Transcript Learning from Developing Country Experience

Learning from Developing Country
Experience: Growth before and after
the 2008-2009 Crisis
Ann Harrison
NYU Stern School, World Bank and
NCAER Conference
October 7, 2010
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A 20 Minute Roadmap
• Before and After the 2008-2009 crisis, developing
countries (average) grew faster than industrial ones
• Consequences: a new global economic landscape
• This superior performance carries lessons for
industrial countries. “TORR” framework from
Zoellick’s speech last week and DEC strategy paper:
– Transformation: stimulating structural transformation
– Opportunities: broadening opportunities
– Risks: increasing risks and vulnerability
– Results: focusing on results in policies and aid impacts
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Before and after the 2008-2009 crisis,
developing countries grew faster than
industrial ones
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East Asia and the Pacific Region is Leading per
capita GDP Growth; by end of decade, High –
income OECD is lagging behind
Source: WDR2012 Outline
Close-up: higher resilience in GDP
growth declines and better prospects
for the future for developing countries
Real GDP growth rates in percent
10
World
High-income
Middle-income
Low-income
8
6
4
2
0
-2
-4
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Source: World Bank, Global Economic Prospects
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Three Factors make this Crisis very
unusual for Developing Countries In
Comparison to Past Crises
• The crisis originated in industrial countries and was
transmitted via trade and capital markets.
• Many developing countries were able to cushion the
effects of the shock for the most vulnerable through
social spending and safety nets due to strong
fundamentals prior to the onset of the crisis:
• More prudent macro policies (lower inflation, more fiscal space,
higher buildup of reserves) documented by Schmukler (DECRG)
• Rapid trade expansion, CA surpluses, and higher growth
• Significant aid and reduced debt levels
• Unlike in previous crises, developing countries generally
fared much better than developed countries
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Source_Fardoust, Kim,
and Sepulveda (2010)
A comparison with Previous Crises: Developing Country
Performance has been Markedly Superior to Developed
Country Performance
GDP per capita growth in past and current crises
8.0
6.0
Growth rate
4.0
2.0
World (3 crises)
0.0
World (2009)
World (2009) Projected
LICs (3 crises)
-2.0
LICs (2009)
LICs (2009) Projected
-4.0
-5
-4
-3
-2
-1
0
1
2
3
4
Note: The figure plots the average per capita GDP growth in the world and in Low-income countries 5 years before
and 5 years after the global crises (centered at zero on the horizontal axis) of 1975, 1982 and 1991, and the
current crisis. Also shown in dashed lines are WEO projections until 2013. Source: DECPG
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Consequences: the changing global
landscape
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The Crisis has probably accelerated the
shift towards a multi-polar world:
• Developing countries accounted for 17 % of
global GDP in 1980. By 2008:
– 29 % at market exchange rates
– 45 % if purchasing power parity weights are used
• South-South links also rising rapidly. In 1995
Southern trade was 13 % of China’s total
trade; by 2007 it was 28 % and is projected to
reach 50 % by 2015.
Prediction of Professor John Whalley
based on growth projections
“The South seemly may be poised to become
the epicenter of trade in the global economy
by 2030, with China at its Hub”
Source_Fardoust, Kim,
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and Sepulveda (2010)
Return to Normalcy? 1820 versus 2025
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This superior performance carries lessons
for industrial countries.
Linking Lessons to World Bank Research
Agenda on:
Transformation: stimulating structural
transformation (1)
Opportunities: broadening opportunity (2)
Risks: increasing risks and vulnerability (3)
Results: focusing on results in policies and
aid impacts (4)
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1. Transformation: Remarkably few
countries have transformed themselves
from developing to industrial
“As a point of departure we review the cases of high, sustained growth in the
postwar period. Thirteen economics qualify: Botswana; Brazil; China;
Hong Kong, China; Indonesia; Japan; the Republic of Korea; Malaysia;
Malta; Oman; Singapore; Taiwan, China; and Thailand. Two other
countries, India and Vietnam, may be on the way to joining this group. It
is to be hoped other countries will emerge soon.”
