The Structural Anatomy and Institutional Architecture of Inclusive - - PowerPoint PPT Presentation

The Structural Anatomy and Institutional Architecture of Inclusive Growth in SSA

Erik Thorbecke Keynote Presentation for UNU/WIDER Conference on Inclusive Growth in Africa, Helsinki, September 20-21, 2013

Introduction

• Youth/Originality/Creativity
• Age/Wisdom(?)/Experience/Syntheticity
• Alan Guth’s Theory of Expansion of Universe
• Creativity by Young Particle Physicist/Amateur

Cosmologist: “I was so lucky because all the pieces were there”.

• Wolfgang Pauli complaining about his loss of

creativity: “Ach, I know too much”.

Content: 1. Anatomy of Growth

• What is Inclusive Growth in Context of SSA?
• A Tale of Two Worlds: How Inclusive is Present SSA

Growth Regime?

• Structural Transformation in Generating Inclusive

Growth in SSA

• Interrelationship among Growth, Inequality and

Poverty: * Pro-poor Growth * Pro-Growth Poverty Reduction

• Does High Initial Poverty Retard Growth in SSA?

Content: 2. Architecture of Institutions Conducive to Inclusive Growth

• Architecture of Inclusive Institutions in SSA

* Case for Social Protection and Labor Institutions (SPLs) * Desirable Features in Small Scale Agriculture, Infrastructure and Social Delivery Systems * Pillars (Preconditions) of Inclusive SPLs

Main Messages (before it is too late)

• Emphasize Reverse Causality from Poverty

Reduction to Growth

• Recent Structural Transformation in SSA more

Inclusive than in Past but Much More is Needed

• Is there Something Different in the Anatomy
• f Growth in SSA than in other Developing

Regions?

Main Messages

• Not Clear that High Initial Poverty Retards

Subsequent Growth in SSA

• Is there an African Dummy and can we

Elucidate its Elements?

• Follow a Strategy of Pro-Growth Poverty

Reduction in Selection of Inclusive Institutions

• Such Institutions Exist and can be Designed to

Fit SSA Context

Features of Inclusive Growth to Emphasize in SSA

• Inequality of Income and Assets: Adopt

Relative Definition of Pro-poor Growth.

• Inequality of Opportunities: Essential to

Achieve less Unequal Delivery of Social Services ( e.g. Education, Health)

• Degree of Protection for Poor Needs to be

higher because they are more Vulnerable

• Employment, Employment…..

Tale of Two Worlds

• Two Economic Camps:

First Distinction: * Growth/Pro-active Government vs. * Growth/Minimalist Government * Sen: “…this Indian Administration thinks that the only thing that works is business.. that’s a disastrous position to take”

Tale of Two Worlds

* Bhagwati “ Sen’s position is mistaken and dangerous since money spent on government programs is largely wasted…India’s myriad problems have less to do with poor health and literacy than a poor investment climate.”

• Let’s Call Sen’s Position “Growth with

Government” (GG) and Baghwati “Growth is Enough” (GE)

Tale of Two Worlds

• Second Distinction: How Inclusive is Present

Growth Spell in SSA? The Glass is Seen as: * Half Full (HF) Camp: Quite Inclusive: Sola-i- Martin (2010), Young (2012), IMF (2012) * Half Empty (HE) Camp Not Inclusive Enough: AERC, Fosu (2012), AfDB (2012), Thorbecke (2013)…

Tale of Two Worlds

• Large Overlap between HE and GG and

between HF and GE Proponents World-wide However:

• More Convergence between HE/GG World and

HF/GE World in Context of SSA than Other Developing Regions

• Recognition of Role of Government: Need for

Social Protection & Labor Schemes, Policies & Institutions in Agriculture…

Some Facts to Judge IG in SSA

• Remarkable Growth: 2.5-3.0 % p.c. GDP p.a.
• Headcount Poverty 58% to 48%, 1996-2010
• Number of Poor Up: 349m.- 414m., 1996-2010
• Income Inequality very high
• Only 28% of Labor Force has stable (formal)

jobs, 63% vulnerable (informal) jobs

• Unequal Distribution of Social Benefits

Anatomy of Growth: Structural Transformation

*Successful vs. Flawed Structural Transformation *Until Early 2000’s Workers in SSA Pushed out of Agriculture rather than Pulled into more Productive non-Agriculture Jobs: Migration of Misery *Contrast Successful Asian ST with Flawed SSA ST Based on WDR/2008

Deviations from Normal Pattern for Ag Share of Labor Force, 1960-early 2000s

Structural Transformation in SSA 1960-2000

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Flawed ST in SSA, Successful ST in Asia

• See lower left Panel: Many almost Vertical

Country Time Paths’ Arrows, Reflecting No GDP p.c. Growth yet large Fall in Ag Share of the Labor Force.

