Richard Kozul-Wright

Manufacturing Success: Structural transformation, industrial policy

and the rise of the SouthGeneva, 15 April 2011

Structural transformation

• Economic development requires structural transformation – new activities + shifting resources:– Source of productivity growth (Lewis)– Virtuous supply and demand side linkages

(Kaldor)– Learning economies (Schumpeter)

• Is industry special? Yes and no• Structural transformation more important to

developing than developed countries – large productivity gaps between different parts of their economy

Economic growth and structural change, 1970-2003

Globalisation and structural change: Winners and losers, 1990-2005

What you (produce and) export matters

Why countries trade:Comparative advantage (static)Technology/learning (dynamic)Vent for surplusBalance of payments

Sophistication (diversification) some traded goods are associated with higher productivity levels than others and countries that latch on to higher productivity goods perform better.

What you trade has an impact on growth

Export diversification and growth

Export sophistication and growth I

Export sophistication and growth II

Technological intensity and growth

Export sophistication levelselected countries

Missing links

• Export-led growth vs import substitution

• Misreading the East Asian Miracle investment-export nexus

• Big firms export and invest

• Public investment matters

Why investment rates differ?

Investment is a catalyst for structural change

Infrastructure investment

The role of production networksFDIFlying geese paradigmRegional arrangements

A new industrial policy?

Concerns:Trading more earning lessFootloseRace to the bottom

New patterns of trade and investment

The Rise of the South

The emergence of southern growth poles

Catching up, convergence and decoupling

The crisis has accelerated the shift

Can the South go it alone? Markets, machines and money

Contribution to world GDP/PPP growth 1990-2015Annual global GDP-PPP growth rate (based on 3-yr moving average)

0%

1%

2%

3%

4%

5%

6%

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

Contribution of advanced economiesContribution of emerging and developing economies

Source: OECD Development Centre, Perspectives on Global Development 2010 Shifting Wealth based on IMF World Economic Outlook, 2010, April

Notes: Data for 2010-2015 based on IMF projections

(back)

Catching Up?

Long run GDP trend

0

10

20

30

40

50

60

70

80

Year

% o

f glo

bal G

DP

High Income Low and middle Income

Weathering the crisis (growth rate of GDP, % change from a year earlier)                          

(back)

Developing Economies no Longer Perceived as High risk/Low return

0%

20%

40%

60%

80%

100%

120%19

9019

9119

9219

9319

9419

9519

9619

9719

9819

9920

0020

0120

0220

0320

0420

0520

0620

0720

0820

0920

1020

1120

1220

1320

1420

15

Advanced economies Emerging and developing economies

Source: OECD Development Centre, Perspectives on Global Development 2010 Shifting Wealth based on IMF World Economic Outlook, 2010, April

Public Debt as % of GDP

Evolution of south south trade

0%

10%

20%

30%

40%

50%

60%

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

South-South trade as % of south total South-South trade as % of world total

Composition of south south trade

South-South trade by regionin 2009

Source: ECIDC,UNCTAD based on UNCTADstat.

AfricaLAC

Asia

0200000000400000000600000000800000000

100000000012000000001400000000160000000018000000002000000000

Africa

LAC

Asia

Oceania

Exporter

Recip

ient

Policy challenges

• Avoid North South asymmetriesTerms of tradeBalance of paymentsEnclaves

• Exploit diversification opportunities

• Financing adjustment and upgrading

Why Industrial policies matter even more?

Risks in South-South for least developed (polarization and commodity trap)

The middle-income trap

The limits of export led-growth

Employment creation (inclusive growth)

Financialization: a persistent threat to productive investment

Learning from success: Development states vs good governance

• Domestic resource mobilisationmanaging rents

• Integrating macro, trade and industrial policiesExchange rates

• Disciplining capital (particularly finance)• Capabilities• Social policy

Thank you!