Perspectives on Global Development 2013

PERSPECTIVES ON GLOBAL DEVELOPMENT 2013

SHIFTING UP A GEARINDUSTRIAL POLICIES IN A CHANGING WORLD

Mario PezziniDirector, OECD Development CentreRio de Janeiro, 25 September 2013

Outline

I. The starting point: shifting wealth

II. The impacts of shifting wealth

III. Is Shifting wealth sustainable? Emerging policy responses

IV. A renewed interest in industrial policy in developing countries

I. THE STARTING POINT: SHIFTING WEALTH

The “Four Speed World” (PGD 2010)

The “Four Speed World” (PGD 2010)

Contribution to world GDP (1990-2011)(%)

Source: Data from FMI (World Economic Outlook).

50%

19%

8%

4%

1%18%

1990-1995

32%

41%

9%

6%

3% 9%

2005-2012

46%

27%

7%

7%

3% 10%

2000-2005

59%20%

8%

5%

2%6%

1995-2000

Economías avanzadas

Asia emergente

América Latina

Oriente Medio y Africa del Norte

África subsahariana

Resto del mundo

The contribution of Latin America to the Shifting Wealth phenomena

The impact of the global scenario .... in Latin America’s growth

GDP growth rate in LAC

Source: IMF data

Growth Rates*

Source: IMF data *: Simple average

Argentina Brasil Chile Colombia México Perú Venezuela0

1

2

3

4

5

6

7

8

9

2003-2008 2009-2012 2013-2018

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

2014

2016

2018

-2

-1

0

1

2

3

4

5

6

7

Tasas de crecimiento del PIB real

Media movil de 5 años

7

Variación del volumen del comercio global de bienes y servicios

Fuente: Elaborado con datos del FMI.

Precios internacionales de las materias primas

Fuente: Cálculos propios elaborados a partir de datos de Datastream y Bloomberg.

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

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

2016

2017

2018

-15

-10

-5

0

5

10

15

Volumen comercio global PIB de América Latina

20052005:022005:032005:042005:052005:062005:072005:082005:092005:102005:112005:1220062006:022006:032006:042006:052006:062006:072006:082006:092006:102006:112006:1220072007:022007:032007:042007:052007:062007:072007:082007:092007:102007:112007:1220082008:022008:032008:042008:052008:062008:072008:082008:092008:102008:112008:1220092009:022009:032009:042009:052009:062009:072009:082009:092009:102009:112009:1220102010:022010:032010:042010:052010:062010:072010:082010:092010:102010:112010:1220112011:022011:032011:042011:052011:062011:072011:082011:092011:102011:112011:1220122012:022012:032012:042012:052012:062012:072012:082012:092012:102012:112012:1220132013:022013:032013:042013:052013:062013:072013:082013:092013:102013:112013:1220142014:022014:032014:042014:052014:062014:072014:082014:092014:102014:112014:120

0.5

1

1.5

2

2.5

3

3.5

4

Petroléo Gas Cobre Soya

8

… in world trade volumes and prices

Cuenta corriente en porcentaje del PIB de América Latina y el Caribe

Fuente: Elaborado con datos de la CEPAL.

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012-5

-4

-3

-2

-1

0

1

2 Chart Title

9

… in the current account

But this trend could change…

19-mar-1

3

26-mar-1

3

2-abr-13

9-abr-13

16-abr-13

23-abr-13

30-abr-13

7-may-1

3

14-may-1

3

21-may-1

3

28-may-1

3

4-jun-13

11-jun-13

18-jun-13

25-jun-13

2-jul-1

3

9-jul-1

3

16-jul-1

360

70

80

90

100

110

120

130

Brasil Chile Colombia

19-mar-1

3

26-mar-1

3

2-abr-13

9-abr-13

16-abr-13

23-abr-13

30-abr-13

7-may-1

3

14-may-1

3

21-may-1

3

28-may-1

3

4-jun-13

11-jun-13

18-jun-13

25-jun-13

2-jul-1

3

9-jul-1

3

16-jul-1

390

95

100

105

110

115

Brasil Chile Colombia

Bonos - Evolución de spreads (18 junio = 100) Índices bursátiles (18 junio = 100)

Fuente: Cálculos propios elaborados a partir de datos de Datastream y Bloomberg.

10

Impacto del episodio del anuncio de la Reserva Federal del 19 de junio en países latinoamericanos seleccionados

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 investmentis opening up potential opportunities for developing countries

Top 15 destinations of Chinese FDI, 2003-12Number 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.

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

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, 2010Country share in total world manufacturing value added

0

5

10

15

20

25

30% 1990 2000 2010

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

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

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.

III. Is Shifting Wealth sustainable? Emerging policies responses

Is Shifting Wealth sustainable?

However, different concerns, associated with:

“Middle-income traps” and structural challenges: need for adequate industrial policies

Growing social challenges: need for social cohesion policies

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

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 -

… “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

MoroccoSouth Africa

France

Germany

JapanKorea

United Kingdom

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

0 10 20 30 40 50 60 70 80 90 100

R&D

inve

smen

t (%

of G

DP)

, 200

9

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)

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

23Fuente: Elaboración propia con base en The Conference Board Total Economy Database, Banco Mundial (LPI), Comtrade.

Logística y productividad laboral : Correlaciones parciales(Valores, 2012)

ARG

BOL

BRA

CHL

COL

CRIDOM

ECUGTMJAM MEXPER

URYVEN

-40000

-30000

-20000

-10000

0

10000

20000

30000

40000

50000

60000

-1 -0.5 0 0.5 1 1.5

OCDE Otros países América Latina

Prod

uctiv

idad

labo

ral n

o ex

plica

da p

or P

IB p

er cá

pita

Desempeño logístico no explicado por PIB per cápita

An improvement in logistics could increase labour productivity in Latin America by 35%

24

Fuente: UN COMTRADE.Nota: Los sectores intensivos en logística incluyen la minería, la silvicultura y la explotación forestal, la fabricación de productos de madera, la edición de papel e impresión. Los sectores sensibles al tiempo incluyen la agricultura, la pesca, la manufactura de alimentos y bebida, las prendas de vestir y la horticultura.

Exportaciones sensibles al tiempo y con alta intensidad logística, 2010 (porcentajes)

0102030405060708090

100

Intensivo en logística Sensible al tiempo

The productive structure in LAC: the key role of logistics

25Fuente: Elaboración propia con base en U.S. Census Bureau.

The need to reduce transportation costs to increase trade

Relación entre costos de flete y aranceles en el comercio hacia Estados Unidos

(2012, unidades)

0

10

20

30

40

50

60

70

Cost

a Ri

ca

Chile

Perú

Colo

mbi

a

Pana

má

Vene

zuel

a

Rep.

Dom

inic

ana AL

C

Méx

ico

Uru

guay

Bras

il

Arge

ntina

OCD

E

Tota

l mun

dial

Euro

pa

ANSA

Asia

del

Sur

IV. A RENEWED INTEREST IN INDUSTRIAL POLICY IN DEVELOPING COUNTRIES (AND ITS POLITICAL ECONOMY CHALLENGES)

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

Thank you!