Expert Group Meeting: Structural transformation and poverty reduction - - PowerPoint PPT Presentation

Expert Group Meeting: Structural transformation and poverty reduction in the Asia‐Pacific countries with special needs Session 1 ‐ Overview of the Asia‐Pacific Countries with Special Needs Development Report 2019 Monday, 12 November 2018 Yusuke Tateno, Nyingtob Norbu and Andrzej Bolesta CSN/MPFD/ESCAP

Contents

Introduction to Countries with Special Needs (CSN) Background information on topic:

• What and why?

Assessment of structural transformation (ST) in CSN

• Sectors, employment, productivity

The nexus: ST and poverty reduction

• Channels, conditions, patterns
• Poverty reduction

in CSN ‐ where is it concentrated?

Policy recommendations

Introduction

Countries with special needs (CSN)

• Include LDCs, LLDCs and SIDS
• Continue to face structural challenges and vulnerability to external shocks

The Asia‐Pacific CSN Development Report

• 2015: Building productive capacities to overcome structural challenges
• 2016: Adapting the 2030 Agenda for Sustainable Development at the

National Level

• 2017: Investing in infrastructure for an inclusive and sustainable future
• 2018: Preventing conflict and sustaining peace to foster sustainable

development

• 2019: Structural transformation and its role in poverty reduction

Introduction

What is ST?

• Defined as the change in the long‐term composition and distribution of

economic activities

• Traditionally from agriculture to manufacturing and then to services
• Involves both within‐ and across‐sector changes

What causes ST?

• Push/Supply Side: Capital stock, productivity
• Pull/Demand Side: Income growth and increasing demand for income‐

elastic goods, changes in resource availability, technology, etc.

Why is it important?

• ST results in higher productivity gains, higher wages and stable sources of

incomes, thereby reducing poverty and closing productivity gaps across sectors

Introduction

What is the relevance to CSN?

• Poverty, productivity gaps across sectors,

rural‐urban gaps

• ST in CSN is still in its formative stages

Potential gains of ST may be significant for CSN

• Global programmes of action for CSN

(IPoA, VPoA, SAMOA Pathway) and the 2030 Agenda for Sustainable Development (SDGs)

• Some CSN have recently faced

unconventional structural shifts – premature deindustrialization

10,000 20,000 30,000 40,000 LDCs LLDCs SIDS Other developing Asia Value added / employed (USD, 2010 constant)

Labour productivity, by sector and by country group, average of 2007‐2016

Agriculture Industry Services

20 40 60 80 100 7 9 11 13 Working poor, % of employed Log of per capita GDP

Poverty and GDP per capita, average of 2012‐2016

LDCs LLDCs SIDS Other developing Asia

Introduction

The Report aims to:

• Assess the trajectory of ST and its role in

eradicating poverty in CSN

• Identify the appropriate channels and conditions

under which ST contributes to poverty reduction

• Address whether the traditional approach of ST is

still a valid pathway for CSN given:

• Increasing pace of technological advancement
• Youth bulge and prospects for creating

conditions for decent job opportunities

• Broader objectives of social inclusiveness and

environmental sustainability in the SDG era The Report

• Describes the stages and patterns of ST in CSN

(Ch.1)

• Explores the linkages between poverty reduction

and ST (Ch.2)

• Provides recommendations and addresses the role
• f cooperation and integration (Ch.3)

Years in which working age populations are growing Growth of employment and GDP, 2000‐2016

Contents

Introduction to Countries with Special Needs (CSN) Background information on topic:

• What and why?

Assessment of structural transformation (ST) in CSN

• Sectors, employment, productivity

The nexus: ST and poverty reduction

• Channels, conditions, patterns
• Poverty reduction

in CSN ‐ where is it concentrated?

Policy recommendations

Structural transformation in Asia and the Pacific

• Two common measures of ST:

employment shares and value‐ added shares, but with some caveats

• As per capita incomes rise, the

decline in the employment and value‐added share of agriculture and the increase in the share of services is a visible and consistently observed phenomenon.

• Industry exhibits more of a reverse

U shape

• Lower income countries suffer from

an asymmetry between the low

• utput share of value added and

high share of employment in Agriculture

Assessment of ST in CSN

Structural transformation: Where do CSN stand (in terms of employment share)?

