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Challenges for Development Policy
Making in a Globalized World: Why, what and how of Policy Think-Tanks
Nagesh KumarDirector,
South and South-West Asia Office, UNESCAPNew Delhi, 18 November 2019
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Growing complexity of the Development Process
Early understanding of development
• Engaging factors of production to produce output
• Structural transformation (Arthur Lewis, 1954)
• Move factors of production away from low value adding activities to high value adding modern activities
• Process and speed of transformation
• Complications due to open economy
• International trade and Foreign Direct Investment (FDI) inflows can help in expediting ST
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International trade as an engine of growth?
• Trade can expand opportunities by giving access to markets
• World is your own market
• Obviates small market constraint
• East Asian countries have harnessed potential of trade for development
• Can also be ‘immiserizing’• Domestic market can be flooded by imported goods
and destroy chances of structural transformation
• Can lead to reverse ST or premature de-industrialization
• African economies
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Per Capita GDP in 1990 Dollar
USA
Singapore
Japan
Taiwan,China
South Korea
China
Nepal
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Singapore
Japan
Taiwan, China
Korea
China
Nepal
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FDI Inflows as drivers of growth?
• Can bring valuable and scarce factors of production: capital, entrepreneurship, technology, market access
• East Asian countries have exploited FDI to emerge as hub of manufacturing
• Varied development experiences: FDI can also be ‘immiserizing’
• Quality of FDI matters
• FDI can ‘crowd-in’ or ‘crowd-out’ domestic investments
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Structural transformation is not automatic and requires special efforts
• Governments have extensively employed a number of strategic interventions to build productive capacities
• These interventions form part of industrial policy and include• Infant industry protection of various forms
• Selective FDI policies and performance requirements
• Soft Intellectual Property Protection Regimes
• Subsidies and Investment Incentives including subsidized credit
• Government Procurement to promote local industry
• Regional Trading Agreements and rules of origin including buy local regulations
• Managed exchange rate policies to support local production
• Providing supportive infrastructure facilities, industrial processing zones, investments in skills formation and vocational training, centres of innovation and excellence
• Developed countries have employed such interventions extensively when they were industrializing
• Newly industrialized countries have also benefited from them in the process of their development
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Trade, multilateralism and development• GATT provided a rule-based multilateral framework for
• conducting international trade, • settling trade disputes, and • Process of trade liberalization for reaping efficiency gains since 1947
• Succeeded by World Trade Organization in 1995
• Key principles of multilateralism • Non-discrimination or MFN• Reciprocity• Binding and enforceable commitments• Transparency• Safeguards
• Exceptions allowed for preferences in favour of developing countries and for regional trading arrangements
• Recognition of different levels in development and capacities of countries
• Concept of special and differential treatment (S&DT) incorporated way back in the 1960s
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MFN, the bedrock of multilateralism, eroded since 1990s by the wave of regionalism
• Single European Market, 1992– Further deepening and broadening of the Single market
• North American Free Trade Agreement, 1994
• Followed by others e.g. EFTA, European Economic Space, APEC….
• Large proportion of world trade begins to take place outside MFN, on a preferential basis
• Domino reaction across the world: Different regions responded by their schemes of regional economic integration
• Nearly 300 RTAs/FTAs at different stages of implementation
• New wave of mega RTAs: TPP, TTIP, RCEP
• Respond to the trends
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Other development challenges
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Inability of growth to trickle down
Changes in income inequality by country, 1990 and 2014
Source: UNESCAP (2018). INEQUALITY IN ASIA AND THE PACIFIC IN THE
ERA OF THE 2030 AGENDA FOR SUSTAINABLE DEVELOPMENT
• Widening inequalities of income
• Failure of economic growth to ‘lift all the boats’
• Implications of high concentration of incomes in the hands of
few, for sustainability of growth
• Implications for social cohesion
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Persisting Inequalities of Opportunity
• Huge gaps in access to basic opportunities • e.g. education, health, drinking
water and sanitation, electricity, nutrition for children, banking services etc.
