Structural change for growth with quality 14-16 November 2012, Bangkok

Structural change for growth with quality
Expert Dialogue on the Quality of Growth
14-16 November 2012, Bangkok
Clovis Freire
Economic Affairs Officer
Macroeconomic Policy and Development Division (MPDD)
Economic and Social Commission for Asia and the Pacific (ESCAP)
Sustained growth is already
a difficult task. Growth first
and clean up later.
Rio+20
Poverty
Unsustainable
consumption
and production
Change the
quality of growth
sustained and inclusive
economic growth, social
development and
environmental protection
Zero growth
“We recognize that
people
centre of sustainable
development” (para 6)
are at the
People’s living standards
depends on how they make a
living
Source of image: digitalart (FreeDigitalPhotos.net )
Economy as a set of different
economic activities (how people
make a living), each producing a
single product (x)
economic
activities
x1
x2
x3
…
xn
goods or
services
Each with different employment (e),
productivity (q) and output (y)
economic
activities
x1
x2
employment
e1
+ e2 +
productivity
output
q1
< q2
y1 +
e0 = unemployed
x3
xn
e3 … +
en
… <
qn
… +
yn
< q3
y2 +
…
y3
goods or
services
= L
= Y
Technologies
Productive
capacities
economic
activities
x1
x2
x3
employment
e1
+ e2 +
productivity
output
q1
< q2
y1 +
e0 = unemployed
xn
e3 … +
en
… <
qn
… +
yn
< q3
y2 +
…
y3
goods or
services
= L
Each product
requires a
specific
combination of
productive
capacities to be
produced
Capital-embodied
technologies
(infrastructure,
machines)
= Y
Labour-embodied
technologies
(methods, processes)
Technologies
Constant labour
productivity of each
economic activity:
 qj = (yj /ej)
 Function of the
unique technologies
used in the
production
economic
activities
x1
x2
employment
e1
+ e2 +
productivity
output
q1
< q2
y1 +
e0 = unemployed
x3
xn
e3 … +
en
… <
qn
… +
yn
< q3
y2 +
…
y3
goods or
services
= L
= Y
Changing Average
productivity of the
economy as a
whole:
 q = ∑(ej/L) qj
 changes with shifts
in employment and
rate of growth by
economic activity
 changes with
creative destruction
Technologies
Energy
CO2
economic
activities
x1
x2
employment
e1
+ e2 +
productivity
output
q1
< q2
y1 +
e0 = unemployed
x3
xn
e3 … +
en
… <
qn
… +
yn
< q3
y2 +
…
y3
goods or
services
= L
= Y
CO2
emissions as
a function of
the structure
of the network
and the
sources of
energy
Technologies
Energy
CO2
economic
activities
x1
x2
employment
e1
+ e2 +
productivity
output
q1
< q2
y1 +
e0 = unemployed
x3
e3 … +
en
… <
qn
… +
yn
< q3
y2 +
…
xn
y3
goods or
services
= L
= Y
How the
economy
evolves?
(a) by shifting
employment
and changing
rate of growth
by economic
activity
Technologies
Energy
CO2
economic
activities
x1
x2
employment
e1
+ e2 +
productivity
output
q1
< q2
y1 +
e0 = unemployed
x3
Xn+1
e3 … +
en
+=eLn+1 = L
… <
qn
… +
yn
< qn+1
+= yYn+1 = Y
< q3
y2 +
…
xn
y3
How the
economy
evolves?
