industrial structural change, growth patterns and industrial policy

Ludovico AlcortaDevelopment Policy, Statistics and Research Branch

United Nations Industrial Development Organization

International Economic AssociationPretoria, 3-4th July 2012

Industrial Structural Change, Growth Patterns and Industrial Policy

Outline• Research for Industrial Policy• Structural Change and Development• Industrial Structural Change Research at

UNIDO• Results and Findings• Applications to Industrial Policy• Extensions

2

Research for Industrial Policy

3

1. Providing:• Descriptive analysis on structural change and identifying manufacturing growth patterns

• Exploring relationships between patterns and stylized facts and their determinants

2. Embedding the analysis into a broader industrial policy assessment framework, which links the degree of economic attractiveness of industry to governments with aspects of the present and future feasibility of reaping those gains

Structural Change and Development• Definitions

– Long-term change in the composition of an aggregate (Syrquin, 2007)– Ability of an economy to constantly generate new dynamic activities characterized by

higher productivity and increasing returns to scale (Ocampo, 2005; UNDESA, 2006) • The importance of (industrial) structural change for economic

growth – Sustained economic growth is associated with the speed and nature of structural change

(McMillan and Rodrik, 2011; Ocampo and Vos, 2008; Taylor and Codrina, 2006)– Economic growth is associated with the size and growth of manufacturing industry

(Prebisch, 1948; Kaldor, 1967; Rodrik, 2006)– Modern economic growth is a process of continuous technological innovation, industrial

upgrading and technological diversification (Lin, 2012)– As countries get richer they diversify and produce a wider range of goods. Only at high

level of incomes countries specialise (Imbs and Wacziarg, 2003) – Economic growth and industrial structural change are positively associated (UNDESA,

2006). • How does structural change impact the rate of growth?

– Reallocation effects – Shifts in resource endowments– Technological change and technological capabilities– Learning by doing– Intra-national trade

4

Structural change and economic growth

5

0 5 10 15 20 25

Food and beveragesTobacco

TextilesWearing apparel

Wood productsPaper

Printing and publishingCoke and refined petroleum

ChemicalsRubber and plastic

Non-metallic mineralsBasic metals

Fabricated metalsMachinery and equipment

Electrical machinery and apparatusPrecision instruments

Motor vehicles

Large countries: VA share in MVA

Indu

strie

s

Real GDP per capita (PPP adjusted): 500 $US


6

0 5 10 15 20 25



Wood productsPaper






Motor vehicles


Indu

strie

s

Real GDP per capita (PPP adjusted): 1,000 $US


7

0 5 10 15 20 25



Wood productsPaper






Motor vehicles


Indu

strie

s



8

0 5 10 15 20 25



Wood productsPaper






Motor vehicles


Indu

strie

s



9

0 5 10 15 20 25



Wood productsPaper






Motor vehicles


Indu

strie

s



10

0 5 10 15 20 25



Wood productsPaper






Motor vehicles


Indu

strie

s



11

0 5 10 15 20 25



Wood productsPaper






Motor vehicles


Indu

strie

s



12

0 5 10 15 20 25



Wood productsPaper






Motor vehicles


Indu

strie

s



13

0 5 10 15 20 25



Wood productsPaper






Motor vehicles


Indu

strie

s



14

0 5 10 15 20 25



Wood productsPaper






Motor vehicles


Indu

strie

s



15

0 5 10 15 20 25



Wood productsPaper






Motor vehicles


Indu

strie

s


Industrial Structural Change Research at UNIDO• Starting point

– Chenery’s work (Chenery and Watanabe 1958; Chenery 1960; Chenery and Taylor 1968, etc.)

– UNIDO statistics• Departures

– Data: • Value added in nominal and real terms • 18 manufacturing industries • Stretching into 120 countries• Covers 45 years, 1963-2008

– Selection of appropriate estimation methodology:• Cubic form

• Fixed effects estimation procedure to control for unobserved country conditions

• Variables expressed in logarithmic terms to measure elasticity in each variable

16

Where X stands for dependent variables – value added share, value added per capita output, value added per worker (labor productivity) and employment share.

Results and findings 1. Country-size matters

2. Most manufacturing sectors in large countries peak in terms of value added share in total MVA – there is an inverted U-pattern.

3. Manufacturing sectors in large countries peak in stages at different income levels 4. In sectors that peak early valued added, employment and labour productivity growth slow down as income expand5. In middle-peaking sectors value added and employment growth slows down but labour productivity growth holds steady as income expand 6. In late industries value added and productivity grow faster compensating for the slow down in employment

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Results and Findings

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-1.5

-1

-0.5

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0.5

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1.5

2

2.5

1000

4000

7000

1000

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000

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000

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GDP per capita in $US (PPP adjusted)

Large countries

Value added per capita

Labor productivity

Employment-population ratio

-1.5

-1

-0.5

0

0.5

1

1.5

2

2.5

1000

4000

7000

1000

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000

1600

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000

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025

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Medium countries


Labor productivity


1. Country-size matters : e.g. food and beverages

-1

-0.5

0

0.5

1

1.5

2

2.5

1000

4000

7000

1000

013

000

1600

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3400

037

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Grow

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Small countries


Labor productivity



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2. Most manufacturing sectors in large countries peak in terms of value added share in total MVA – there is an inverted U-pattern.


