perspectives in global development: industrial policies in ... · costa rica kenya morocco south...

Perspectives in global development:

Industrial policies in a changing world

I. The starting point: Shifting Wealth

II. The impacts of Shifting Wealth

III. Is Shifting Wealth sustainable?

Emerging policies responses

Structure of presentation

I. THE STARTING POINT: SHIFTING WEALTH

The “Four Speed World” (PGD 2010)

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Low and middle income economies OECD members

%

Annual GDP growth rates by income group, 1985-2011

Smoothed rates

Shifting Wealth as a structural phenomenon

Source: OECD (2013), Perspectives on Global Development 2013 -Shifting up a Gear: Industrial Policies in a Changing World, OECD, Paris.

II. THE IMPACTS OF SHIFTING WEALTH

Source: OECD Development Centre based on Kharas (2010).

• By 2030, 80% of the world’s middle classes will be living in developing economies

Note: « Middle classes »: People living between 10 and 100 USD PPP a day.

The impacts of Shifting Wealth (1):

The rise of new “middle classes” and the growing attention towards

internal sources of growth opens up new consumers markets.

China41%

India15%

Brazil7%

Korea, Rep.7%

Turkey5%

Russia3%

oth.EP22%

• The impacts of Shifting Wealth (2):

• China’s growing integration into world trade and investment

• is opening up potential opportunities for developing countries

Top 15 destinations of Chinese FDI, 2003-12

Number of jobs created by Chinese FDI projects in the recipient country

Note: This map is for illustrative purposes and is without prejudice to the status of or sovereignty over any territory covered by this map.


OECD (2013), African Economic Outlook 2013, OECD, Paris.

Africa's emerging trading partners (average 2009-11)

% of the Total Trade, Billion USD

• The impacts of Shifting Wealth (3):

• Changing the global geography of production

World top 20 manufacturers, 2010

Country share in total world manufacturing value added

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30% 1990 2000 2010

China is the main driver, but other countries are also contributing


Partners for intermediate exports of goods and services 1995 vs. 2005

Asian economies are increasingly integrated with China through supply chains

Source: OECD (2010a), Southeast Asian Economic Outlook 2010, OECD Publishing, Paris.

Shifting Wealth: a structural phenomenon

III. Is Shifting Wealth sustainable? Emerging policies responses

Is Shifting Wealth sustainable?

However, different concerns, associated with:

“Middle-income traps”

• A) Structural challenges: need for adequate industrial policies

• B) Social challenges: need for social cohesion policies

• A + B : Development strategies (Green?)


A

… “all that glitter is not gold”. Developing countries still face big challenges. However, some are implementing targeted policies to address them.

• Although developing countries are increasing their production and innovation capabilities, they are still far from the OECD average

China

India

Indonesia

Malaysia

Russian Federation

Thailand

Argentina

Brazil

Costa RicaKenya

Morocco

South Africa

France

Germany

Japan

Korea

United Kingdom

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1.0

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R&

D in

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sme

nt

(% o

f G

DP

), 2

00

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R&D investment financed by the private sector (%), 2009

OECD Average = 2.3 %

Singapore

United States

Intensity in R&D investment and private sector contribution, 2009 Targeting resources to specific scientific and technological areas (new materials, biotechnology and clean energy vehicles; healthcare, etc.). Pubic procurement for innovation (e.g. Brazil, China, India and South Africa) Attracting more knowledge-intensive FDI (e.g. Brazil, Costa Rica, Malaysia, Morocco) Promoting start-ups (Brazil, Colombia, Peru) Promoting cluster development (e.g. Brazil, Chile, India)


Many developing countries still suffer from shortage of skills, and most are affected by skills mismatches

38.8

35.8

29.5

26.8

23.0

21.8

14.4

14.3

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Middle East & North Africa

Latin America & Caribbean

Eastern Europe & Central Asia

World

East Asia & Pacific

Sub-Saharan Africa

High-income OECD

South Asia

Firms identifying an inadequately skilled workforce as major constraint, 2010

Percentage of total firms

Early reactive interventions (e.g. on the job training, public/private partnerships; Costa Rica and Morocco partnerships between MNCs and local

training institutes/universities) Ongoing proactive interventions (e.g. technical education/university training; Brazil National Service for Industrial Learning, SENAI; Brazilian

Support Services to Micro and Small Firms, SEBRAE) Future-oriented interventions (e.g. education system; international skills mobility initiatives in Africa :Ghana and South Africa, in Asia:

Malaysia and Thailand)


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30%

Note: The number in parenthesis indicates the number of countries for which data is available.

