STRUCTURAL TRANSFORMATION AND ITS ROLE IN REDUCING POVERTY Findings and perspectives of the Countries with Special Needs Development Report 2019 Oliver Paddison, PhD Chief, Countries with Special Needs Section Macroeconomic Policy and Financing for Development Division United Nations Economic and Social Commission for Asia and the Pacific
Table of contents Structural transformation • Definition • Structural transformation in countries with special needs and changes in recent years • Sectoral changes Structural transformation and poverty reduction • Poverty profiles of countries with special needs • Structural transformation and poverty Policy considerations 2
What are ‘Countries with special needs’? Small island developing Landlocked developing States countries Least developed countries Fiji Maldives Marshall Islands Micronesia (Fed. States) Armenia Nauru Azerbaijan Palau Kazakhstan Afghanistan Bangladesh Kiribati Papua New Guinea Kyrgyzstan Bhutan Cambodia Solomon Is. Samoa Mongolia Timor-Leste Singapore Lao PDR Myanmar Tajikistan Tuvalu Nepal Tonga Turkmenistan Vanuatu American Samoa Uzbekistan Cook Islands French Polynesia Guam New Caledonia Niue Northern Mariana Islands 3
Why is structural transformation important? Structural transformation (ST): • Defined as the change in the long-term composition and distribution of economic activities 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 • It is a key feature of broad-based and inclusive economic growth What causes ST? • Push/Supply Side • Pull/Demand Side 4
Where do countries stand? Least developed countries 100 90 80 Percentage share 70 60 50 40 30 20 10 0 1991 2016 1991 2016 1991 2016 1991 2016 1991 2016 1991 2016 1991 2016 1991 2016 2002 2016 1991 2016 Afghanistan Bangladesh Bhutan Cambodia Lao PDR Myanmar Nepal Solomon Islands Timor-Leste Vanuatu Agriculture Industry Services Landlocked developing countries Small island developing States 100 100 90 Percentage share 80 80 Percentage share 70 60 60 50 40 40 30 20 20 10 0 0 1991 2016 1991 2016 1991 2016 1991 2016 1991 2016 1991 2016 1991 2016 1991 2016 1991 2016 1991 2016 1991 2016 1991 2016 1991 2016 Armenia Azerbaijan Kazakhstan Kyrgyzstan Mongolia Tajikistan TurkmenistanUzbekistan Fiji Maldives Papua New Guinea Tonga Samoa Agriculture Industry Services Agriculture Industry Services • Structurally underdeveloped: Agriculture > Industry and services • Structurally developing: Services > Agriculture > Industry • Structurally developed: Services > Industry > Agriculture 5
Structural transformation: relocating from agriculture 40 Average agriculture employment share in countries with special needs: 37.3% Nepal Gross value-added share in Agriculture (percentage) 35 Cambodia 30 Solomon Islands Myanmar Afghanistan Armenia Papua New Guinea 25 Tajikistan Tonga Vanuatu Turkmenistan Uzbekistan 20 Lao PDR Average gross value-added 15 share of agriculture in Bangladesh countries with special Kyrgyzstan Mongolia Bhutan Fiji needs: 17.3% 10 Samoa Azerbaijan 5 Timor-Leste Maldives Kazakhstan 0 0 10 20 30 40 50 60 70 80 Employment share (percentage) Countries in the upper right quadrant stand to gain the most from reallocation • Employment and GDP shares are higher than average. • Labour productivity in agriculture is often low -> to be boosted 6
Move to services -100 -50 0 50 100 150 200 250 300 -50 0 50 100 150 200 250 Armenia Afghanistan Landlocked developing countries Azerbaijan Bangladesh Kazakhstan Bhutan Kyrgyzstan Least developed countries Mongolia Cambodia Tajikistan Lao PDR Turkmenistan Myanmar Uzbekistan Fiji Nepal Small island developing Maldives Solomon Islands States Papua New Guinea Timor-Leste Samoa Tonga Vanuatu Change in employment share Change in labour productivity -> mostly low productivity and informal 7