(b) by adding/
removing
technologies
and/or links of
the network of
technologies
Growth with quality
 Economic: Growth
 Social: Reduce Inequality
• Increase employment
• Increase productivity (with
resulting higher wages)
• Shift share of employment from
low to more productive
activities
 Environment: Sustainability
• Reduce global CO2 emissions
Growth
with more
productive
and
greener
jobs
Two ways to move employment
into more productive activities
1)
2)
Demand must be increased
in existing economic
activities that are more
productive which, in turn,
increases output and
associated employment in
that activity;
Productive
Technologies
capacities
products
x1
x2
x3
productivity
q1
< q2
< q3
employment
e1
+ e2 +
output
y1 +
y2 +
xn
<
qn
e3
+
en
= L
y3
+
yn
= Y
…
e0 = unemployed
Creation of new and more Technologies
Productive
capacities
productive economic
activities, which would
products
increase the opportunity for productivity
employment
more productive jobs.
output
x1
x2
x3
q1
< q2
< q3
e1
+ e2 +
y1
+
y2
+
e0 = unemployed
xn
Xn+1
<
qn
< qn+1
e3
+
en
en+1 = L
=+ L
y3
+
yn
yn+1 = Y
=+ Y
…
First path: quantitative change
 In economies with surplus
labor, it gives the opportunity for
reducing unemployment, poverty and income
inequality.
 But:
 Limits on employment absorption of more productive
activities
 Average productivity of the economy as whole would be limited to the
productivity of its most productive economic activity. In poor and less
diversified countries that would result in capping the

maximum productivity at a low level.
It has to rely on increasing demand for products of
more productive activities, which may not happen,
particularly in times of increasing demand for commodities and
primary products.
Second path: qualitative change
 Transformation of the economy with a qualitative
change in the set of technologies used
and products produced
 The growth in average productivity of the
economy as a whole is limited only by the
incentives to innovate towards more
productive activities
 Therefore, fostering new and more productive
economic activities present a more successful
approach towards inclusive growth
Development is associated with diversification
(Imbs and Wacziarg, 2003; Carrere et all, 2007; ESCAP, 2011)
100,000
Diversification (number of
products exported)
10,000
1,000
y = 15.596x0.5162
R2 = 0.8064
100
10
10
100
1,000
10,000
100,000
1,000,000
10,000,000 100,000,000
GDP (Millions US$)
Source: Author based on data from the United Nations Commodity Trade Statistics Database (COMTRADE) and from the World Bank’s World Development Indicators.
Technologies
Energy
CO2
economic
activities
x1
x2
employment
e1
+ e2 +
productivity
output
q1
< q2
y1 +
e0 = unemployed
x3
xn
Xn+1
e3 … +
en
+=eLn+1 = L
… <
qn
… +
yn
< qn+1
+= yYn+1 = Y
< q3
y2 +
…
y3
Two ways to
diversify
through a
greener path
1. Foster new
economic activities
that in addition of
being more
productive are also
more energy
efficient
2. Increase share of
renewable energy
sources
How diversification would come
about?
 Path dependency
• New activities tend to
exploit the productive
capacities that were
previously developed for
other activities
 Emulation vs Innovation
• Emulation: new to the
country
• Innovation: new to the
world
Productive
capacities
products
x1
x2
x3
productivity
q1
< q2
< q3
employment
e1
+ e2 +
output
y1 + y2 +
e0 = unemployed
xn
Xn+1
< qn
< qn+1
e3
+ en
=L
=+ en+1
L
y3
+ yn
=+ yn+1
Y =Y
…
Economic institutions
Specific rules of the game: set incentives
and constraints for acquisition and
combination of technologies
Exogenous Demand
Emulation
How to facilitate
the emergence
of new
technologies that
would allow
emulation of
more productive
and greener
activities?
Economic institutions
Specific rules of the game: set incentives
and constraints for acquisition and
combination of technologies
What is the role
of the
Government?
-Facilitate the emergence
of new economic
activities
and ?
-Schumpeterian policies
- Keynesian demand
management policies
Exogenous Demand
Laissez-faire
vs
strategic approach
 If economic institutions create an environment
that foster economic activity, what is the
probability (P) that socially desirable outcomes
would emerge given the existing technologies
and market incentives?
 Considering D(x) as the
expected demand for x:
 P=D(B)/D(A+B+C+D)
 P > 50% => laissez-faire
 P < 50% => strategic
approach
Existing
products in the
world
Potential new
products
Existing
products in
the country
Higher
productivity
A
D
Greener
B
C
Empirical question
 Which economic activities are more likely to
emerge given the existing technologies in the
economy?