• (Kunal Sen, 2017):
• Structurally underdeveloped: Agriculture > Industry and services
• Structurally developing: Services > Agriculture > Industry
• Structurally developed: Services > Industry > Agriculture

Most LDCs are structurally underdeveloped

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 2000 2010 2016 2000 2010 2016 2000 2010 2016 2000 2010 2016 2000 2010 2016 2000 2010 2016 2000 2010 2016 2000 2010 2016 2000 2010 2016 2000 2010 2016 Afghanistan Bangladesh Bhutan Cambodia Lao PDR Myanmar Nepal Solomon Islands Timor‐Leste Vanuatu

Employment shares in LDCs

Agriculture Industry Services

• Most LDCs are still “structurally under‐developed” as agriculture is the largest sector in

terms of the number of employed.

• Movement out of Agriculture is still slow
• Nepal, Solomon Islands, Vanuatu have been particularly slow
• Cambodia and Timor‐Leste are outliers where the service sector is particularly large
• In the case of the former employment in industry and agriculture are also comparable

Most LLDCs are structurally developing

• Most LLDCs are considered “structurally developing” as services have emerged as

the largest sector in terms of employed while the share of industry is still less than that of agriculture.

• However in Kazakhstan, Turkmenistan and Uzbekistan, Industry has already surpassed

agriculture and they could technically be categorized as structurally developed

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 2000 2010 2016 2000 2010 2016 2000 2010 2016 2000 2010 2016 2000 2010 2016 2000 2010 2016 2000 2010 2016 2000 2010 2016 Armenia Azerbaijan Kazakhstan Kyrgyzstan Mongolia Tajikistan Turkmenistan Uzbekistan

Employment shares in LLDCs

Agriculture Industry Services

SIDS are structurally developed and developing

• SIDS are a combination of “structurally developing” and “developed”.
• Fiji, Marshall Islands and PNG are still developing with large service sectors
• In Maldives, Samoa and Tonga, Industry although small is larger than the very small

Agriculture sector

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 2000 2010 2016 2000 2010 2016 2000 2010 2016 2000 2010 2016 2000 2010 2016 2000 2010 2016 Fiji Maldives Marshall Islands Papua New Guinea Samoa Tonga

Employment share in SIDS

Agriculture Industry Services

Potential for gains from structural transformation

• Countries in the upper right quadrant stand to gain the most from reallocation
• Employment and GDP shares are higher than average.
• Labour productivity in the sector is also low.

Afghanistan Bangladesh Bhutan Cambodia Lao PDR Myanmar Nepal Solomon Islands Timor‐Leste Vanuatu Armenia Azerbaijan Kazakhstan Kyrgyzstan Mongolia Tajikistan Turkmenistan Uzbekistan Fiji Maldives Papua New Guinea Samoa Tonga ‐5.00 0.00 5.00 10.00 15.00 20.00 25.00 30.00 35.00 40.00 45.00 ‐10.0 0.0 10.0 20.0 30.0 40.0 50.0 60.0 70.0 80.0 90.0 GDP %

EMP %

Agri GDP vs Agri Emp (Bubble size reflects Agri Labour Productivity)

CSN average agri emp 37.3% CSN average agri GDP 17.3%

Productivity variation (Current USD)

Large productivity gaps across sectors Reallocation can be an important source of growth

10,000 20,000 30,000 40,000

Productivity gaps across sectors in LDCs

Agriculture 2007‐2016 Labor Productivity Industry 2007‐2016 Labor Productivity Service 2007‐2016 Labor Productivity

• Avg. Agri
• Avg. Ind.
• Avg. Serv

10,000 20,000 30,000 40,000 50,000 60,000

Productivity gaps across sectors in LLDCs

Agriculture 2007‐2016 Labor Productivity Industry 2007‐2016 Labor Productivity Service 2007‐2016 Labor Productivity

• Avg. Agri
• Avg. Ind.
• Avg. Serv

10,000 20,000 30,000 40,000 Fiji Maldives Papua New Guinea Tonga

Productivity gaps across sectors in SIDS

Agriculture 2007‐2016 Labor Productivity Industry 2007‐2016 Labor Productivity Service 2007‐2016 Labor Productivity

• Avg. Agri
• Avg. Ind.
• Avg. Serv

Importance of agricultural productivity

• Stylized fact: productivity gap between agriculture and non‐agriculture sector

exhibits a u‐shaped trajectory.

• It is a crude representation of the stages of structural transformation and

captures 2 key dynamics in the process

• The rise of new industries and the movement of resources from traditional sectors to newer
• nes.
• This is critical since most CSNs are still trapped in the initial phases

Timmer’s four phases:

• Beginning
• Agricultural Surplus
• Integration
• Industrialization

Sources of labour productivity growth in CSN

• Non CSN: Perhaps the structural transformation dividend was realized earlier and

does not show up in the data for this time period.