• Contrast with Asia: Most Countries Followed

“Normal” ST. Time Paths Reflecting Orderly and Productive Rural-to-Urban Migration. Time Paths’ Arrows Tend to be Parallel to “Normal” ST Trend Line (upper left panel)

Recent Structural Transformation during Current Growth Spell

• I updated WDR/2008 Data Set
• Sample of 14 SSA Countries, 2000-2011
• ST Appears more Normal for most Countries
• Mali is only Case of Flawed ST
• Botswana, Ghana, Liberia Reveal Rising Share
• f Ag. Employment out of Total Employment.

Could Reflect Increasing Productivity within

• Ag. Sector

Recent Structural Transformation during Current Growth Spell

• Tentative Conclusion: Present ST in SSA Relatively

More Inclusive, Reflecting: * More Orderly & Productive Rural to Urban Migration Process * Changing Policy Environment in Ag. with some small increase in Ag. Productivity and Switch to Higher Value Crops * Yet Much More Needs to be Done

Anatomy of Growth: the Growth- Inequality-Poverty Nexus

• The Interrelationship among Growth,

Inequality and Poverty is Fundamental to Understanding the Structure and Dynamics of Growth and particularly Inclusive Growth

• Process of Globalization (exogenous) and

Country’s Development Strategy (endogenous) Affect Structure of Growth, Inequality and Poverty

Anatomy of Growth: the Growth- Inequality-Poverty Nexus

• A Development Strategy Affects Poverty

through a Number of Channels in Particular through the Growth and Distribution

• Channels. Poverty Outcome is Country

(Setting-) Specific.

• Bourguignon’s Growth-Inequality-Poverty

Triangle.

(Inequality) Distribution

Classical +

Growth + Poverty

Modern -

Trade Capital Labor Technology Knowledge Globalization Openness

Kuznets

+

• +

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Impact of Globalization and Development Strategy on Growth, Inequality and Poverty Nexus

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Anatomy of Growth: the Growth- Inequality-Poverty Nexus

• Every Link of the Growth-Inequality-Poverty

Nexus and Causal Chain has to be Explored.

Links:

• Impact of Globalization and Development

Strategy on Structure of Growth and on Income Inequality.

• Contrast Effect of Kenyan Horticultural

Exports with that of Nigerian Oil Exports

• Impact of Growth on Inequality (Kuznets)
• Kuznets’ Law Essentially Dethroned

Anatomy of Growth: the Growth- Inequality-Poverty Nexus

• Impact of Inequality on Growth
• Two conflicting theories:

▫ Neo-classical (Kaldor): Inequality Good for Growth ▫ New Political Economy of Development: Inequality Reduces Future Growth

• Impact of Growth on Poverty
• Depends on Pattern of Growth:

▫ Pro-poor or Anti-poor

Anatomy of Growth: the Growth- Inequality-Poverty Nexus

Impact of Poverty on Growth

• Ravallion (2012) finds that: 1. high

initial poverty rates have sizeable negative impacts on the growth rate; 2. it is high poverty not inequality that retards growth; 3. the growth elasticity of poverty reduction tends to be lower in countries with a higher initial level of poverty

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Causality: From Growth to Poverty and/or Poverty-Reduction to Growth

• From: Growth → Lower Inequality → Poverty

Reduction ◊ Pro-Poor Growth

• From: Poverty Reduction → Lower Inequality

→ Higher Growth ◊ Pro-Growth Poverty Reduction

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Examples of Vicious Circles Triggered by Initial Poverty (Perry et al, 2006)

• Poor People have limited access to credit and

many other markets under-invest

• Poor People often suffer from poor health

low productivity, low income

• Poor people tend to attend low quality schools

low human capital

• Can at least some of these vicious circles be

converted into virtuous circles?