• The Product Space (Hidalgo, Klinger, Barabási,
Hausmann, 2007)
 Which of those have higher productivity and are
greener?
• Method of reflections (Hidalgo and Hausmann, 2009)
 What is the probability of those socially desirable
activities emerge given the market incentives?
• Export opportunity (ESCAP, 2012)
• Import substitution opportunity
 Trade data
disaggregated at
6-digit level of HS
2002
 Products are also
differentiated
based on their
unit value
 43,293 products
in 2010
Source: Author based on data from COMTRADE.
code = 6-digit (HS) + 1digit (quantity unit code) + 1 digit (unit value range)
Product Space
 Hidalgo, Klinger,
Barabási, Hausmann
(2007). The Product
Space Conditions the
Development of Nations
 Network in which
products are nodes
connected to each other if
they are usually part of
the same product mix
 proximity between
products A and B (ΦAB)
 ΦAB = ΦBA =
min(P(A|B), P(B|A))
Source: Hidalgo, C.A., and others (2007)
Bangladesh
1991
2009
Method of reflections
Hidalgo and
Hausmann
(2009). The
building
blocks of
economic
complexity.
Source: Hidalgo and Hausmann (2009)
Source: Author based on Freire (2011). Productive Capacities in Asia and the Pacific. MPDD Working Papers, WP/11/17.
Product complexity
Measure of how ubiquitous the product is and the level of
diversification of the countries that produce it
0
2
4
6
8
Maldives
0
2
4
6
8
Bangladesh
Japan
4
2
0
ESCAP (2012):
Rich countries
export products
with a wide range
of complexity
6
8
Percent
Abdon and others
(2010): Major
exporters of more
complex products
are high-income
countries and major
exporters of less
complex products
are low-income
countries
-4
-2
0
Product complexity (global average=0, sd=1)
Source: Author based on data from the United Nations Commodity Trade Statistics Database (COMTRADE).
2
Product complexity by industry
8
2
0
0
2
4
Percent
6
4
Percent
6
8
10
12
10
12
10
8
Percent
6
4
2
0
Crude materials, inedible, except fuels
12
Beverages and tobacco
Food and live animals
Mineral fuels, lubricants and related materials
Animal and vegetable oils, fats and waxes
Chemicals and related products
10
0
2
4
Percent
6
8
10
8
Percent
6
4
2
0
0
2
4
Percent
6
8
10
12
-4
-3
-2
-1
0
1
2
3
4
How common is the product-mix (Number of countries that export the product)
12
-4
-3
-2
-1
0
1
2
3
4
How common is the product-mix (Number of countries that export the product)
12
-4
-3
-2
-1
0
1
2
3
4
How common is the product-mix (Number of countries that export the product)
Manufactured goods classified chiefly by materials
Machinery and transport equipment
Miscellaneous manufactured articles
-4
-3
-2
-1
0
1
2
3
4
How common is the product-mix (Number of countries that export the product)
Source: Freire, 2012.
10
0
2
4
Percent
6
8
10
8
Percent
6
4
2
0
0
2
4
Percent
6
8
10
12
-4
-3
-2
-1
0
1
2
3
4
How common is the product-mix (Number of countries that export the product)
12
-4
-3
-2
-1
0
1
2
3
4
How common is the product-mix (Number of countries that export the product)
12
-4
-3
-2
-1
0
1
2
3
4
How common is the product-mix (Number of countries that export the product)
-4
-3
-2
-1
0
1
2
3
4
How common is the product-mix (Number of countries that export the product)
-4
-3
-2
-1
0
1
2
3
4
How common is the product-mix (Number of countries that export the product)
works of art
footwear
food & beverages
wood
leather
miscellaneous manufacturing
vegetables
precious stones & metals
plastic & rubber
paper
machinery & electrical equip.
