the special needs of middle- income countries in the...
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The Special Needs of Middle-Income Countries in the Context of
Development
Montevideo, UruguayDecember 10, 2009
Kei KawabataManager, Social Sector
Inter-American Development Bank
Inter-American Development Bank Member Countries
Source: World Development Indicators 2008, World Bank
High Income (non-OECD)The BahamasBarbadosTrinidad and Tobago
Upper Middle Income
ArgentinaBrazilChileColombiaCosta RicaDominican RepublicJamaicaMexicoPanamaPeruSurinameUruguayVenezuela
Lower Middle Income
Belize BoliviaEcuadorEl SalvadorGuatemalaGuyanaHondurasNicaraguaParaguay
Low Income
Haiti
MIC face a number of interrelated challenges:
• Low growth driven by low productivity growth • Still high levels of poverty• Poor quality of education • Low creation of good quality jobs and high informality. • Low coverage against risks (old pension, health,
accidents, disability..)• Low investment in science, technology and innovation• Exclusion of minorities and gender gaps• Weak institutional capacity and low tax base
GDPpc of average LAC country relative to US has declined since 1960..
GDP pc relative to US. US=100
0%
5%
10%
15%
20%
25%
1960 2005
Source: The Age of Productivity (Forthcoming). Development in the Americas, 2010
Raising productivity is critical to increase welfare and growth
Poor performance in terms of productivity, along with the persistence of large inequalities of opportunities, are central and related features of LAC.
Evolution of LAC’s GDP per capita and TFP relative to OECD*. Index: 1960=1
Evolution of TFP in Latin America and the Caribbean and the Rest of the World. Index: 1960=1
0.9
1
1.1
1.2
1.3
1.4
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005
LAC
Rest of the World
0.5
0.6
0.7
0.8
0.9
1
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005
TFPGDP per capita
* Excludes: Czech Republic, Iceland, Luxembourg, Mexico, Poland,
Slovak Republic, Switzerland and Turkey.
TFP – Total-factor Productivity (intangible that is other than labor and capital.
5
Closing the growth gap Closing the growth gap ………………....• Improved macroeconomic management in LAC and unusually favorable international
conditions allowed relatively robust economic growth between 2002 – 2008. Yet, over a longer perspective, growth of GDP per capita in LAC has lagged behind the rest of the world.
• LAC trade performance has been lackluster compared with, for example, that of developing countries in East Asia.
East Asia
LAC
510
1520
25%
1980 1983 1986 1989 1992 1995 1998 2001 2004 2007
Share of the World Goods Exports:LAC vs. Developing East Asia
* Developing East Asia includes China, Indonesia, Korea, Malaysia, Singapore, Taiwan and Thailand
GDP per capita growth: LAC vs. Rest of the World
-0.5
0
0.5
1
1.5
2
2.5
3
3.5
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005
LAC
Rest of the World
6
Competitiveness is determined by several factors…
Basic RequirementsInstitutionsInfrastructureMacroeconomyHealth and Primary Education
Key forfactor-driven
economies
Efficiency EnhancersHigher Education and TrainingMarket Efficiency (goods, labor,
financial)Technological Readiness
Key forefficiency-driven
economies
Innovation and Sophistication Factors
Business SophisticationInnovation
Key forinnovation-driven
economies
Competitiveness factors have different impact depending on how close countries are to their innovation frontier (Aghion and Howitt)
World Economic Forum (Sala-i-Martin) has three stages of development:Stage 1: Factor-drivenStage 2: Efficiency-drivenStage 3: Innovation-driven
Equality of opportunities is critical for growth and sustainable poverty reduction
• Unequal access to education, health services, basic infrastructure, justice and housing reproduce structural conditions that are thedeterminants of social exclusion;
• Differences in race, ethnicity and gender are still important determinants of unequal access to opportunities in LAC.
8
Education Quality
Notes:1/ Score estimated using mean score, effect of socioeconomic index, and variability of socioeconomic status index (PISA 2006, Volume 2)2/ The OECD score excludes Mexico (included in the LAC group)3/ Scores for the LAC region are calculated as an average of the participant countries (Mexico, Argentina, Brazil, Chile, Colombia and Uruguay) in the 2006 test
Source: OECD PISA 2006
Fostering equality of opportunities requires accelerated progress in meeting the MDGs
Despite improvements, large inequities in access to quality services and in opportunities persist between and within countries.