• Access gaps based on rich-poor, urban-rural and gender lines
• Lead to inter-generational vicious cycles of poverty
Availability of improved sanitation facilities in Asia-Pacific
Secondary school attendance gaps in Asia-Pacific, latest year
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• Economic growth has not been creating adequate decent jobs• Employment elasticity of growth has been falling
• Major challenge for South Asian economies passing through youth bulge
• New technological revolution: artificial intelligence, internet of things, blockchain, digitech (4th Industrial Revolution) • Reduces the share of labour cost in production• Massive job losses expected in manufacturing • Reshoring of production back to the Western countries??
Implications of too many young unemployed people on the roads !!!
Jobless growth and the 4th Industrial Revolution
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Sustainability and the challenge of intergenerational equity
Asia tops climate change's 'most vulnerable'
list,
New Scientist
Extreme weather events and poor air
quality are already clouding the
growth outlook
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Sustainable Development Goals (SDGs) address all these challenges in a comprehensive manner
• Social, economic and environmental challenges
• Providing a life of dignity to all, leaving no one behind
• Universal integrated agenda
Inclusion and sustainability have become prerequisites for sustaining growth
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The agenda is indeed ambitious
• Elimination of extreme poverty
• Universal access to education, health care, social protection
• Closing gaps in access to basic amenities such as drinking water and sanitation, modern energy
• Infrastructure, industrialization, jobs, innovation, and sustained economic growth
• Sustainable consumption and production
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And will need huge resources
• Finance
• 10-20% of GDP for meeting the social agenda
• Around US$ 5 trillion for closing the infrastructure gaps
• Implementing the NDCs will require substantial resources
• US$ 2.5 trillion for India alone
• Access to environmentally sound technology on easy terms
• Market access
• Capacity-building
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Premised on a renewed global partnership for development
• Finance
• Technology
• Capacity-building
• Trade
• Systemic Issues
• Data, monitoring and accountability
SDG-17. Means of Implementation and revitalize global partnership for sustainable development
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However, outlook for partnership is clouded by emerging challenges
• New normal of subdued growth of world economy and trade
• Rise of protectionism and trade wars
• Retreat of multilateralism
• Multilateral trade negotiations stuck
• Aid fatigue: elusive quest for 0.7% target for ODA
• FDI inflows remain concentrated as MNCs pick winners
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Think-tank’s role in fostering sustainable development
• Shaping the development policy agenda
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Shaping the development policy agenda in an increasingly complex development landscapeHow?
• Watching global and regional trends
• Anticipate threats and opportunities
• Prepare policy responses to mitigate the threats and harness the opportunities
• Advise the policy makers on • Strategic interventions for accelerating structural transformation
• New opportunities for resource mobilization
• Enhancing the magnitude and quality of FDI
• Opportunities for mutually beneficial global and regional partnerships
• Harness opportunities for sustainable development
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Aspects of Policy Think-tank’s work
• Identify key areas of work depending on the local circumstances/ strengths and expertise
• Sustainable financial base while ensuring independence
• Build analytical capacity in identified areas
• Conduct policy-oriented analytical research
• Develop communication, dissemination and policy advocacy strategies
• Ability to sustain advocacy
• Build networks with diverse stakeholders for enhancing effectiveness
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Important consideration and good practices
• Autonomous think-tanks supported by the governments
• Civil society think-tanks
• Think-tanks driven by ideologies and philosophies
• Private sector supported think-tanks
• Limitations of foreign resources for think-tanks
• Diversified resource base important for independence
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Analytical work for identifying the policy priorities
• Interrelationships between many SDG goals and targets
• Positive spillovers of integrating economic, social and environmental pillars
• Identified 7 key policy priorities for South Asia that will help maximize the interrelationships and positive spillovers
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Identifying the opportunities of regional cooperation in South Asia
• Simulations to find out opportunities for mutually beneficial opportunities for regional cooperation
• Policy lessons for harnessing them