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3. Manufacturing sectors in large countries peak at different income stages - early-peaking, middle-peaking and late-peaking sectors.


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4. Early Industries: Slow down of value added, employment and productivity as incomes grow but……

-2

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1

2

1,00

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5,00

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Grow

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city

Real GDP per capita ($US)

Non-metallic mineral

Value added per capita Employment-population ratio Labor productivity

-2

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1

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3

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000

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0031

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33,0

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37,0

0039

,000Gr

owth

ela

sticit

y


Wood products


-2

-1

0

1

2

3

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000

5,00

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000

9,00

011

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0015

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21,0

0023

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25,0

0027

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29,0

0031

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33,0

0035

,000

37,0

0039

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owth

ela

sticit

y


Wearing apparel



22

5. Middle Industries: Slow down of value added and employment is kept in check by productivity growth except for…

-2

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1

2

3

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5,00

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000

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0031

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37,0

0039

,000

Grow

th elasti

city


Basic metals


-2

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1

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3

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0031

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33,0

0035

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37,0

0039

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Grow

th elasti

city


Fabricated metals



23

6. Late industries: Value added and labor productivity grow much faster than GDP growth arresting the slow down in employment growth

-2

-1

0

1

2

3

1,00

03,

000

5,00

07,

000

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011

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25,0

0027

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29,0

0031

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37,0

0039

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ela

sticit

y


Chemical products


-2

-1

0

1

2

3

1,00

03,

000

5,00

07,

000

9,00

011

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13,0

0015

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25,0

0027

,000

29,0

0031

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33,0

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37,0

0039

,000Gr

owth

ela

sticit

y


Machinery and equipment


-2

-1

0

1

2

1,00

03,

000

5,00

07,

000

9,00

011

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13,0

0015

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29,0

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0039

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Grow

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city


Electrical machinery and apparatus


Applications to Industrial Policy

• Benchmarking– Any country at any level of income– Grouping of countries

• Entry and exit points– At which level of income an industry becomes

attractive according to its value added growth, labour productivity and employment potential

– At which level of income the value added growth, labour productivity and employment potential may no longer be attractive

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Application: Comparison Egypt, South Korea and Large Countries

25

0

5

10

15

20

25Food and beverages

Tobacco

Textiles

Wearing apparel

Wood products

Paper

Printing and publishing

Coke and refined …


Non-metallic minerals

Basic metals

Fabricated metals

Machinery and …

Electrical machinery …

Precision instruments

Motor vehicles

Furniture, n.e.c.

Egypt in 2007: real GDP per capita (PPP adjusted) 5,700 US$

26

0

5

10

15

20


Tobacco

Textiles

Wearing apparel

Wood products

Paper





Basic metals

Fabricated metals

Machinery and …



Motor vehicles

Furniture, n.e.c.


Korea in 1989: real GDP per capita (PPP adjusted) 10,700 US$


27

0

5

10

15

20


Tobacco

Textiles

Wearing apparel

Wood products

Paper





Basic metals

Fabricated metals

Machinery and …



Motor vehicles

Furniture, n.e.c.


Korea in 1981: real GDP per capita (PPP adjusted) 5,700 US$


28


29

0

5

10

15

20


Tobacco

Textiles

Wearing apparel

Wood products

Paper





Basic metals

Fabricated metals

Machinery and …



Motor vehicles

Furniture, n.e.c.


Large countries: real GDP per capita (PPP adjusted) around 5,700 US$


30

Application: Comparison South Africa, South Korea and Large Countries

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32


33


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Application: entry and exit points

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Growth charts: fastest and slowest growing – early, middle and late sectors

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Real GDP per capita (PPP adjusted) in US$

Real value added per capita in US$

Food and beverages: fastest growing early sectorTobacco: slowest growing early sectorPaper: fastest growing middle sectorFabricated metals: slowest growing middle sectorElectrical machinery and apparatus: fastest growing late sectorMotor vehicles: slowest growing late sector

Real GDP per capita (PPP adjusted) in Korea in 2007: 23,900 US$

Real GDP per capita (PPP adjusted) in South Africa in 2007: 10,400 US$

Real GDP per capita (PPP adjusted) in Egypt in 2007: 5,700 US$


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Labor productivity

Non-metallic minerals: fastest growing early sectorFurniture, n.e.c.: slowest growing early sectorBasic metals: fastest growing middle sectorFabricated metals: slowest growing middle sectorElectrical machinery and apparatus: fastest growing late sectorRubber and plastic: slowest growing late sector





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Wearing apparel: fastest growing early sector Tobacco: slowest growing early sector

Precision instruments: fastest growing middle sector Basic metals: slowest growing middle sector

Machinery and equipment: fastest growing late sector Chemicals: slowest growing late sector




Extensions• New variables: capital-labor ratio, wages,

firm size, total factor productivity, resource intensity (energy, water)

• Extension of the country classification: population density, natural resource endowments, landlocked

• More detailed manufacturing classification – 4 digit ISIC

• Expansion to international trade data• Exploration of linkages through input-output

relations 38

THANK YOU!

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