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Conceptual and Empirical Case for Pro- Growth Poverty Reduction

• Figure 4. Impact of Poverty Reducing Institutions on Inclusive

Growth and Income Distribution

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Conceptual and Empirical Case for Pro- Growth Poverty Reduction

• Trigger Point of Institutional or Policy

Intervention under Pro-Growth Poverty Reduction Strategy is Aimed at Reducing Poverty Directly.

• Trigger Point of Institutional or Policy

Intervention under Pro-Poor Growth Strategy is on Changing the Structure of Growth.

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Conceptual and Empirical Case for Pro- Growth Poverty Reduction (PGPR)

• Case and Rationale for PGPR:
• Ravallion (2012): High initial Poverty Rates

have sizeable negative impacts on growth

• rate. Hence lowering Poverty directly can

unleash the Growth Process.

• Evidence that Institutions (Programs) Exist

that while Directed towards Poverty Alleviation ALSO Contribute to Growth.

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Does High Initial Poverty Retard Growth?

• Endogeneity Issue:

High Poverty ↔ Low Growth High Poverty → Low Growth Ravallion: “Finding that higher initial poverty rate implies a lower subsequent growth rate… is robust to allowing for the possible endogeneity”

Does High Poverty Retard Growth?

• Confrontation with Micro Evidence from 15

Ethiopian Villages (1994-2009) and 30 Rwandan Districts (2001-2005)

• Paradox: High Initial Poverty → High Growth
• First Evidence and then Attempt at Resolving it

• Fig. 5 Initial Poverty and Consumption

Growth in Ethiopian Villages

.05 .1 .15 .2 .25 Average per capita consumption growth .2 .4 .6 .8 1 Initial level of poverty

• Fig. 6 Initial Level of Poverty and Rate of

Reduction of Poverty in Ethiopian Villages

• .1
• .05

.05 .1 Average rate of growth in poverty reduction .2 .4 .6 .8 1 Initial level of poverty

• Fig. 7 Initial Level of Poverty and Rate of

Reduction in Poverty in Rwandan Districts

• .3
• .2
• .1

.1 .2 Average reduction in poverty .2 .4 .6 .8 Initial level of poverty

Possible Resolution of Paradox

• Ethiopian and Rwandan Governments

Allocated anti-poverty and Social Protection Funds Proportionately to Incidence of Poverty

• Shimeles claims that in both these countries,

governments made a conscious effort to direct public expenditures and aid resources to poor areas.

Another Troublesome Possibility

• The sub-sample of African Countries (32) in

Ravallion’s full sample of developing countries (97) appears to behave differently.

• We estimated Ravallion’s regressions for the

African sub-sample using the same data sets as well as Povcalnet.

• Surprisingly, Results suggest no statistically

significant correlation between initial consumption expenditure and per capita consumption growth but →

Is Relationship between Initial Poverty and Subsequent Growth Different in SSA?

• Significant and Positive Correlation between

Initial Poverty and Consumption Growth

• Speculative Explanation: Poorest SSA countries in

Past i) Underwent Greatest Improvement in Governance; ii) Suffered more from Ethnic and

• ther Conflicts and Shocks that were at least

partially resolved… and perhaps vice versa..

• This issue (African dummy?) Needs much more

Research before Drawing Robust Inferences

Positive Correlation between Initial Poverty and Consumption Growth in SSA?

• .1
• .05

.05 .1 .15 Annual per capita consumption growth 1 2 3 4 5 Initial Log Headcount ratio

Institutional Architecture for IG in SSA

• Acemoglu & Robinson (2012) “Growth and

development can only be sustained if anchored on inclusive political and economic institutions”

• “Tragedy of Africa is that highly extractive

colonial institutions created an opening for unscrupulous leaders after Independence”

• Vacuum of National Inclusive institutions

Institutional Architecture in SSA

• Strong and Convincing Evidence that Social

Protection and Labor Schemes (SPLs) Exist that are both Poverty-Reducing and Productive (Thorbecke, 2013)

• No Necessary Trade-off between Equity and

Efficiency: Poverty Reduction → Higher Growth

Four Pillars of the Architecture of Inclusive Institutions

• Greater Centralization is Crucial: “lack of political

centralization almost to the point of total collapse of the state is a feature that Congo shares with much of sub-Saharan Africa” (Acemoglu & Robinson)

• In order to be poverty-reducing and productive, successful

institutions have to be parts of a broad -based development strategy consisting of a combination of mutually reinforcing SPL schemes.