textiles
optical, photo, watches, musical instr.
stone, ceramic, glass
vehicles, aircraft, vessels
Live animals
base metals
animal & vegetable oils
minerals
chemicals
arms & ammunition
-4
-2
0
2
Index of carbon footprint
(global mean=0, sd=1)
4
.8
.6
0
.2
Density
.4
-4
-2
0
Index of carbon footprint (mean=0, sd=1)
Bangladesh
Thailand
2
Republic of Korea
Average of distribution of index of carbon footprint
0
-2
-1.5
-1
-.5
USA
DEU
FRA
GBR
JPN
CHE
CHN
AUT
SWE
CAN
DNK
IND
KORAUS
ITA
BELNLD
ESP
CZE
FIN HKG
SGP ZAF
POL
BRA
NOR
TUR
ISR IRL
MEX THA
HUN
RUSMYS
PRT
ARE
NZL
SVN
SVKGRC
ARGROU IDN
LUX
BGR
LTU
EST UKR
HRVPHL VNM
LVACOL
CHL
SRB
PER
PAN
SAU
PAK
MAR EGY
KEN
TUN
CYP CRI
ISL
LKA
IRN
GTM
LBN
BLR
ATG
PRK
URY
BIH
SWZMLT
MKD
VEN
MUSECU
DOM
KAZ
SYR
TTO
BRB
SLV
BHR JOR
MDA
BGD
ARM NPL
NGA
QAT
TZA
GEO
KWT HND
ZWE
DZA
BWAOMN
GHA
BOL
ZMB
ALB
UZBFJI
JAM
STP
NAM
KHM
AGO
MOZ
CIV
AZE
SEN
MNG
COD
ETH
BHS
PRY
TKM
COG
CUB
GAB
NIC
SUR
KGZ
BRN
MMR
SYC
LBY
CMR
SDN
LCA
DMA
TJK
BTN BLZ
IRQ
DJI
MDV
GUY
MHL
TGO
GRD
KNA
ERI
HTI
GNQ
YEM
KIR
SLB
VUT
BEN
WSM
TLS
GMB
VCT
GNB
CPV
COM
LSO
TON
0
10000
20000
Diversification, 2010 (Number of products in the product mix)
30000
Map of potential new products
new product
Existing product
Source: Author based on data from the United Nations Commodity Trade Statistics Database (COMTRADE).
Map of potential new products
Source: Author based on data from the United Nations Commodity Trade Statistics Database (COMTRADE).
Market incentives
 Captures expected demand for potential
new products
 Export opportunity
• Overlap indicator designed to measure the
degree to which potential new products of
one country match the expanding markets of
another
• What is the expected export demand for a
potential new product?
 Import substitution
• Total of country’s imports of a potential new
product
Share of new import substitution opportunities
with desirable outcome (%)
0 10 20 30 40 50 60 70 80 90 100
Laissez-faire
PRT
TUR
PAK
BLR
IRN
BRA
CRI
GRC
LVA
SAU
HUN
VEN
MEX
SLV
ROU
EST
UKR
SVK
PER SENECU
MAR
ZAF MYS
LUX
AZE
LBN BGR
BHR
AFG
HRV EGY
DZA
JOR
PHL
CHLBIH
LKA TUN OMN
HKG
NGA ARGLTU
QAT POLSRB
COL
ZMB
UGA
AUS CMR
KHM
GHA
THA
TTO
KEN
CYP
CIVGTM
ZWE
BOL
DOM
NZL
SVN
ALB
MUS
TGO
CZE
BEL
PAN
CHE
MOZ
JAM
IRL
ARM
MDA
GEO
KOR
NCL
ISLMLT
NIC
BHS
BWA
BRB
NOR
FINCPV
ISR
CAN
MWI
SGP
RUS
DNK
NER PRY
KGZ
MAC
ABW MLI
NPLMNE
BDI
TZA
AUT
GUY
BMU
MDV
BTN
BFA
BLZ
IND
MDG
WSM
SWE
TONVCT
SURDMA
ETHESP
PYF
CHN
MRT
Strategic
GBR
ITA
FRA
NLD JPN
USA
0
10
20
30
40
50
60
70
80
90
Share of export opportunities with desirable outcome (%)
Source: Author based on data from the United Nations Commodity Trade Statistics Database (COMTRADE).
