Transformation in Developing Economies Chris Papageorgiou Research - PowerPoint PPT Presentation

Diversification and Structural Transformation in Developing Economies Chris Papageorgiou Research Department IMF UNWIDER September 13, 2018

• IMF is stepping up analysis of macrostructural issues • Diversification and structural reforms are now at the center of both policy research and operations

Diversification

Dimensions of Diversification Across Products Export Diversification Across Partners Diversification Country, Sector, Quality Upgrading Product level

IMF Export Diversification Toolkit • This toolkit contains two main databases: ❑ Export Diversification Database ❑ Export Quality Database • Coverage of the databases ❑ Cover 187 countries ❑ Time coverage:1962-2015, annual data • This is an output of Growth through Diversification Project (the IMF-DFID Collaboration)

Export Diversification: Cross-Country 6 4 2 0 0 20000 40000 60000 Real GDP Per Capita Nonparametric Quadratic

Export Diversification and Quality Upgrading for Growth and Stability Growth Volatility ➢ Robust relationship between • Significant positive relationship diversification and growth in LICs. between export diversification and reduction in output volatility. ➢ Quality upgrading and sectoral reallocation are linked to higher growth. Growth Rate, LICs, 1962-2010 Volatility, LICs, 1962-2010 5 1.4 1.2 4.8 1 4.6 0.8 4.4 0.6 4.2 0.4 4 0.2 3.8 0 3.6 Less Diversified More Diversified Less Diversified More Diversified Note: “Less Diversified” here means the countries with diversification level below 30 percentile of all LICs; “More Diversified” here means the countries with diversification level above 70 percentile of all LICs.

Export Product Diversification Episodes Chile Malaysia Thailand .25 .5 .2 .2 .15 .4 .15 .3 .1 .1 .2 .05 .05 .1 0 1960 1970 1980 1990 2000 2010 year 1960 1970 1980 1990 2000 2010 1960 1970 1980 1990 2000 2010 year year Div. episode (1962-91) Div. episode (2004-08) Div. episode (1969-2000) Herfindahl index Herfindahl index HP Div. episode (1962-89) Herfindahl index HP Break Break HP Break Ghana Madagascar Mauritania .6 1 .25 .5 .8 .2 .4 .6 .15 .3 .4 .1 .2 .05 .2 .1 1960 1970 1980 1990 2000 2010 year 1960 1970 1980 1990 2000 2010 1960 1970 1980 1990 2000 2010 year year Div. episode (1967-72) Div. episode (1978-86) Div. episode (1983-97) Herfindahl index Div. episode (1977-95) Herfindahl index Herfindahl index HP HP Break HP Break Break

Export Quality and Development ❑ Quality upgrading is a crucial component of development, particularly when trying to move to upper middle-income status ❑ Some countries need diversification, others need quality upgrading. ❑ Opportunities in manufacturing, but also agriculture Quality across all Exports 1.2 1 .8 .6 .4 .2 0 10000 20000 30000 40000 Exporter GDP per capita (2000 constant Dollars) HIC MIC LIC Lowess Fit

Quality Ladders Tanzania ➢ Given its concentration in agricultural products and crude materials, Tanzania has potential for horizontal diversification but also for quality upgrading in agriculture. Tanzania: Quality by SITC1 Sector, 2010 40 2 Quality (90th percentile=1) 1.5 30 20 1 10 .5 0 0 Chemicals Minerals Others Animal&Veg Oils Beverages and Tobacco Crude Materials,etc Food/Live Animals Manuf Goods Misc. Manuf Articles Machinery and Transport Equip. Percent of Total Exports Quality Ladder Tanzania position

Quality Ladders What is next for China? ➢ China has some additional potential for quality upgrading, but may also aim to diversify further across products and upgrade the tasks it performs. China: Quality by SITC1 Sector, 2010 50 2 40 Quality (90th percentile=1) 1.5 30 1 20 .5 10 0 0 s s s c s s s s o l . d l r i l c a t l p a e e O e a o c c , m u i r c l h a i s o e t g m q n t i O b a l i G r e e n E i A o i A M V h r f T e t u f & C e r n u d a t o l v p a n a n M i a m L s M a M / n i s e d a n d o A e r . u o T c g s a r F C d M i r e n a v e y B r e n i h c a M Percent of Total Exports Quality Ladder China position

