Refresher on Sources of Growth & Development Strategies · Refresher on Sources of Growth &...
Transcript of Refresher on Sources of Growth & Development Strategies · Refresher on Sources of Growth &...
Refresher on Sources of Growth & Refresher on Sources of Growth & Development Strategies Development Strategies p gp g
Financial Programming and PoliciesFinancial Programming and PoliciesYangon, Myanmar
February 16–27, 2015
Jan GottschalkTAOLAMTAOLAM
IMF-TAOLAM training activities are supported by funding of the Government of Japan
OutlineOutline
I. Sources of Growth
II. ADB Growth Scenarios
2This training material is the property of the International Monetary Fund (IMF) and is intended for the use in IMF courses. Any reuse requires the permission of the IMF.
I Sources of GrowthI Sources of Growth
A simple metaphor for thinking about growth:Economy as a machine: Transforming inputs such as labor
and capital into outputs such asand capital into outputs such as goods and services.
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Sources of GrowthSources of Growth
‘Economy as machine’ metaphor suggests … f th… for more growth we
either need:• more inputs (capital p ( pequipment, labor, land), or• make more efficient use of existing inputs throughof existing inputs through innovation or adoption of best practices and existing technologies (especially intechnologies (especially in emerging and developing countries)
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Sources of GrowthSources of Growth
Growth accounting—quantifying growth factorsGrowth accounting is based on production function that typically includes the following growth factors:
G h f i l hi h i l l li k d i ’• Growth rate of capital, which is closely linked to a nation’s investment rate
• Growth rate of ‘Raw’ labor, i.e., growth in labor forceGrowth rate of Raw labor, i.e., growth in labor force measured in the number of available workers
• Growth of human capital, i.e., growth in the quality of i di id l k f li k d h liindividual workers, often linked to schooling
• Technical progress, i.e., increase in efficiency of using above input factors, often called growth rate of total factor
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input factors, often called growth rate of total factor productivity (TFP)
Sources of GrowthSources of Growth
Growth accounting—transition economies
• Capital deepening was on average thewas on average the single most important growth driver
• Closely followed by TFP growth
6Source: See Iradian (2007), Rapid Growth in Transition Countries: Growth-Accounting Approach, p. 16
Sources of GrowthSources of Growth
Growth Experience in Asial d ll l• Capital deepening was especially important in Asia, resulting
from very high investment (and savings) ratios• Human capital accumulation was another key factor in EastHuman capital accumulation was another key factor in East Asia during 1966-90
7Source: See Young (1994), Tyranny of Numbers, p. 3
Sources of GrowthSources of Growth
Recent IMF ResearchRecent IMF Research Results on Growth FactorsFactors
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Sources of GrowthSources of Growth
N t F i Di t I t t Fl
FDI is associated with higher growth:
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Net Foreign Direct Investment Flows(percent of GDP)
2
3
0
1
0t [–4,0]*** t [1,5]* t [6,10]**
LICs with strong growth
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LICs with weak growth
Sources of GrowthSources of Growth
Growth takeoffs are associated with openness:R l E ( f GDP)
3035
Real Exports (percent of GDP)
152025
05
10
0t [–4,0] t [1,5] t [6,10]**
LICs with strong growth
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LICs with weak growth
Sources of GrowthSources of Growth
Quality of institutions and governance is another important growth factoranother important growth factor
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Sources of GrowthSources of Growth
12Source: See Kaufmann and Kray, Growth Without Governance, p. 41
Sources of GrowthSources of Growth
13Source: See Kaufmann and Kray, Growth Without Governance, p. 41
Sources of GrowthSources of Growth
What does this imply for M ?Myanmar?
L t’ t k l k t thLet’s take a look at the ADB growth scenarios …
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OutlineOutline
I. Sources of Growth
II. ADB Growth Scenarios
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ADB Growth ScenariosADB Growth Scenarios
Drivers of growth in ADB scenarios:Study distinguishes between ‘core growth’ scenarios and those simulating policies that support growth.
i i i h ‘ h’ i h i d i bBeginning with ‘core growth’ scenarios, growth is driven by different sectors, especially:• Agriculture (scenarios 2-4)g ( )• Industry (scenarios 5-7), distinguishing between resource sectors and manufacturing
S i ( i 8 9)• Services (scenarios 8-9)
These sectors should look familiar: they represent the production approach to measuring GDP
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approach to measuring GDP.