Credit to SMEs as percentage of total credit, 2010

Companies in developing countries face difficulties in gaining access to long term credit. SMEs are particularly affected

Development banks are helping to reduce the SMEs financial gap in developing economies

Credit guarantee schemes have grown significantly (India, Indonesia, Chile)

International Financial Institutions are increasingly supporting SMEs financing

Emerging priorities in SMEs financing in developing countries: innovation funds and micro-credit


Hard and soft infrastructures are still a major bottle neck in most developing economies

Poor execution of the national budget is a major constraint

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0-59

60-79

80-94

95-105

106-160

Africa

South Asia

Central America and the Caribbean

Number of countries per region (%)

%

Rate of execution in capital expenditures by region Percentage of total expenditure

According to our survey of policy-makers, low technical capabilities for project design and the lack of a framework for policy implementation are major barriers in infrastructure policy in developing economies.

Reinforcing public-private partnerships and increasing private-sector participation is needed.

Sequencing matters. (Some reforms must be undertaken prior to promoting private participation)

To address these structural challenges and sustain growth, some developing economies are implementing production transformation strategies. Their industrial policies exhibit some common trends, and some differences.

Key features of industrial policies

TRADITIONAL

EMERGING

GOVERNANCE

PRIORITIES

OBJECTIVES

POLICY MIX

Industrial policy tools (i.e. direct and indirect incentives to firms)Trade policy and FDISupport to science and technologySkills development

Diversification (i.e. entry in new sectors/types of activities)

Specialisation and upgrading (i.e. scaling up in local and/or global value chains)

Increasing the density of the production system (i.e. entrepreneurship, linkages, networks)

Territorial inclusion and competitivenessSocial cohesionSustainable development

GrowthJob creationInternational competitiveness

TOP-DOWN (Low margin of maneuver of regional/local governments); ex. Chile.

MIXED(Coexistence of national and regional/local initiatives); ex. China, Brazil.

BOTTOM-UP(High margin of maneuver and responsibilities of regional/local governments); ex. India.

Infrastructure building and upgradingFinancing (i.e. development banks)Macroeconomic policy (i.e. exchange and interest rate management)Competition policy

Source: OECD (2013), Perspectives on Global Development 2013: Shifting up a Gear – Industrial Policies in a Changing World, OECD, Paris.

What have we learned in terms of good lessons? There are no blue prints ….but the experience of OECD and non-OECD countries in

industrial policies shows that there are pitfalls that should be avoided:

• Indiscriminate subsidies

• Never-ending support

• “Cathedrals in the desert”

• Preventing competition

• Closed-door bureaucracy-led prioritisation

• Capture by incumbents

• Low critical mass for investments

• Short-term horizon and annual budgeting

• Lack of monitoring and evaluation mechanisms


B

A success story?

• A lower-middle income country

• Average 5% annual growth rate since 1990

• Nearly 100% primary enrolment in 2008

• 80% health care coverage

• ‘Prudent public debt management’ (42.8% of GDP in 2009)

• 3% fiscal deficit

• Inflation at approx. 3% in the 2000s

Source: OECD/AfDB/UNECA (2010), African Economic Outlook.

Tunisia

Growth in life satisfaction and income do not

necessarily coincide

Sources: Authors‘ calculation based on Gallup World Poll (2010) and World Development Indicators.

Annualised growth rates (%), 2006-2010

Main messages

1. As economic uncertainty deepens, now is the time for

developing countries to channel their recent prosperity into a more ambitious social cohesion agenda.

2. The process of rapid growth in many developing countries presents both a chance and risks for social cohesion.

3. It’s not only about what you do but also about how you do it. A social cohesion policy agenda calls for different priorities in policy making.

Shifting Wealth:

New resources for development

Greater fiscal space in the 2000s vis-à-vis the 1990s

Fiscal revenue to GDP ratio (%)

Source: Authors’ calculations based on World Bank (2011).

Policies can make a difference

for inequality Gini coefficients before and after taxes and transfers in Latin American countries

Source: OCDE (2008a) for OECD countries excluding LAC, OECD (2008b) for Argentina, Brazil Colombia

and Peru.

Source: Cai and Wang (2011).

Increase in labour disputes in China

Number of cases (thousand)

Key policy areas for social cohesion

- Example 2: Employment and labour institutions -

Thank you!

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