Reforms for inclusive growth: Cross-country experience Presentation - PowerPoint PPT Presentation

Reforms for inclusive growth: Cross-country experience Presentation at Sixteenth Sustainable Development Conference , 10 - 12 December 2013 By Dr Nadia Tahir Head of Finance and Business Economics Division University of Central Punjab , Lahore

Inclusive growth • Shared and pro-poor growth • Determines the pace and pattern of growth to make it poverty reducing • Productive employment rather than direct distribution • Equality of opportunity, protection against market uncertainty and during job transitions • Macroeconomic stability, education and infrastructure policies influence growth positively, inequality negatively

Inclusive growth • Enforcement of property rights, trade openness, effective government • In short: exclusion reduced by improved productive capacity of individuals and creating conducive environment for employment, not through income redistributive measures

Growth diagnostics • Earlier growth diagnostics viewed infrastructure as priority to sustain growth. • Inclusive growth = raising productivity of the resources, in particular, human resources, • = transformation from low productivity sectors to higher productivity sectors/areas. • = productive employment/job creation for a fast growing labour force • HRV (2005) framework with an extension of labour/human capital

GDP growth rates Period Pakistan China India Korea 1960 – 1970 6.70 5.20 3.70 8.60 1970 – 1980 4.70 6.00 3.00 7.20 1980 – 1990 6.30 10.20 5.80 9.40 1990 – 1995 4.60 12.80 4.60 7.20 1996-2000 3.27 8.62 6.04 4.55 2001-2010 4.57 10.49 7.59 4.17 2011 2.96 9.30 6.33 3.68 2012 4.19 7.80 3.24 2.04

Constraints to Inclusive Growth (% of GDP) Fiscal Policy Macro Economic Risk Human Capital Gross Public fixed spendin capital g on Health Tax Gross formatio GDP Literacy educatio expendit revenue savings n deflator rate n ure 9.86 19.85 20.45 16.24 55.53 2.93 0.87 Pakistan 10.09 34.61 31.74 8.86 62.75 3.32 1.06 India 10.45 48.99 46.09 3.56 94.27 1.91 2.70 China 15.58 30.95 26.71 0.96 96.60 5.05 4.03 Korea

Equity and Equality Constraints Poverty Logistics headcou perform nt ratio ance GINI Control of at $1.25 Countries index index CPI corruption a day Pakistan 2.83 30.02 28 -1.1 21.04 India 3.12 33.9 36 -0.52 32.68 China 3.52 42.06 40 -0.6 28.36 Korea 3.7 31.3 55 0.42 2

Chinese Reforms • Economic System Reform: 1978-2001 • Economic growth based on industrialization • Industrial restructuring, shifts in growth pattern through increased capital into weak industrial links, higher technology • Urban economic system reform focused state owned enterprises to change income distribution relationship • Increased social protection • Rural economic system reforms: de-collectivization of farms; product diversification; agricultural marketing; research and dissemination • 1981: 85 percent population on less than $1.25 a day • Reform and opening up by 2008 reduced poverty to 13 percent

Chinese Reforms • to avoid middle income trap and achieve sustainability, growth pattern shifted through effective policies on employment, social insurance, rural health, energy conservation, environmental protection and population. • Labour quality, capability improved by investing in career development • Income gap reduction through individual income tax

Indian Reforms • Reforms started in early 1990s • Doubled growth • Significant accumulation of foreign exchange reserves, advances in information technology (IT) and stock market, improvements in telecommunications etc. • Improved rural infrastructure, increased investment in education and health care • Leap frogged from agriculture to services; manufacturing lagged. • Income poverty declined from 55% in early 1970s to 28% in 2004-05

Indian Reforms • Exclusion continued in terms of low agriculture growth, low quality employment growth, low human development, rural-urban divides, gender and social inequalities, and regional disparities • Deceleration in growth from 3.5% during 1981-97 to 2% during 1997-2005. Decline in yield growth. • India will continue to rise and, in doing so, will help everyone rise. • Right to Information Act to make the government responsive and transparent

Reforms in South Korea • Rapid and sustained economic growth • Transformation from a backward agrarian structure to modern industrial economy • Classical example of growth with equity and export- driven economic growth. • Human Development Index (HDI) rank at 15 out of 187 • Phenomenon of increasing non regular workers, dual labour markets • Job insecurity, low social security coverage frequently erupts into violent protest

Comparative Analysis of GDP Growth in India and Pakistan 14.00 12.00 10.00 8.00 6.00 4.00 2.00 0.00 1961 1963 1965 1967 1969 1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 -2.00 -4.00 -6.00 -8.00 Pakistan GDP growth (annual %) India GDP growth (annual %) Linear (Pakistan GDP growth (annual %)) Linear (India GDP growth (annual %))

Country profile and institutional assessment Ranking Transpare ncy, accountabi Policies for Property lity, and social Macroeco rights and corruption inclusion/e nomic rule-based in the quity Fiscal managem governanc social public cluster Countries policy ent e protection sector average Pakistan 2.5 2.5 2.5 3 2.5 3 India 3.5 4.5 3.5 3.5 3.5 3.7