Quality Ladders China: zooming into subsectors ➢ Within its two strongest SITC1 sectors, China’s exports seem tilted towards less sophisticated products, e.g. transport equipment is lagging behind other machinery. China: Quality by SITC2 Sector, 2010 Machinery and transport equipment 1.2 25 Quality (90th percentile=1) 20 1 15 .8 10 .6 5 .4 0 Electrical machinery Machinery other than electric Transport equipment Percent of Total Exports Quality Ladder China position

Quality Ladders China: zooming into subsectors ➢ Likewise clothing still dominates within Miscellaneous Manufactures. China: Quality by SITC2 Sector, 2010 Miscellaneous manufactured articles 1.2 10 Quality (90th percentile=1) 8 1 .8 6 .6 4 .4 2 .2 0 Clothing Footwear Furniture Sanitary, plumbing, fixt. Miscellaneous manufactured articles Scientif & control instrumente, etc. Travel goods and similar articles Percent of Total Exports Quality Ladder China position

Diversification Toolkit http://www.imf.org/external/datamapper/datasets/SPRLU

Structural Reforms

IMF Database • Reform indicators for 90 countries covering LICs, EMs, and AEs from 1973-2014. • Constructed from multiple sources: previous cross-country databases, country legislation, IMF staff reports, FSAPs, among others. • Unique in terms of country-time coverage and breadth of sectoral areas: • Financial: credit controls, interest rate controls, bank entry barriers, banking supervision, privatization, and security market development. • Capital and current account: restrictions on exchange payments and receipts (imports, invisibles, capital). • Trade: product-level tariffs. • Product markets : ownership, regulation and barriers to entry in telecommunications and electricity markets. • Labor markets: employment protection legislation including procedural requirements, firing costs and requirements, and redress measures. 4

Structural Reforms Database – Preliminary Results 5

Trade Regulation Note: Higher values of the indicator denote higherliberalization 12

Capital Account Regulation Note: Higher values of the indicator denote higherliberalization 9

Labor Regulation Note: Higher values of the indicator denote higherliberalization 8

Country case: Malaysia (TFP Index1970=100) Turnedlower-middle Transition to upper-middle income(1996) income (1969) AsianCrisis (1997-98) GlobalFinancial Crisis (2008-09) 135 1stGenerationReforms 2ndGenerationReforms 3rd GenerationReforms 130 (early1980s-2000) (2000-2010) (2010onwards) 125 120 115 110 105 LaborMarkets Business Regulations 100 Capital MarketDev. Trade Liberalization Banking System 95 1970 1975 1980 1985 1990 1995 2000 2005 2010 ...onwards →

Country Examples, 1973-2014 Ghana: Financial Reform Index Kazakhstan: Financial Reform Index 16 0.8 18 0.8 16 14 0.7 0.7 14 12 0.6 0.6 12 10 0.5 0.5 10 8 0.4 0.4 8 6 0.3 0.3 6 4 0.2 0.2 4 2 0.1 0.1 2 0 0 0 0 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Morocco: Financial Reform Index Switzerland: Financial Reform Index 25 0.95 20 1 18 0.9 0.9 0.8 16 20 0.85 14 0.7 0.8 12 0.6 15 0.75 10 0.5 8 0.4 0.7 10 6 0.3 0.65 4 0.2 0.6 5 2 0.1 0.55 0 0 0.5 0 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 Directed credit/reserve requirements Interest rate controls Entry barriers/pro-competitionmeasures Banking Supervision Privatization International capital flows Security Markets Aggregate CreditCeilings TotalIndex 16

Conceptual framework on prioritization Technology & Innovation Industry Regulations Business Regulations Labor Market Infrastructure Reform Types Banking System Legal System & Property Rights Capital Market Development Trade Liberalization Agriculture LIDCs EMs AMs IncomeLevel Highest priority reforms Other priority reforms Note: Comparisons across reforms within each country group. Darker shades imply larger gains from reforms.

Reform Financi Labor Real al Priorities Financial Real Labor Financi Real Labor al Development Process Steady state Diversification Take-off stage Process Structural Transformation Manufacturing Services Agriculture Process 2,449 45,138 PPP Per capita - 10,000 20,000 30,000 40,000 50,000 60,000 LIDC EM AM

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