100
Share of new import substitution opportunities
with desirable outcome (%)
0 10 20 30 40 50 60 70 80 90 100
Laissez-faire
TUR
IRN
PAK
AFG
Strategic
KHM
ARM
KOR
NCL
MYS
AZE
PHL
LKA
HKG
AUS
THA
NZL
GEO
SGP
RUS
BTN
PYF
WSM
TON
KGZ MAC
NPL
MDV
IND
CHN
JPN
0
10
20
30
40
50
60
70
80
90
Share of export opportunities with desirable outcome (%)
Source: Author based on data from the United Nations Commodity Trade Statistics Database (COMTRADE).
100
Share of export opportunities with desirable outcome (%)
0 10 20 30 40 50 60 70 80 90 100
Export opportunities
Laissez-faire
MYS
IDN
PHL
IRN
RUS
VNM
GEO
PRK
LKA
PAK
NZL
AZE
KAZ BGD
FJI
MAC
AFG
NCL
BRN
KGZ
ARM
KHM
UZB
MMR
LAO NPL
PNG
MDV
GUM
ASM
TJK
MNG
TON
SLB
WSM
TKM
MHL
MNP
TUV
VUT
PYF
NIU
TLS
BTN
KIR
NRU
COK
FSM
PLW
0
THA
HKG
Strategic
IND
TUR
SGP
AUS
KOR
CHN
JPN
5000
10000
15000
20000
Diversification (number of existing products)
Source: Author based on data from the United Nations Commodity Trade Statistics Database (COMTRADE).
25000
Economic institutions
Specific rules of the game: set incentives
and constraints for acquisition and
combination of technologies
role of the
government
-Facilitate the
emergence of new
economic activities
Schumpeterian policies
- direction
- investment
- infrastructure
- human capital
Exogenous Demand
emulation
CIV
VGB
SYC
SLE
GEO
FJIZMB
OMN
ARM
BHR
MNE
AZE
NAM
SEN
NIC
JAM
BWA
BRB
KWT
UGA
ANT VEN
QAT
ALB
MAC
BLZ CMR
KAZGHA DOM
ZWE
MDA SLV ECU
AFGSWZ
NPLMLTJOR
TKL
MOZ
NGA
HND
DZA
IRQ
AND
MUS
ATGTZA
PRY
NER
MKD
SYRCYP
GAB
BRN BOL ISL
BLR
TTOPRK
KGZ
YEM
SMR
DMA
UZB
COD
MWI
URY
LAO
BGD
MLI
KHM
BIHGTM
LKA
KEN
IRN
AGO
TGO
ASM
CUB
BHS
MMR
GRD
LBN
SDN
TCA
CPV
ABW
CRIMAR
COG
TUN
NCL
ETHMDG
TJK
LCA
HTI
BFA
BEN
GUY
GIN
LBY
SAU
EGY
VCT
PAK
DJI
CYM
SUR
GIB
MDV
PER
PAN
CAF
BMU
AIA
MNG
WSM
LBR
MRT
RWA
SOM
ERI
LSO
PNG
KNA
TKM
TCD
GUM
SLB
PCN
STP
PSE
GMB
MYT
TON
NIU
SHN
BTN
NRU
VAT
GRL
VUT
GNQ
MHL
COM
FRO
WLF
BDI
MSR
TLS
PYF
TUV
COK
MNP
KIR
GNB
FLK
CHL
LVA PHL
SRB
HRV
COL
LUX
UKR
EST
VNM
LTU
BGR
ARG
NZL
ROU
ISR
IDN
IRL
SVKGRC
NOR
SVN RUS
FSM
NFK
PRT
ARE
MYS
HUN
FIN
MEX
BRA
THA
SGP
HKG ZAF
TUR
AUS
CZE
POL
3000
300
KOR
DNK CAN
IND
CHN
SWE
AUT
ESP
CHE
BELNLD
JPN
Diversification (number of existing product)
ITA
GBR
FRA
DEU
USA
30000
SPM
PLW
ESH
15000
Number of new opportunities with
higher complexity and greener
2000
300
