Poor/Total (World))
1.00
0.90
0.80
0.70
0.60
0.50
0.40
0.30
0.20
0.10
Source: David Dollar, Frank Lysy and Guy Pfeffermann.
2000
1995
1990
1985
1980
1975
1970
1965
1960
1955
1950
1945
1940
1935
1930
1925
1920
1915
1910
1905
1900
1895
1890
1885
1880
1875
1870
1865
1860
1855
1850
1845
1840
1835
1830
1825
1820
0.00
Intelligence is scarce,
natural resources are abundant
Avg. World GDP per Capita Index (Real $ terms)
500
1900 = 100
Industrial Commodity-price Index (Real $ terms)
450
400
The Price of Intelligence
350
300
250
200
150
100
The Price of Commodities
50
2000
1995
1990
1985
1980
1975
1970
1965
1960
1955
1950
1945
1940
1935
1930
1925
1920
1915
1910
1905
1900
0
Source: The Economist Intelligence Unit. Angus Maddison. 2001. The World
Economy: A Millennial Perspective. Paris: Organization for Economic Cooperation and
Development
Factor accumulation accounts for only
a fraction of income differences (in percent)
100
55
22
23
Output per
immigrant worker
in US
Output per worker
in home country
Difference in
output due to
higher physical
capital in US
Source: Calculations based on Hendricks (2002).
Difference in
output due to
institutional
environment
A New Swedish Model?
Procedures to Enforce a Contract
22
22
East Asia
South Asia
25
25
Europe/Central
Asia
Middle East &
North Africa
33
31
18
16
Nordic
OECD
Sub Saharan
Africa
Latin America
China vs India?
Days to Start a Business Years to go through Bankruptcy Days to Enforce a Contract
11.3
365
88
200
5.8
46
180
28
2.6
Chile
China
India
Chile
China
India
Chile
China
India
There are more burdens in poor countries…
-2
Fewer
property rights
Protecting investors: disclosure index
-1.4
Procedures to enforce contracts
-1.6
Legal rights for borrowers and lenders
Cost to fire a worker
1.6
Higher costs
Cost to enforce
contracts
3
Minimum capital for
start-up
Years to go through
insolvency
Days to register
property
Days to start a
business
Source: Doing Business Project
4.2
1.9
More delays
1.8
2.2
Heavy regulations exclude the vulnerable
Greater Informal Sector to GDP
Lesser Women’s Share of Private Employment
Greater
Share
Greater
Share
Lesser
Share
Lesser
Share
Least
procedures
Most
procedures
Countries ranked by procedures
to register property, quintiles
Source: Doing Business 2004
Least
rigid
Most
rigid
Countries ranked by rigidity
of employment index, quintiles
Reform pays off
Reforms to reach the
top quartile of
countries would add
2.2 percentage
points annual growth
+ 2.2%
2.6%
1.0%
Actual Growth
Source: Doing Business Project
Bottom
Top
quartile
quartile
Ease of Doing Business indicator
Source: Chris Darroll. 2004. “The Investment Environment in Africa: Cutting Red Tape for
Business in Africa Initiative.”
Number of favorable changes in FDI
regulations per country, 1992-2002
18
16
Mean
14
Median
12
10
8
6
4
2
0
East Asia &
Pacific
Middle East
and North
Afirca
South Asia
Eastern
Europe and
Central Asia
Source: UNCTAD Database of National Regulatory Changes.
Latin America
& the
Caribbean
Sub-Saharan
Africa
More reforms in rich countries, poor
countries focused on IDA targets
Reforms in Rich Countries
Hiring and
Firing
18%
140
Number of reforms (percentage of countries)
Starting a
Business
24%
Closing a
Business
18%
120
100
Enforcing
Contracts
15%
80
60
Credit
Inform ation
25%
40
20
SubSaharan
Africa
East Asia
& the
Pacific
Middle
East &
North
Africa
Latin
America &
the
Caribbean
South Asia
Europe &
Central
Asia
OECD high
income
0
Reforms in Poor Countries
Hiring and
Firing
Closing a 15%
Business
3%
Source: Doing Business database.
Enforcing
Contracts
16%
Credit
Inform ation
21%
Starting a
Business
45%
Effect of industrial policy on growth
Korea
Japan
Average annual growth rate (percent)
9.00
10
8.98
Average annual growth rate (percent)
8
8
6
6
4
3.12
2.52
4
2
2
0
0
With industrial policy
Without industrial
policy
Total factor productivity grow th
GDP grow th
9.00
10
2.36
With industrial policy
8.97
1.37
Without industrial
policy
Total factor productivity grow th
Source: Howard Pack. 2000. “Industrial Policy: Growth Elixir or Poison?” World Bank
Research Observer 15(1): 47-67.
GDP grow th
Learning is more than simple adoption
(Hyundai’s first car)
• 14 months of trials before creating the 1st
prototype
• 11 more prototypes before one survived the test
• 2,888 engine design changes
• 97 test engines
• More than 200 test transmissions and 150 test
vehicles
• First car in 1992
Source: Linsu Kim. 1997. From Imitation to Innovation: Dynamics of Korea’s Technological Learning. p. 122.
Competition and innovation
Change in probability of undertaking innovation relative to
firms reporting no competitive pressure (percent)
75
50
25
0
New Product
Some competititve pressure
Upgrade product
Moderate competitive pressure
Source: World Development Report 2005.
New technology
Strong competititve pressure
More influential firms innovate less
Change in probability of undertaking innovation relative to
least influential firms (percent)
New product
New
lines
technology
New facility
Upgrade
product
lines
Close
Close facility product line
0
-10
-20
-30
-40
-50
-60
Most influential firms
Source: World Development Report 2005.
Moderately influential firms
Stability in a country’s list of established firms
is associated with slower economic growth
Reduction in economic growth associated with one standard
deviation increase in the corporate stability index (percent)
Real grow th in per
capita GDP
Productivity
grow th
Capital
accum ulation
0
-5
-10
Source: Kathy S. He, Randall Morck and Bernard Yeung. 2003. “Corporate Stability and Economic
Growth.” William Davidson Working Paper No. 553.
Note: Corporate stability indices are the fraction of the top ten firms, by employees, in each of
the 52 countries in the study in 1975 that were still in the top ten in 1996, weighted by each
firm’s 1996 labor force.
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