• The schemes have to be already incorporated into the

institutional structure (not created ad hoc)

• SPL schemes can not be “one size fits all”. Programs have to

be adapted to the specific setting, institutional capability and culture of a given country or region.

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Main Features and Issues in the Architectural Design of Inclusive Institutions

• In 3 Highly Interrelated and Overlapping

Sectors:

• Small Scale Agriculture
• Infrastructure
• Social Protection Delivery Systems

Inclusive Institutions in Small Scale Agriculture

• Small scale agriculture still Engine of Growth

in much of SSA

• Experience of JCRR (Korea, Taiwan):

* Multipurpose Farmers’ Associations * Inputs, Credit, Research, Rural Infrastructure

• Need for Supranational Collective Goods’

Institutions in Research and Infrastructure→ Need for some form of Regional Integration

Inclusive Institutions in Small Scale Agriculture

• Present Structural Transformation is more

inclusive but much more needs to be done to create a Social Transformation

• Improved Roads, Rural Schools can help

Lubricate the Rural to Urban Migration by Reducing Transaction Costs of Moving

• Formal-Informal Networks

Infrastructure

• Infrastructure Investment Crucial for IG: Rural

Roads, Schools, Clinics, Dispensaries….

• Investment Needs to be Supplemented by

Schemes that Ensure that Disadvantaged Groups also Benefit from Utilization of Services.

• Examples of Successful Institutions: Ethiopian

Public Works Safety Net Program, BRAC in Uganda…→ Employment & SOC Creation….

Social Protection Delivery Systems in SSA

• Weak Link between Public Expenditures and

Quality of Services → Crucial Need for Methodology to Measure Benefits Received

• Evidence of Weak Service Delivery Especially

to the Poor → No Voice

• Accountability Issue:

*Indirect Route: Policymakers-Providers-Clients *Direct Route: Clients-Providers →

Social Protection Delivery Systems in SSA

• How to Implement Direct Route: Privatization
• ften does not work for the Poor (often cannot

afford user fees)

• Can Pseudo-markets be created in Health,

Education and other Services?

• Why is it that African countries have so much

difficulty in designing institutions that improve citizen-state accountability relationships? Lack of social cohesion and ethnic conflicts Decentralization of service delivery generally negative in Africa except perhaps in South Africa

Potentially Transferable Institutions: Social Security and Human Capital

• Conditional Cash Transfer Programs (CCTs)

target Poor Regions and Poor Households, provide Cash or Food, and Recipients must Commit to Undertake some Actions (e.g. Keeping Children in School.

• CCTs Achieve two Objectives → Raise

Consumption Level of Poor Hhlds, and Contribute to Human Capital of Children.

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Potentially Transferable Institutions: Social Security and Human Capital

• Best-Known and Effective CCTs:

◊ Opportunidades (Progresa) Mexico Covers one quarter of Mexico’s population ◊ Bolsa Familia Brazil Poverty ↘ from 26% in 2003 to 14% in 2009 Inequality (Gini) ↘ 0.59 to 0.54 “Bolsa Familia is an anti-poverty scheme winning converts worldwide” (Economist)

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Potentially Transferable Institutions: Social Security and Human Capital

• Transferable from within SSA ?:

◊ Old Person Grants and Child Support Program in South Africa → reach 10 million children and 2 million pensioners and have improved well-being of recipients, added to stock of human capital and through expenditures of pensioners to a more inclusive growth pattern. ◊ Poverty-Reducing, Productive and Inclusive

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Concluding Messages

Anatomy of Growth

• Structural Transformation in Present Growth

Spell more “Normal” and Inclusive than in Past

• Relationship between Initial Poverty

Incidence and Subsequent Growth Needs to be Clarified in SSA

• New Pattern of Growth even though more Inclusive

than pre-2000 Requires Major Institutional Changes

Concluding Messages

Institutional Architecture for IG

• Institutional development based on Pro-Growth- Poverty-

Reduction is both appropriate to and feasible within SSA conditions

• Strong Case for the Productive Role of Social Protection

and Labor Programs

• Many SPLs Schemes Can Make the Equality of Opportunity

Greater and Level the Playing Field

• Present (pre) African Renaissance Era of High Growth can be

a Lubricant for Institutional Changes