Growth in Pakistan 12 Korean War Boom End of Social unrest 10 Green Revolution Manufacturing Remittances and Aid End of PNA movement Private sector confidence Remittances inflow 8 Agriculture 6 4 Agriculture Services Manufacturing 2 Agriculture Agriculture Manufacturing Agriculture Agriculture Manufacturing 0 -2 -4

Growth peaks and troughs in Pakistan Change in GDP from peak to Number of years Peak Trough trough between peaks 1953-54 1954-55 -8.19 1958-59 1959-60 -4.59 4 1964-65 1966-67 -6.3 4 1969-70 1970-71 -8.56 3 1973-74 1976-77 -4.61 2 1977-78 1983-84 -3.76 2 1984-85 1989-90 -4.12 5 1991-92 1992-93 -5.47 5 1995-96 1996-97 -4.9 2 2004-05 2008-09 -8.6 7

Behaviour of GDP components in Pakistan Average in Trough Average in Peak Average Consumption 87% 86% 86% Private Consumption Expenditure 76% 75% 75% General Government Consumption Expenditure 11% 12% 11% Gross Domestic Fixed Capital Formation 15% 16% 15% Change in Stocks 2% 2% 1% Export of Goods and Non-Factor Services 12% 13% 12% Less Import of Goods and Non-Factor Services 16% 17% 16%

Sectoral Shares in GDP (%) 120.00 100.00 80.00 60.00 40.00 20.00 0.00 FY88 FY89 FY90 FY91 FY92 FY93 FY94 FY95 FY96 FY97 FY98 FY99 FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 Agriculture Industry Services

Labour force Indicators 1999- 2001- 2003- 2005- 2006- 2007- 2008- 2009- 2010- 2000 2002 2004 2006 2007 2008 2009 2010 2011 Labour force participation rate 50.4 50.5 50.7 53 52.5 52.5 53.1 53.5 53.4 Unemployment rate 7.2 7.8 7.4 6.1 5.1 5 5.2 5.3 5.7 Share of industry in total employment 18.2 21 20.6 21.2 21.4 20.6 21 21.4 21.8 Share of wage and salaried workers 35.9 40.4 38.5 38.4 38.3 37.1 36.8 36.5 36.9 Share of own account workers 43.6 39.9 38.6 36.8 36 35.9 34.8 35.6 36.3

Indices of unemployment, vulnerability, productivity Vulnerable Employment VE Labour Unemployment (VE) Agriculture Productivity 1999-2000 100 100 100 100 2001-2002 114.8 101.4 93.8 97.5 2003-2004 118.5 109.6 101.4 103.6 2005-2006 107.4 121.5 113.8 108.4 2006-2007 92.6 124.7 118.6 113.5 2007-2008 88.9 131.5 125.5 114.9 2008-2009 100 136.5 132.4 113.1 2009-2010 100 140.2 135.2 113.5 2010-2011 114.8 144.7 138.6 112.9

Employment and productivity across sectors Change in Labour Productivity (%) Change in Labour Change in Change in GDP (output per Productivity (%) Employment (%) value added (%)* worker)* (output per hour)* 2006-07 2010-11 2006-07 2010-11 2006-07 2010-11 2006-07 2010-11 from from from from from from from from 1999-00 2006-07 1999-00 2006-07 1999-00 2006-07 1999-00 2006-07 All 41.7 7.6 45.8 9.4 13.6 -1.6 6 -0.3 Agriculture 24.6 11.4 23.1 5.7 9.1 -9.3 4.1 -2.3 Mining 123.8 51.8 63.2 6.1 -19.5 -33.7 -305.2 -349.8 Manufacturing 69.7 9.2 89 6.7 23 -4.9 10.6 -3.1 Electricity, etc 53 -32 -19.5 42.9 -41.9 56.6 -110.6 83 Construction 62.4 13.6 54 7.8 4.6 -9.6 -1.1 -0.5 Wholesales 53.9 19.8 42.7 8.6 2.3 -11.1 -1 -5.1 Transport and Communication 54.5 1.8 29.6 10.5 -7.5 3.9 -9.7 2.7 Finance 99.2 34 129.9 -8.9 27.4 -39.8 -22.9 -196.3 Social 46.9 -17.6 243.9 20.7 158.4 51.1 6.1 31.2

Employment distribution (%) 120 100 80 60 40 20 0 Agriculture, forestry, hunting and fishing Industry Services

Inflation and unemployment rates (%) 25.00 20.00 inflation rate, Unemployment rate 15.00 10.00 5.00 0.00 FY 88FY 89FY 90FY 91FY 92FY 93FY 94FY 95FY 96FY 97FY 98FY 99FY 00FY 01FY 02FY 03FY 04FY 05FY 06FY 07FY 08FY 09FY 10FY 11FY 12 Inflation rate unemployment rate