The changing global economic landscape: Boosting productivity to meet the middle income challenge

Transcription

1 The changing global economic landscape: Boosting productivity to meet the middle income challenge Carl J. Dahlman Presentation in Berlin October 9,

2 Outline A. Shifting global economic landscape B. The challenge of productivity for convergence C. Fading of traditional drivers of growth D. Boosting productivity for development

3 Shifting weight of global economic activity continues A. Shifting global economic landscape

4 in terms of output, consumption and investment A. Shifting global economic landscape

5 and in terms of international trade and foreign direct investment A. Shifting global economic landscape

6 Raw material imports are particularly strong in China and India A. Shifting global economic landscape

7 But the difference in growth rates has been narrowing since 9 A. Shifting global economic landscape

8 but many middle-income countries are not on course to converge by A. Shifting global economic landscape

9 Low economic growth can be associated with low productivity growth Poor prospects of convergence raise question of middle-income trap Common (theoretical) framework to identify the trap does not exist But: Evidence shows that many middle-income countries face sustained periods of lower economic growth And: Growth slowdowns are often associated with significant slowdowns in total factor productivity (TFP): on average 8% of GDP slowdowns are explained by TFP slowdowns (Eichengreen et al. *) Productivity slowdowns can be associated with difficulties to move up the value chain, away from a factor accumulation-driven and low labour costdriven to a an innovation-driven growth path Focus on benchmarking middle-income countries productivity growth (and levels) against each other and against more advanced countries B. The challenge of productivity for convergence

10 OECD report exploits detailed data to assess productivity and competitiveness Productivity is examined at the macro level to identify its contribution to overall economic growth (both from the expenditure and the factor accumulation perspective), and also at a more detailed level for up to 8 manufacturing and 6 services sectors in countries. A special feature of the report is that it also studies productivity, technical efficiency and mark-ups at the firm level for nine countries the BRIICS (Brazil, the Russian Federation, India, Indonesia, China and South Africa) plus Columbia, Cameroon and Senegal and investigates these competitiveness indicators across regions within countries. Moreover, international integration is studied using detailed trade and investment data. B. The challenge of productivity for convergence

11 Total factor productivity gap with advanced countries is significant B. The challenge of productivity for convergence

12 so as the gap in labour productivity B. The challenge of productivity for convergence

13 Labour inputs may decrease due to ageing 8 Total dependency ratios, Brazil Russian Federation India Indonesia China South Africa C. Fading of traditional drivers of growth

14 Efficiency in the use of labour is declining in some countries % 8 Labour force participation rates decomposed into employed and unemployed, and China Brazil Indonesia Russian Federation OECD members India South Africa Employed Unemployed Source: Author s calculations based on World Bank (3) World Development Indicators (database) C. Fading of traditional drivers of growth

15 ICOR: year moving average (China) 7 ICOR: 8 year moving 8 average ICOR: (Cameroon) year moving average (China) ICOR: year moving average (India) Investment 6 efficiency 6 is declining 9 in some BRIICS economies 3 ICOR: ICOR: year moving year moving average average (Brazil) (Indonesia) ICOR: ICOR: year moving year moving average average (China)(Senegal) ICOR: year moving average (Indonesia) 8 6 ICOR: year moving average (Brazil) ICOR: year moving average (China) ICOR: year moving average (Indonesia) ICOR: year moving average (Senegal) Incremental capital-output ratio (ICOR) ICOR: year moving ICOR: average year moving (India) average (Brazil) ICOR: year moving ICOR: average year ICOR: moving (Cameroon) year average moving average (China) (Russian Federation) ICOR: ICOR: year moving year ICOR: moving average year average (India) moving (Brazil) average (Indonesia) ICOR: ICOR: year year moving moving ICOR: average average year (India) moving (South average Africa) (Indonesia) ICOR: ICOR: year year moving ICOR: moving average year average moving (China) average (Senegal) 7 (Russian Federation) ICOR: year moving ICOR: average year moving average (Senegal) (Russian Federation) Note: A higher ICOR indicates lower investment 9 8efficiency compared to a smaller value. 3 8 Source: Authors' calculations based on World 8 Bank 7 (3), World Development Indicators (database) ICOR: year ICOR: moving year average moving (South average Africa) (Indonesia) C. Fading of traditional drivers of growth ICOR: year moving ICOR: average year (Cameroon) moving average 8 (Russian Federation) ICOR: year moving average (Cameroon) ICOR: year moving average (India) ICOR: year moving average (Russian Federation) 3 ICOR: year ICOR: moving year average moving average (India) (South Africa) ICOR: year moving average (South Africa) 9ICOR: year moving average 8 (Russian Federation)