Excursion: Measuring and Analyzing GDPExcursion: Measuring and Analyzing GDP
Goods and services (real flo
Estimate of GDP
Production Approach Money (financial flow) ( sectoral "value added")
"Goods Market" Expenditure Approach ( Y = C + I + X - M )
HOUSEHOLDS PRODUCERS
"Factors Market"
NON-RESIDENTS
Income Approach (Y = wages + OS+TSP)
Wages (financial flow)
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OS=gross operating surpluses of enterprises (including profits, rents, interests)
Labor (real flow) TSP=taxes less subsidies
Excursion: Measuring and Analyzing GDPExcursion: Measuring and Analyzing GDP
Production approach: GDP Shares
45%
Composition of GDP (Constant 2010/11 Prices)
35%
40% Agriculture
25%
30%Industry (incl. mining & construction)
Services and trade
20%
%
2008
2009
2010
2011
2012
2013
Services and trade
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8/09
9/10
0/11
1/12
2/13
3/14
Excursion: Measuring and Analyzing GDPExcursion: Measuring and Analyzing GDP
Production approach: real GDP growth by sector
12%
14%
GDP Growth (Constant 2010/11 Prices)
8%
10%
12%
GDP (constant 2010/11 prices)
Agriculture
4%
6%Agriculture
Industry (incl. mining & construction)
S i d d
0%
2%
200
201
201
201
201
Services and trade
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09/10
10/11
11/12
12/13
13/14
ADB Growth ScenariosADB Growth Scenarios
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ADB Growth ScenariosADB Growth Scenarios
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ADB Growth ScenariosADB Growth Scenarios
A few observations:• Range of long-term growth rates is approximately between 5%
and 9.5%• Baseline growth based on historical experience is only 5%Baseline growth based on historical experience is only 5%
(which is still substantial)• Growth strategies based on agricultural sector have limited
growth impactgrowth impact On the one hand, this should not be surprising because the
relative importance of this sector has been declining over recent yearsy
On the other, many people depend on agriculture, so this sector matters for lowering poverty
• Growth strategies targeting industry and services have broadly
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Growth strategies targeting industry and services have broadly similar impact
ADB Growth ScenariosADB Growth Scenarios
What drives growth in these scenarios?
TFP growth is driving growth i e making more efficient use ofTFP growth is driving growth, i.e., making more efficient use of inputs! Investment and labor inputs (amounts of inputs) will adjust in these scenarios as well, but driving force is efficiency gains.
This has a number of implications for growth strategy:• Growth can’t be raised just by increasing investment
P i t t t i ll i th f ffi i i• Private sector typically is the source for efficiency gains, so growth strategy would need to be based on private sector development
• What are constraints for private sector economic development?
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• What are constraints for private sector economic development? World Bank’s Doing Business Survey is a good source
ADB Growth ScenariosADB Growth Scenarios
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Governance matters indeed for growth in Myanmar!
ADB Growth ScenariosADB Growth Scenarios
Supporting policies in ADB scenarios:Scenarios distinguish between two types of supporting policies:g yp pp g p• Human capital development through education and health policies (scenarios 10-11) Remember that building up human capital played a large role for
the economic success of the original Asian ‘Tigers’ Note that ‘inadequately educated workforce’ is a key constraint for
private businesses in Myanmar
• Infrastructure development (scenarios 12-15), through Investing in transportation and electricity generation, which lowers
costs of doing business in Myanmar, Investing in telecommunication, which raises productivity (TFP
growth, i.e., it helps the economy to make more efficient use of its resources), and
FDI hi h i h il bl d i l l
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FDI, which increases the available resources and simultaneously raises productivity
ADB Growth ScenariosADB Growth Scenarios
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Your TaskYour Task
In the following workshop session, you could consider the following questions:consider the following questions:• What is a feasible real GDP growth rate?• Which sectors are going to drive growthWhich sectors are going to drive growth
(agriculture, industry, services)?• What will be the drivers of growth?
Wh t th t t i ill ?What growth strategies will you pursue?
• What will be the role of FDI?
• What will be the role of the public sector in general and fiscal spending in particular?
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