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

Diversification Export Diversification Across Products Across Partners Quality Upgrading Country, Sector, 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)

2 4 6 20000 40000 60000 Real GDP Per Capita Nonparametric Quadratic

Export Diversification: Cross-Country

Export Diversification and Quality Upgrading for Growth and Stability

Growth Volatility

➢ Robust relationship between diversification and growth in LICs. ➢ Quality upgrading and sectoral reallocation are linked to higher growth.

• Significant positive relationship

between export diversification and reduction in output volatility.

0.2 0.4 0.6 0.8 1 1.2 1.4 Less Diversified More Diversified

Growth Rate, LICs, 1962-2010

3.6 3.8 4 4.2 4.4 4.6 4.8 5 Less Diversified More Diversified

Volatility, LICs, 1962-2010

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

.1 .2 .3 .4 .5 1960 1970 1980 1990 2000 2010 year

• Div. episode (1969-2000)

Herfindahl index HP Break

Chile

.05 .1 .15 .2 .25 1960 1970 1980 1990 2000 2010 year

• Div. episode (1962-91)
• Div. episode (2004-08)

Herfindahl index HP Break

Malaysia

.05 .1 .15 .2 1960 1970 1980 1990 2000 2010 year

• Div. episode (1962-89)

Herfindahl index HP Break

Thailand

.1 .2 .3 .4 .5 .6 1960 1970 1980 1990 2000 2010 year

• Div. episode (1983-97)

Herfindahl index HP Break

Ghana

.05 .1 .15 .2 .25 1960 1970 1980 1990 2000 2010 year

• Div. episode (1977-95)

Herfindahl index HP Break

Madagascar

.2 .4 .6 .8 1 1960 1970 1980 1990 2000 2010 year

• Div. episode (1967-72)
• Div. episode (1978-86)

Herfindahl index HP Break

Mauritania

.2 .4 .6 .8 1 1.2 10000 20000 30000 40000 Exporter GDP per capita (2000 constant Dollars) HIC MIC LIC Lowess Fit

Quality across all Exports

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 Ladders

Tanzania

➢ Given its concentration in agricultural products and crude materials, Tanzania has potential for horizontal diversification but also for quality upgrading in agriculture.

.5 1 1.5 2

Quality (90th percentile=1)

10 20 30 40

Animal&Veg Oils Beverages and Tobacco Chemicals Crude Materials,etc Food/Live Animals Machinery and Transport Equip. Manuf Goods Minerals

• Misc. Manuf Articles

Others

Percent of Total Exports Quality Ladder Tanzania position

Tanzania: Quality by SITC1 Sector, 2010

➢ China has some additional potential for quality upgrading, but may also aim to diversify further across products and upgrade the tasks it performs.

.5 1 1.5 2

Quality (90th percentile=1)

10 20 30 40 50

A n i m a l & V e g O i l s B e v e r a g e s a n d T

• b

a c c

• C

h e m i c a l s C r u d e M a t e r i a l s , e t c F

• d

/ L i v e A n i m a l s M a c h i n e r y a n d T r a n s p

• r

t E q u i p . M a n u f G

• d

s M i n e r a l s M i s c . M a n u f A r t i c l e s O t h e r s

Percent of Total Exports Quality Ladder China position

China: Quality by SITC1 Sector, 2010

Quality Ladders

What is next for China?

➢ Within its two strongest SITC1 sectors, China’s exports seem tilted towards less sophisticated products, e.g. transport equipment is lagging behind other machinery.

.4 .6 .8 1 1.2 Quality (90th percentile=1) 5 10 15 20 25

Electrical machinery Machinery other than electric Transport equipment

Percent of Total Exports Quality Ladder China position

Machinery and transport equipment

China: Quality by SITC2 Sector, 2010

Quality Ladders

China: zooming into subsectors

➢ Likewise clothing still dominates within Miscellaneous Manufactures.

.2 .4 .6 .8 1 1.2 Quality (90th percentile=1) 2 4 6 8 10

Clothing Footwear Furniture Miscellaneous manufactured articles Sanitary, plumbing, fixt. Scientif & control instrumente, etc. Travel goods and similar articles

Percent of Total Exports Quality Ladder China position

Miscellaneous manufactured articles

China: Quality by SITC2 Sector, 2010

Quality Ladders

China: zooming into subsectors

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

5

Structural Reforms Database – Preliminary Results

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

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

Country Examples, 1973-2014

0.8 0.7 0.6 0.5 0.4 0.3 0.2 0.1 18 16 14 12 10 8 6 4 2 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 1 0.9 0.8 0.7 0.6 0.5 0.4 0.3 0.2 0.1 20 18 16 14 12 10 8 6 4 2 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013

Morocco: Financial Reform Index

0.95 0.9 0.85 0.8 0.75 0.7 0.65 0.6 0.55 0.5 5 10 15 20 25 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013

Switzerland: Financial Reform Index

0.8 0.7 0.6 0.5 0.4 0.3 0.2 0.1 16 14 12 10 8 6 4 2

Ghana: Financial Reform Index Kazakhstan: Financial Reform Index

Interest rate controls Banking Supervision International capital flows Aggregate CreditCeilings Directed credit/reserve requirements Entry barriers/pro-competitionmeasures Privatization Security Markets TotalIndex

16

Conceptual framework on prioritization

Technology & Innovation Industry Regulations Business Regulations Labor Market Infrastructure Banking System Legal System & Property Rights Capital Market Development Trade Liberalization Agriculture LIDCs EMs AMs Reform Types IncomeLevel

Highest priority reforms Other priority reforms Note: Comparisons across reforms within each country group. Darker shades imply larger gains from reforms.

• 10,000

20,000 30,000 40,000 50,000 60,000 LIDC EM AM

2,449 45,138 PPP Per capita Agriculture Diversification Process Development Process Reform Priorities Structural Transformation Process Manufacturing Services Take-off stage Steady state Real

Financi al Labor

Financial

Real

Labor

Labor

Financi al

Real

Thank You!