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
• penness, 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

Tax revenue Gross savings Gross fixed capital formatio n GDP deflator Literacy rate Public spendin g on educatio n Health expendit ure Pakistan

9.86 19.85 20.45 16.24 55.53 2.93 0.87

India

10.09 34.61 31.74 8.86 62.75 3.32 1.06

China

10.45 48.99 46.09 3.56 94.27 1.91 2.70

Korea

15.58 30.95 26.71 0.96 96.60 5.05 4.03

Equity and Equality Constraints

Countries Logistics perform ance index GINI index CPI Control of corruption Poverty headcou nt ratio at $1.25 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

• 8.00
• 6.00
• 4.00
• 2.00

0.00 2.00 4.00 6.00 8.00 10.00 12.00 14.00 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

Pakistan GDP growth (annual %) India GDP growth (annual %) Linear (Pakistan GDP growth (annual %)) Linear (India GDP growth (annual %))

Country profile and institutional assessment Ranking

Countries Fiscal policy Macroeco nomic managem ent Property rights and rule-based governanc e social protection Transpare ncy, accountabi lity, and corruption in the public sector Policies for social inclusion/e quity cluster 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

Korean War Boom Agriculture Agriculture Green Revolution Services End of Social unrest Agriculture Remittances inflow Manufacturing End of PNA movement Agriculture Remittances and Aid Private sector confidence Agriculture Agriculture Manufacturing Manufacturing Manufacturing

• 4
• 2

2 4 6 8 10 12

Growth peaks and troughs in Pakistan

Peak Trough Change in GDP from peak to trough Number of years 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 (%)

0.00 20.00 40.00 60.00 80.00 100.00 120.00 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- 2000 2001- 2002 2003- 2004 2005- 2006 2006- 2007 2007- 2008 2008- 2009 2009- 2010 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

Unemployment Vulnerable Employment (VE) VE Agriculture Labour 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 Employment (%) Change in GDP value added (%)* Change in Labour Productivity (%) (output per worker)* Change in Labour Productivity (%) (output per hour)* 2006-07 from 1999-00 2010-11 from 2006-07 2006-07 from 1999-00 2010-11 from 2006-07 2006-07 from 1999-00 2010-11 from 2006-07 2006-07 from 1999-00 2010-11 from 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 (%)

20 40 60 80 100 120 Agriculture, forestry, hunting and fishing Industry Services

Inflation and unemployment rates (%)

0.00 5.00 10.00 15.00 20.00 25.00 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 Inflation rate unemployment rate

Trade and current account deficit (% of GDP)

• 10.00
• 5.00

0.00 5.00 10.00 15.00 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 Trade and Current Account Deficit Trade Deficit Current Account Deficit

Conclusion

• Job creation is the essence of inclusive growth
• Growth + jobs + social security
• Prudent fiscal policy