16 Middle-income economies can boost productivity by:. Diversifying continuously into higher value-added sectors in agriculture, industry and services. Innovating by using global knowledge and developing domestic capabilities 3. Reforming product, labour and financial markets, and developing skills. Fostering competitive service sectors D. Boosting productivity for development

17 Diversification into higher value added sectors needs to be fostered Diversification into higher value added sectors, which would also boost productivity, is needed to remain competitive in global markets;...this holds particularly for those developing countries that are reaching the limits of factor accumulation-led growth and have seen rising wages as well as those that are rich in natural resources. Moreover, diversification will make countries less vulnerable to external shocks. Diversification into higher value added products is not an automatic process specialisation forces generally prove stronger, which can lead to labour absorption challenges and rents, particularly in resource-rich economies. For example: The commodity boom resulting from the shifting wealth process has led to specialisation at too early stages of development in more resource-rich BRIICS (Brazil, Russian Federation, Indonesia, and South Africa). D. Diversifying into higher value-added sectors

18 Some resource-rich economies specialised rather than diversified D. Diversifying into higher value-added sectors

19 BRIICS are tapping global knowledge and investing in R&D D. Innovating by using global knowledge and developing domestic capabilities

20 Normalised TFP Normalised TFP Normalised TFP Normalised TFP Firms integrating internationally and investing in R&D and skills are more productive.6 Average TFP by firm ownership, normalised by industry and year, -. Average TFP by firm R&D expenditure, normalised by industry and year, China Indonesia Domestic private firms Foreign firms and joint ventures with foreign companies China Indonesia South Africa No R&D expenditure R&D expenditure Average TFP by firm exporting, normalised by industry and year, - China Indonesia South Africa No exports Exports Average TFP by firm expenditure on worker training, normalised by industry and year, - Sources: Authors calculations, using national firm-level datasets. D. Innovating by using global knowledge and developing domestic capabilities China No employee training Indonesia Employee training

21 Education attainment is improving Source: World Bank (3), World Development Indicators 3. D.3 Reforming product, labour and financial markets, and developing skills

22 ...but its quality remains relatively low Source: OECD (3), Education at a Glance: OECD Indicators, OECD Publishing, Paris. D.3 Reforming product, labour and financial markets, and developing skills

23 Services are important drivers of growth D. Fostering competitive services

24 Growth potential is particularly high in financial and business services Notes: The bubble size indicates a country s per capita GDP. Source: Authors calculations based on UN (3), UN data (database). D. Fostering competitive services

25 Outsourced business services may be important for manufacturing productivity Notes: The bubble size denotes the share of business services inputs in the total inputs used in manufacturing. Sources: Authors calculations based on Timmer, M.P. (ed) (), "The World Input-Output Database (WIOD): Contents, Sources and Methods", WIOD Working Paper Number. D. Fostering competitive services

26 They can also continue to exploit old drivers of growth. Shifting labour from lower to higher productivity sectors 6. Fully reaping factor accumulation-led growth D. Boosting productivity for development

27 Shifting labour to more productive sectors is fading in some countries Source: Authors' estimations using Timmer, M.P. (ed) (), The World Input-Output Database (WIOD): Contents, Sources and Methods, WIOD Working Paper Number D. Shifting labour to more productive sectors

28 Capital accumulation has been the most important driver of growth in all BRIICS D.6 Reaping factor accumulation-led growth

29 They can work to ensure social and environmental sustainability 7. Ensuring equal opportunities 8. Developing effective regional policies to support more equitable growth and reduce regional disparities 9. Increasing energy efficiency and environmental sustainability D. Boosting productivity for development