innovation
emulation
CIV
VGB
SYC
SLE
GEO
FJIZMB
OMN
ARM
BHR
MNE
AZE
NAM
SEN
NIC
JAM
BWA
BRB
KWT
UGA
ANT VEN
QAT
ALB
MAC
BLZ CMR
KAZGHA DOM
ZWE
MDA SLV ECU
AFGSWZ
NPLMLTJOR
TKL
MOZ
NGA
HND
DZA
IRQ
AND
MUS
ATGTZA
PRY
NER
MKD
SYRCYP
GAB
BRN BOL ISL
BLR
TTOPRK
KGZ
YEM
SMR
DMA
UZB
COD
MWI
URY
LAO
BGD
MLI
KHM
BIHGTM
LKA
KEN
IRN
AGO
TGO
ASM
CUB
BHS
MMR
GRD
LBN
SDN
TCA
CPV
ABW
CRIMAR
COG
TUN
NCL
ETHMDG
TJK
LCA
HTI
BFA
BEN
GUY
GIN
LBY
SAU
EGY
VCT
PAK
DJI
CYM
SUR
GIB
MDV
PER
PAN
CAF
BMU
AIA
MNG
WSM
LBR
MRT
RWA
SOM
ERI
LSO
PNG
KNA
TKM
TCD
GUM
SLB
PCN
STP
PSE
GMB
MYT
TON
NIU
SHN
BTN
NRU
VAT
GRL
VUT
GNQ
MHL
COM
FRO
WLF
BDI
MSR
TLS
PYF
TUV
COK
MNP
KIR
GNB
FLK
CHL
LVA PHL
SRB
HRV
COL
LUX
UKR
EST
VNM
LTU
BGR
ARG
NZL
ROU
ISR
IDN
IRL
SVKGRC
NOR
SVN RUS
FSM
NFK
PRT
ARE
MYS
HUN
FIN
MEX
BRA
THA
SGP
HKG ZAF
TUR
AUS
CZE
POL
3000
300
KOR
DNK CAN
IND
CHN
SWE
AUT
ESP
CHE
BELNLD
JPN
Diversification (number of existing product)
ITA
GBR
FRA
DEU
USA
30000
SPM
PLW
ESH
15000
Number of new opportunities with
higher complexity and greener
2000
300
innovation
Bangladesh < x < Iran (Islamic Rep.)
2000
Diversification (number of existing products)
30000
15000
5000
300
300
NUmber of new opportunities
Total
Higher complexity
Higher complexity and green
Economic institutions
role of the
government
Specific rules of the game: set incentives
and constraints for acquisition and
combination of technologies
-Facilitate the emergence
of new economic activities
Schumpeterian policies
- direction
- investment
- infrastructure
- human capital
Exogenous Demand
Keynesian demand
management policies
-foster demand for
greener products and
renewable energy
Need for a new aesthetics
What are the choices?
Source: Ingrid Robeyns (2005): The Capability Approach: a theoretical survey, Journal of Human Development, 6:1, 93-117
Economic institutions
Specific rules of the game: set incentives
and constraints for acquisition and
combination of technologies
role of the
government
-Facilitate the emergence
of new economic activities
Schumpeterian policies
- direction
- investment
- infrastructure
- human capital
Keynesian demand
management policies
-foster demand for
greener products and
renewable energy
Exogenous Demand
Foster economic
opportunities for a
broad cross-section of
society
Thank you
www.unescap.org
Clovis Freire
([email protected])