–The Growth Report
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Those that did succeed had high rates
of Savings and Investment
Lines outside luxury LV store in the US
Beijing National Airport
Trend in Investment since 1970
They also focused on market signals
and international competition
Trade as Share of GDP
Developing and Developed Countries 1980-2007
70
65
60
50
45
40
35
High Income Countries
30
Low and Middle Income Countries
25
Source: World Development Indicators
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2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
1989
1988
1987
1986
1985
1984
1983
1982
1981
20
1980
percentage
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…Without Neglecting the Important
Role of the State
Shanghai high speed railway
NY Subway
And they Promoted Winners, not
Losers, raising issues of state capacity
USA
China
Losers
Abandoned auto plant
Winner
Volvo plant in China
Key Challenge: how to create policies that
promote winners, not losers. See Lin
(2009) on NSE, Lin and Monga (2010) on
GIF, Handbook chapter by Harrison and
Rodriguez-Clare (2010) , and Aghion et al
Dwight D. Eisenhower initiated ARPA, the team of researches
that built ARPANET, the earliest U.S. Internet.
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2. Broadening Opportunities
How do we ensure that benefits of growth are shared
by all in an increasingly unequal world?
Rising Inequality in Developed Countries
Source: Atkinson, Piketty, and Saez (2010)
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Rising Inequality in Developing Countries as well…`
Source: Atkinson, Piketty, and Saez (2010)
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Broadening opportunities means
promoting access to education, health
care, and public services
India
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But equality of opportunity may not be enough:
in area of gender, vast improvement in equality
of opportunity, but not outcomes
Source: Bertrand, Goldin, and Katz (2009)
3. Lessons on Risk and Vulnerability:
What can be done?
Financial Risks: 2007 Market Crash
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Environmental Risks: Earthquake in Haiti
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Risks from Global Integration: Mexican Industrial
Production Before and After NAFTA
from Nabli (2010)
Industrial Activity Index in Mexico and USA, 1980-2009
(Seasonal Adjusted Data, Mexico 1993=100, USA:1994=100)
180
160
NAFTA
140
México
120
USA
100
80
Sources: INEGI and Federal Reserve
2009/01
2008/01
2007/01
2006/01
2005/01
2004/01
2003/01
2002/01
2001/01
2000/01
1999/01
1998/01
1997/01
1996/01
1995/01
1994/01
1993/01
1992/01
1991/01
1990/01
1989/01
1988/01
1987/01
1986/01
1985/01
1984/01
1983/01
1982/01
1981/01
1980/01
60
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Solutions? China is Making Inclusion,
Diversification, and Sustainability Top Priorities
In China, the 11th (2006-2010) Five Year plan focuses on
correcting five “imbalances” that are considered
unsustainable, given the current pattern of growth:
• widening disparities in income between regions, urban and
rural areas, coastal and inland provinces;
• unevenness in access to basic social services;
• the economy’s reliance on industrial exports and external
markets for growth;
• the rapid increase in demand for energy and natural
resources; and
• a mixed record in improving environmental quality.
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Solutions? Increase transparency and
reduce crony capitalism…
Simon Johnson in Atlantic Monthly, May 2009
“elite business interest-financiers in the U.S.
played a central role in creating the crisis,
making ever-larger gambles, with the implicit
backing of the government, until the
inevitable collapse”.
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Provide Social Safety Nets for
disadvantaged
India’s Rural Employment Guarantee Scheme in Bihar
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One of emerging lessons of financial crisis is that
markets do not always work, but misguided
interventions can make things worse
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4.Results: A pragmatic focus on what
works (and what doesn’t)
• Xiaoping Deng: “Crossing the River by Feeling
the Stones”
• This is China’s mode of economic reform, it
means implementing partial reforms in an
experimental manner and expanding them
upon proven success
Example 1: SOE Reform in China
Example 2: Household responsibility system in
China
Example of gradualism instead of shock
therapy: reforms of Chinese public
enterprises through joint venture activities
and private sector growth
Evolution of total workforce: 1998-2007 (1998 = 100)
180
160
Total workforce index
140
120
100
80
60
40
20
0
1998
1999
2000
2001
2002
2003
2004
2005
Year
Domestic public firms
Foreign-invested firms
Domestic private firms
2006
2007
Concluding Comments
(1) Recent crisis has highlighted superior performance of
developing countries, but many issues not addressed
by this survey (global coordination of macro
instruments and G20, aid, restraints on protectionism)
(2) Superior performance of leading developing countries
has changed the global landscape: new growth poles
(3) TORR New framework highlights key research areas :
– Transformation: what underlies structural changes?
– Opportunities: how can we ensure that benefits of growth
are shared?
– Risks: Environmental, Trade, and Financial Risks
– Results: A new focus on results and aid effectiveness
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