30 Income per capita ( ppp USD) Income per capita ( ppp USD) Income per capita ( ppp USD) Income per capita ( ppp USD) Income per capita ( ppp USD) Income per capita ( ppp USD) Inequality is increasing in some of the BRIICS Brazil Russian Federation Cumulative share of population (in decile) Cumulative share of population (in decile) 9 India Indonesia Cumulative share of population (in decile) Cumulative share of population (in decile) 993 China South Africa Cumulative share of population (in decile) Cumulative share of population (in decile) 9 Source: Authors calculations based on Anand, R., S. Mishra, and S.J. Peiris (3), Inclusive growth: Measurement and determinants, IMF Working Paper WP/3/3 D.7 Ensuring equal opportunities

31 Disgruntled middle class jeopardises convergence Full participation of the middle classes is crucial to sustainable economic development: they provide the educated labour supply and the entrepreneurs required for modernisation; and are the backbone of domestic consumption Emerging countries middle classes are fragile low standards of education, poor healthcare, and urban congestion are among the biggest risks to the lower strata of middle classes Middle classes have rising expectations as to current and future standards of living, access to opportunity, and voice in the decision-making process Stability is often at risk during deep, fast economic transformations due to increased inequalities, social exclusion, unmet expectations and tensions Efficient public services and equal opportunities can help stabilise middle classes and ensure the sustainability of competitiveness Public finance and efficiency needs to be sustainable D.7 Ensuring equal opportunities

32 Regional productivity levels are converging in some countries Output per worker and compound annual growth over various periods, by region Notes: The size of the bubble represents the share of national manufacturing employment in the region in the first period. Labour productivity was calculated as output per worker, deflated to local prices and converted to euros using the average of the to 7 exchange rate. Source: Authors calculations using national firm-level datasets. D.8 Developing regional policies

33 toe per thousand USD Change in energy intensity (CAGR) Some emerging economies are improving energy efficiency in manufacturing Tonnes of oil equivalent used per thousand USD value added in selected manufacturing industries and compound average annual growth in energy intensity, -9 % 3 % % % % - -% - -% -3 Russian Federation (-9) India South Africa China (-7) Indonesia (3-9) Brazil OECD average Mexico Morocco Colombia -% Tonnes of oil equivalent per thousand USD in manufacturing value added (LHS) Sources: Authors calculations, using IEA (), World Energy Statistics and Balances (database), International Energy Agency; UNIDO (3), INDSTAT: Industrial Statistics Database, United Nations Industrial Development Organisation. D.9 Increasing energy efficiency and environmental sustainability

34 Energy use in the Russian Federation is comparatively high kg of oil equivalent per capita 6 3 OECD members Brazil China India Indonesia Russian Federation South Africa Source: World Bank (3a), World Development Indicators (database), World Bank, Washington, D.C. D.9 Increasing energy efficiency and environmental sustainability

35 Climate change will affect GDP D.9 Increasing energy efficiency and environmental sustainability

36 And they can make government more effective by. Developing greater capability to formulate and implement plans D. Boosting productivity for development

37 Performances of BRIICS economies have been diverse D. Developing capability to formulate and implement plans

38 Government vision and capability to implement reforms are key Capacity within the public sector is required and can be improved, among others, by performance-based assessments of public servants Determined and target-oriented governments are essential to implement bold reforms needed for sustained high growth (e.g. Korea, Singapore, Chinese Taipei, Finland and Ireland countries that have avoided the middle-income trap have developed such visions or long-term plans) Incentives prioritising short-term gains at the expense of long-term goals should be avoided An effective and efficient government administration is needed that translates overall targets into sectoral and line ministry targets Broad-based support by multiple stakeholders is key to make bold steps and can be obtained through consultation processes The right circumstances are needed for bold reforms; prioritisation of the necessary policy steps can help D. Developing capability to formulate and implement plans

39 Government vision and capability to implement reforms are key China s rapid rise had been in large part due to its determined, targetoriented government with a vision to address changing economic challenges. It made bold reforms which were possible through effective organisations and procedures to implement the necessary steps. Other BRIICS countries with more democratically-organised governments need to obtain support for necessary reforms through consultation processes where key stakeholders - including private businesses, local communities and civil society can voice their opinion and help formulate and implement strategies. D. Developing capability to formulate and implement plans

40 Thank you!

41 S h a r e Emerging Economies Rise to the Top Changing Country Shares of Global GDP -9 Brazil China, People's Republic of France Germany India Indonesia Japan Russian Federation United Kingdom United States o f G l o b a l P P P ) G D P ( i n