Decomposing productivity changes (1991-2016) 100 % 80 % 600 60 % 400 Percentage share Per cent change 40 % 200 20 % 0 % 0 -20 % -200 -40 % -400 -60 % -80 % -600 Afghanistan Bangladesh Bhutan Cambodia Lao PDR Myanmar Nepal Solomon Islands Timor-Leste Vanuatu Armenia Azerbaijan Kazakhstan Kyrgyzstan Mongolia Tajikstan Turkmenistan Uzbekistan Fiji Maldives Papua New Guinea Samoa Tonga Least developed countries Landlocked developing countries Small island developing States Demographic change Employment rate Inter sector shift Within sector improvement Total change in gross value-added per capita (right axis) 8
Structural Transformation and Productive Capacities Economic complexity index (changes between 1991/1992 and 2016) From MIT Media Lab Countries with special needs 9
Table of contents Structural transformation • Definition • Structural transformation in countries with special needs and changes in recent years • Sectoral changes Structural transformation and poverty reduction • Poverty profiles of countries with special needs • Structural transformation and poverty Policy considerations 10
ST and poverty reduction: A conceptual framework 11
12 Poverty headcount ratio (percentage of population) 100 10 20 30 40 50 60 70 80 90 0 Timor-Leste Solomon Islands Least developed countries Bangladesh Lao PDR Vanuatu Kiribati Nepal Poverty reduction Myanmar Tuvalu Bhutan Uzbekistan Landlocked developing countries Tajikistan Turkmenistan 1990 Kyrgyzstan Armenia 2015 Mongolia Kazakhstan Azerbaijan $3.20 poverty line Papua New Guinea Small island developing Micronesia Maldives States Samoa Tonga Fiji
How have earnings and employment shares evolved? 13
Structural Transformation: Correlates of poverty reduction Pairwise correlations between the Correlations between labour productivity and poverty measures of structural transformation headcount ratio at the $1.90, $3.20 and $5.50-per-day and poverty headcount ratio at the $3.20 international poverty lines, average of 2012-2016, Asia- per day international poverty line, Pacific developing countries average for 2012-2016, Asia-Pacific developing countries 0,8 0,6 0,4 0,2 0 -0,2 -0,4 -0,6 -0,8 Employment share Value-added share Labour productivity (percentage of total) (percentage of total) (constant 2010 US$) Agriculture Industry Services 14
Table of contents Structural transformation • Definition • Structural transformation in countries with special needs and changes in recent years • Sectoral changes Structural transformation and poverty reduction • Poverty profiles of countries with special needs • Structural transformation and poverty Policy considerations 15
Policy Considerations (I) • The State must occupy the central position in structural economic transformation and poverty reduction efforts; • Industrial Policy, either selective or functional, is the State’s instrument for ST; • Targeting depicts State’s comprehensive support for a given industrial sector it chooses to develop. 16
Policy Considerations (II) Least Developed Countries: • Rural modernization • Human capital • Foreign direct investment / Special Economic Zones 17
Policy Considerations (III) Landlocked Developing Countries: • Stopping premature deindustrialization • Preventing the resource curse ; • Restructure capital-intensive industries • Promote modern business services Small Island Developing States: • Targeting specific sectors • Sustainable ocean management and fisheries • Environmentally sustainable tourism • High-value agriculture 18
Policy Considerations (IV) Cooperation and the Role of the International Community • Asia and the Pacific is the place of various integration and cooperation efforts: e.g. BRI, EAEU; The International Community must: • Support cooperation between Landlocked Developing Countries and transit countries to ensure the former access to the global economy; • Augment productive capacities of Least Developed Countries so that they can join the global economy through GVC and RVC; • Mitigate the consequences of and altogether stop the climate change to allow the Small Island Developing States to survive. 19
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