Under-five mortality by mother’s educational level
0
20
40
60
80
100
120
140
160
Bolivia
2003
Brazil 2
006
Colombia
2005
Domini
can R
epub
lic20
07
Ecuad
or 20
04
Haiti 2
005/0
6 Hon
duras
2005
Nica
ragua
2001
Peru20
00
No education
Primary
Secondary or higher
10
Priorities
• Improve quality of teachers• Use of technology to improve teaching and
learning• Focus on basic skills • Expand access and retention in post-secondary
education• Expand access for early childhood• Institutional reforms
Improve quality of teachers• Teacher quality: increasing gap between MIC countries in the Region and OECD
countries
• Teacher training, certification and alternatives routes into teaching
• Performance, compensation, and teaching career (incentives)
• Pedagogical compensatory approaches to reduce learning
Use of technology• Increase investment of MIC countries in the Region in ICT in schools
• Rigorous impact evaluations, in particular on student learning still a pending issue
• How to change pedagogical practices of teachers: support, coaching, training
Focus on basic skills • MIC countries in the Region need to align skills to both the demands of the labor
market and the technological change in industries
• Pay attention to basic skills both cognitive and non-cognitive not just for productive jobs, but for citizenship
• Reform secondary schools: open to demands of economy and society
Post-secondary education • Growing demand for tertiary education in MIC countries, coverage still low
• Salaries for high school graduates decreasing relative to college graduates in MIC countries
• Financial support along with quality assurance for post-secondary education, in particular technical and technological courses
Why invest in Nutrition and ECD?
HUMAN CAPITAL FORMATION
• Window of opportunity from 0-3 years: never again in the life-cycle are returns to investments this high
• Investments at early ages improve cognitive skillls, psycho-social skills and health have effects over the life cycle through to the next generation
• Heckman (Nobel prize in economics): labor market returns to psycho-social skills formed through ECD (self-regulation, impulse control, team work …) are higher than those from improved cognitive skills.
» Implies huge spillover effects for society re: crime, obesity, teenage pregnancy, drug-addiction, etc.
Why invest in Nutricion and ECD?
Costs of Inaction:• Chronic malnutrition (stunting) of children younger than 3
implies a loss of 20% in labor market productivity (WB Repositioning Nutrition)
• Anemia deficiency limits child cognitive development and physical productivity in adulthood by 10%. (Aguayo 2003, Hunt 2002, E. Pollitt 1995)
Returns to investments in nutrition and ECD:
• Analysis of Behrman et al. estimates a of return of 165% in labor income (after costs and discounts for time)
• Costs lower than benefits
Sustainable poverty reduction (MDG1) is achievable only by tackling disparities in labor opportunities
• Disparities in labor opportunities stand behind large differences in earnings and productivity:
– between 1990 and 2008, extreme poverty fell from 22.5% to 12.9%, partly as a result of improved macroeconomic stability, increased remittances in some cases, and a new generation of targeted programs ( CCTs);
– however, sustained poverty reduction requires raising the productivity of poor workers.
• Unequal access to high productivity jobs is a major barrier that needs to be overcome:
– more than half of LAC workers are in the informal sector in insecure, unstable, low productivity jobs, with no social security coverage or training opportunities.
• More and better formal firms are needed to create more high productivity formal jobs with social security coverage.
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Low female labor force participation hurts growth and accentuates poverty
• Raising Chilean female LFP to the regional ave would:– reduce poverty in Chile by 15% and extreme
poverty by 20%– Increase per capita GDP by about 10%– These effects are more pronounced if they the
increased LFP occurs among young women• Equality of opportunity for women, indigenous peoples
and afro-descendents is about more than fairness: it generates more rapid poverty reduction and promotes growth
Source: IDB, WB and Sernam. 2007. Como capitalizar el potencial económico de Chile ampliando las opciones laborales de las mujeres.
Low coverage against risks
• Latin America copied the Bismarkian model of protection against risk (Social Security Schemes associated with salaried work) …. but coverage is still very low.
• It was thought that coverage would increase with development but this has not been the case…
Social Security coverage is low and in most cases it has declined. It is particularly low for own account workers.