• CSN: Between effect is strong. Perhaps this suggests that more capital deepening
• r upgradation is needed in CSN.
• In some CSN: a negative contribution of structural transformation; perhaps

labour moved to lower productivity sectors like in Aghanistan where conflict may have induced this outcome.

‐80 ‐30 20 70 120 170 Solomon Islands Nepal Bhutan Bangladesh Lao PDR Timor‐Leste Cambodia Vanuatu Myanmar Afghanistan Kazakhstan Uzbekistan Armenia Mongolia Azerbaijan Turkmenistan Tajikistan French Polynesia Fiji Tonga Samoa Viet Nam Turkey Iran Japan China RoK Thailand Sri Lanka Malaysia Australia China, Hong Kong India Pakistan Russian Federation New Zealand Philippines Singapore Brunei Darussalam Georgia Indonesia LDC LLDC SIDS NON CSN

Decomposition of labour productivity growth, 1991‐2016

Between effect Within effect Dynamic effect

Absolute growth in labour productivity

17

‐200 ‐100 100 200 300 400 500 600 700 800 Solomon Islands Nepal Bhutan Bangladesh Lao PDR Timor‐Leste Cambodia Vanuatu Myanmar Afghanistan Kazakhstan Uzbekistan Armenia Mongolia Azerbaijan Turkmenistan Tajikistan French Polynesia Fiji Tonga Samoa Viet Nam Turkey Iran Japan China RoK Thailand Sri Lanka Malaysia Australia China, Hong Kong India Pakistan Russian Federation New Zealand Philippines Singapore Brunei Darussalam Georgia Indonesia LDC LLDC SIDS NON CSN

Chart Title

lpgr_between lpgr_within lpgr_dynamic

Are CSN upgrading their product sophistication?

• Unfortunately, ECI has decreased for quite a few
• Cambodia, which also has higher share of

industry in GDP has shown the most improvement

• All CSN still have much lower than average ECI

‐1.00 ‐1.15 ‐1.05 ‐0.09 ‐0.26 ‐0.73 ‐1.00 ‐0.62 ‐1.22 ‐0.86 ‐0.99 ‐0.55 ‐0.14 ‐1.12 ‐1.00 ‐0.66 ‐1.40 ‐1.20 ‐1.00 ‐0.80 ‐0.60 ‐0.40 ‐0.20 0.00

ECONOMIC COMPLEXITY INDEX BETWEEN 2000 AND 2016, FOR SELECTED CSN

2000 2016

0.31 ‐0.12 0.65 ‐0.05 0.37 ‐0.71 0.91 ‐0.25 0.87 0.43 0.67 ‐0.33

‐0.80 ‐0.60 ‐0.40 ‐0.20 0.00 0.20 0.40 0.60 0.80 1.00 ECONOMIC COMPLEXITY INDEX BETWEEN 2000 AND 2016, FOR SELECTED AP DEVELOPING COUNTRIES 2000 2016

Contents

Introduction to Countries with Special Needs (CSN) Background information on topic:

• What and why?

Assessment of structural transformation (ST) in CSN

• Sectors, employment, productivity

The nexus: ST and poverty reduction

• Channels, conditions, patterns
• Poverty reduction

in CSN ‐ where is it concentrated?

Policy recommendations

The poverty reduction‐ST nexus

• Growth on its own is not sufficient and the composition matters for poverty reduction
• Impacts also depend on employment elasticity of growth in sectors and growth

elasticity of poverty reduction

• Significant heterogeneity in sectorial elasticities
• Highest in trade and transport services
• Unskilled labour intensive sectors contribute the most as unskilled labour is the input

the poor can offer to the production process (Loayza & Raddatz, 2010)

• Numerous empirical studies indicate that growth in Agriculture and related agri‐

business is on average more effective in reducing income poverty (Dorosh & Thurlow, 2018; Ivanic & Martin, 2018)

• Structural transformation that pulls unskilled workers from low productivity sectors

to higher productivity sectors is likely to have the greatest impact on poverty reduction (Kumar & Aggarwal, 2012)

• When agricultural productivity increases poor households may gain as producers

directly if costs fall faster than prices, or indirectly as consumers through lower prices

• r as labourer through higher wages.