Own account Salaried Workers
Brazil 17.4 → 16.9 69.5 → 73.3
Chile 23.5 → 19.5 76.7 → 77.4
Colombia 8.5 → 7.4 52.3 → 54.5
Costa Rica 46 → 37.1 78.2 → 73.8
Mexico 0.19 → 0.09 66 → 63.7
Peru 2.8 → 1.5 37.6 → 28.7
Source: Auerbach, Genoni and Pagés (2007)
Innovation Systems in LAC
R&D Expenditure as percent of GDP
0.00
0.50
1.00
1.50
2.00
2.50
3.00
3.50
4.00
Finl
andi
aJa
pon
Cor
eaU
SAO
CDE
EU25
Chi
naIrl
anda
Espa
ña
Bras
ilC
hile
Am. L
atin
a &
Car
ibe
Arge
ntin
aM
exic
oC
osta
Rica
Vene
zuel
aBo
livia
Rep
. Dom
inic
ana
Pana
ma
Uru
guay
Col
ombi
aPe
ruTr
in. &
Tob
.N
icara
gua
Para
guay
Ecua
dor
Hon
dura
s
perc
enta
ge 199520022006
The LAC region has notably inferior levels of R&D expenditures than developed countries
Innovation Systems in LAC
LAC: Major gaps in the stock of researchers
Researchers per 1000 labor force: OECD and Other Countries
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
16.0
Finland Japan USA OECD Korea EU25 Ireland Spain China
199520022006
Researchers per 1000 labor force: Latin America and the Caribbean
0.0
0.5
1.0
1.5
2.0
2.5
Chi
le
Arge
ntin
a
Uru
guay
Braz
il
LAC
Mex
ico
Boliv
ia
Col
ombi
a
Pana
ma
Ecua
dor
El S
alva
dor
199520022006
Innovation Systems in LACUSA, Japan & Korea
0
10000
20000
30000
40000
50000
60000
70000
80000
90000
USA Japan Korea
Pate
nts
gran
ted
by U
SPTO
1995
2008
Latin American and the Caribbean
0
20
40
60
80
100
120
Braz
il
Mex
ico
Arge
ntin
a
Vene
zuel
a
Chi
le
Colo
mbi
a
Cos
ta R
ica
Baha
mas
Ecua
dor
Uru
guay
Trin
. & T
ob.
Peru
Barb
ados
Pate
nts
gran
ted
by U
SPTO
19952008
LAC: Few patents granted by USPTO 1995-2008
Innovation Systems in LAC
Great Improvements in internet usage in LAC, but much remains to be done to reach OECD levels
LAC compared with other countries: Internet users per 100 inhabitants
0
1020
30
40
50
60
70
80
90
Finl
and
Kor
ea
Uni
ted
Stat
es
Japa
n
Irela
nd
Spai
n
Chi
na
Indi
a
Bar
bado
s
Jam
aica
Bah
amas
Bra
zil
Cos
ta R
ica
Chi
le
Uru
guay
Per
u
Col
ombi
a
Arg
entin
a
Pan
ama
Mex
ico
Vene
zuel
a
Dom
inic
an R
ep.
Trin
idad
& T
obag
o
El S
alva
dor
Beliz
e
Boliv
ia
Gua
tem
ala
Par
agua
y
Ecu
ador
Hon
dura
s
Nic
arag
ua
20002007
IDB’s Institutional Priorities
1. Social Policy for Equity and Productivity–Building well-articulated safety nets for the poor, compatible with productive insertion in labor markets (beyond CCTs);–Improving the functioning of labor markets to reduce informality, increase productivity and expand coverage of social security;–Raising quality and equity of education (pre-school, secondary);–Promoting equity in health outcomes and addressing new challenges posed by the epidemiological transition;–Investing in STI and strengthening national and regional innovation systems–Tackling gender and diversity issues: labor market outcomes for women, narrowing gaps in indigenous groups’ education and health outcomes, legal frameworks against discrimination.
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The IDB seeks to provide better financial and non financial solutions to meet these challenges
• Addressing the low quality of education challenge
– Promoting early child development– Promoting better teaching – Improving the relevance of education (to meet the
needs of firms)
• Addressing the high poverty challenge
– Helping countries to implement and improve programs of transfers to poor families with investments in human development (CCT).
The IDB seeks to provide better financial and non financial solutions to meet these challenges
• Addressing the low quality of employment challenge through – Better labor training – Better labor regulations, institutions and social
protection mechanisms– Better active and passive labor market policies.– Promoting growth
• Addressing gender and minority gaps– Reduce school-leaving among indigenous peoples
and African-descendants– Access to quality training and inter-meditation
services
Inputs from:Santiago Levy, Vice-President Sectors and Knowledge (VPS)Marcelo Cabrol, Chief Education (EDU), SCL, VPSJaime Vargas, EDU (Argentina)Carmen Pages, Chief Labor Markets (LMK), SCL, VPSFlora Painter, Chief Science and Technology (SCT), SCL, VPSGustavo Crespi, SCTPablo Angelelli, SCT (Uruguay)Andrew Morrison, Chief Gender and Diversity (GDI), SCL, VPSFerdinando Regalia, Chief Social Protection and Health (SPH), SCL, VPSSuzanne Duryea, SCLFidel Jaramillo, VPC/CAN