Status of poverty reduction

• Poverty has generally trended downwards
• Still high in some LDCs mostly
• Rural dimensions of poverty

Bangladesh Lao PDR Myanmar Nepal Solomon Islands Timor‐Leste Others LLDC SIDS LDC

DISTRIBUTION OF POVERTY ACROSS CSN (LATEST AVAILABLE DATA FOR USD 1.90)

0.00 5.00 10.00 15.00 20.00 25.00 30.00 35.00 40.00 45.00 50.00 BGD BTN KIR LAO MMR NPL SLB TLS TUV VUT ARM AZE KAZ KGZ MNG TJK FJI MDV FSM PNG WSM TON LDC LLDC SID

Poverty trends in CSN

Earliest Latest

Status of poverty reduction

• Rural poverty in CSN is much higher
• Structural transformation and urbanization linkages

‐60 ‐50 ‐40 ‐30 ‐20 ‐10 10 20 30 40 Kazakhstan Bhutan Cambodia Maldives Lao PDR Nepal Mongolia Tuvalu Bangladesh Tajikistan Armenia Kyrgyz Republic Afghanistan Fiji Papua New Guinea Timor‐Leste

POVERTY BY LOCATION (NATIONAL LINES)

Rural Urban

Rural Transformation is critical

• “Differences in the path and speed of

structural transformation and rural transformation in APR lie mainly in the growth of productivity and the extent to which employment can be generated in the farm and non‐farm sectors in rural and urban areas. Though initial conditions matter, institutions, policies and investments are primary factors determining the path, speed and inclusiveness of rural transformation” (IFAD, 2016)

Contents

Introduction to Countries with Special Needs (CSN) Background information on topic:

• What and why?

Assessment of structural transformation (ST) in CSN

• Sectors, employment, productivity

The nexus: ST and poverty reduction

• Channels, conditions, patterns
• Poverty reduction

in CSN ‐ where is it concentrated?

Policy recommendations

Policy Recommendations

The main question

• We are asking: What specific policy and institutional measures, by who (policy

makers / international community) and in which (group of) countries (LDCs, LLDCs, SIDS, resource‐rich, in systemic transition) should/could be introduced in terms of structural economic transformation to more effectively eradicate poverty in Asia‐Pacific CSN;

• The threat: too broad approach and too generic policy recommendations.

The Chapter’s proposed structure:

• (A) Macroeconomic Policies;
• (B) Industrial Policy;
• (C) The Role of the International Community (e.g. the UN system) and regional

mechanisms (e.g. AEC, EAEU, BRI)

Industrial policy approaches

Functional policies:

• A more general and less interventionist approach that seeks to improve the

business climate and promote competitiveness;

• For instance, property rights, access to credit, enabling infrastructure, labour

market flexibility, etc.

Selective policies:

• A more interventionist stance with the state explicitly facilitating the growth of

certain sectors (targeting);

• Such approaches typically attempt to defy a country’s existing comparative

advantage and harness its latent strengths by picking sectors that hold a potential;

• Given the coordination and information externalities involved such approaches

are also more challenging, nevertheless, perhaps necessary.

Policies and strategies

Context Driven

• In the case of LDCs, there will be a need to enable faster growth in improving

job‐creating productive capacity building with a specific set of policies for selective investment in domestic industries;

• Resource‐rich LLDCs may need to institute policies to improve natural resource

management and leverage resources to promote inclusive economic growth in non‐extractive sectors (diversification);

• SIDS, that are likely to face difficulty in setting up robust manufacturing sectors,

will need to implement policies to focus on developing niches in some services such as eco‐tourism, agro‐tourism and adventure‐tourism, where the labour intensity and spillover effects are perhaps higher than manufacturing would permit in such contexts;

• Enhancing productivity of the agriculture sector in addition to facilitating growth
• f the non‐farm economy will be critical for poverty reduction initially.

Some additional preliminary observations

Taking into consideration specific features of Asia‐Pacific CSNs:

• The targeting of industrial policy should go beyond traditional concept of

comparative advantage;

• FDI attraction should be strategized – aligned with the long‐term development

strategy and aimed at enhancing the process of creation of productive employment;

• Mitigating of “primitivisation” of the industrial base is necessary;

Questions for discussion

• Is the traditional approach of ST is still a valid pathway for CSN?
• How would the increasing pace of technological advancement (e.g. more

tradable services, outsourcing, automation, etc.) shape the patterns of ST in CSN?

• Would Lower trade costs and proliferation of GVCs versus protectionism
• How the broader objectives of social inclusiveness and environmental

sustainability in the SDG era

• (domestic) Youth bulge and prospects for creating conditions for decent job
• pportunities