The Quality of Growth policies for... · • Conditional cash transfers or unconditional ones, such...

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The Quality of Growth: Fiscal Policies for Better Results Dr. Vinod Thomas Senior Vice President and Director General of IEG The World Bank Based on joint work with Ramon Lopez and Yan Wang, IEG Briefing paper no. 6

Transcript of The Quality of Growth policies for... · • Conditional cash transfers or unconditional ones, such...

Page 1: The Quality of Growth policies for... · • Conditional cash transfers or unconditional ones, such as China’s low income guarantee (Dibao) • Investing in green energy—Korea

The Quality of Growth:Fiscal Policies for Better Results

Dr. Vinod Thomas

Senior Vice President and

Director General of IEG

The World Bank

Based on joint work with Ramon Lopez and Yan Wang, IEG Briefing paper no. 6

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I. Same GDP growth, different human and

environmental impacts: 1990-2005

y = - 0.2235-2.4766x

(t=-2.45)

R2 = 0.0659

-50

-40

-30

-20

-10

0

10

20

30

40

50

-8 -6 -4 -2 0 2 4 6 8

GDP growth not explained by initial GDP per capita

Ch

an

ge in

En

vir

on

men

tal q

uality (

bro

wn

issu

es

ind

ex) n

ot e

xp

lain

ed

by in

itia

l in

co

me

y = 0.0733+ 7.757x

(t=5.48)

R2 = 0.1923

-80

-60

-40

-20

0

20

40

60

80

-7 -5 -3 -1 1 3 5 7 9

GDP growth not explained by initial GDP per capita

Ch

an

ge in

Hu

man

Develo

pm

en

t In

dex n

ot

exp

lain

ed

by in

itia

l in

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me

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China–the fastest poverty reduction, but...

Source: Ravallion and Chen (2008) ―China is Poorer than we Thought, But No Less Successful in the

Fight against Poverty‖, World Bank Policy Research Working Paper 4621

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Rising income Inequality,1980-2005China’s income gini index %

Source: Ravallion and Chen (2004); World Bank estimates from NBS 2003 Rural and Urban Household Surveys.

Without adjustments

for spatial cost of

living differences

Adjusted for spatial

cost of living

differences

45.3

41.1

20

30

40

50

1980 1985 1990 1995 2000 2005

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Income inequality in Brazil is declining

52

54

56

58

60

62

6419

81

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

Brazil’s Income Gini index %

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How? “…allowing the rich to earn money with

their investments and the poor to participate in

economic growth.”Luiz Inacio Lula Da Silva, President of Brazil

• More than $100bn into social projects : microfinance,

Bolsa Familia – increasing coverage

• Poorer states growing faster than the richer ones

• Boost infrastructure with a $280 billion investment

• Allocated land to landless farmers

• 52% population are now middle class as compared to 43%

in 2002

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Environment degradation in China–

Water and air pollution

China’s Lake Dianchi, Photo by Jun Xia

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Impact of pollution on public health

Environmental Burden of Disease, per Year

DALYs*/1,000 capita

(World lowest:14, highest: 316)Deaths

Brazil 37 233,000

Chile 21 15,000

China 34 2,350,000

India 68 2,628,000

Note: Estimated based on regional exposure and national health statistics

2004. *DALY: Disability Adjusted Life Years is a weighted measure of

death, illness, and disability.

Source: World Health Organization, 2006, Preventing Disease through Healthy Environments—

Towards an Estimate of the Environmental Burden of Disease.

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Economic Stimulus and a greener economy

9

79%

34%

21%18% 17%

13% 12% 11% 10%8%

6% 6%

1%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

Republic of Korea

China Australia France United Kingdom

Germany USA South Africa

Mexico Canada Spain Japan Italy

Green Fund Share of Economic Stimulus

Source: HSBC Global Research, UNEP --Global Green New Deal: An Update for the G20 Pittsburgh Summit, September 2009

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H(Human

capital)

• Reducing distortions favoring K

• Correcting market failures

hurting H and R

•Addressing mis-governance and

corruption

• Strengthening regulations for

macro stability

R(Natural

capital)

K(Physical

capital)

WelfareGrowth

TFP

TFP

II. A Framework

Source: Thomas, Wang et al “The Quality of Growth,” 2000.

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Spending on public goods and growth

Our empirical evidence shows:

• Government spending on public goods associated with higher and cleaner growth

• Payoff to reallocating government spending toward health, education, R&D, and social protection

• Payoff to reducing perverse subsidies to fuel, water and fertilizers, keeping total government expenditure constant

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Spending on public goods and pollution

• Composition of government expenditure on air pollution, 1985-2000

• Share of public goods in government spending tends to be positively associated with air quality

• Negative association with sulfur dioxide, nitrogen dioxide, lead, carbon monoxide, and air particles

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Spending on public goods and air pollution (PM10, 1986-1999)

Source: López and Islam for this QoG project; based on data from the new GEMS dataset.

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Trade-off s?

• Can we afford to lose growth in order to reduce greenhouse gas emissions ?

• The right fiscal policy—more spending on public goods—can help alleviate this trade-off

• Reducing subsidies to fuel coupling carbon trade and a carbon tax might negate any sacrifices in growth

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III. The need for rebalancing

• Premier Wen said in 2007: ―China’s growth is imbalanced,

inequitable and unsustainable‖

• The need for rebalancing as called for by the World Bank is

based on:

– China becoming the world’s largest energy consumer and

the largest emitter of greenhouse gases

– Share of consumption declining

– Dependence on export: given the weakened global

demand, domestic demand and services need to be

boosted

Source: various World Bank Reports.

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Greenhouse gases

0

2000

4000

6000

8000

10000

12000

1990 2004 2015 2030

CO2 emission, million tons

China

United States

OECD Europe

Source: World Energy Outlook 2006.

中国

美国

欧洲经合组织国家

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Subsidies to Gasoline: need to reform Gasoline prices across Asia and major economies

Gasoline pricesUS$ per litre, early June 2008

$0.00

$0.50

$1.00

$1.50

$2.00

$2.50

$3.00

Ven

ezue

la

Indo

nesia-

May

Malay

sia-

May

Indo

nesia-

June

China

Malay

sia-

June

U.S

.A

India-

May

Thailand

Philipp

ines

India-

June

Japa

n

Singa

pore

Sou

th K

orea

Hon

g Kon

g

Ger

man

y

Turk

ey

Administered

Automatic/market

Source: World Bank calculations based on various national sources, Financial Times and CEIC.

自发/市场管制

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Capital-intensity and industry share

Note:Data are 2001, unless otherwise indicated.

Investment over GDP ratio (percent)

10

15

20

25

30

35

40

10 20 30 40 50 60

Share of industry in value added (percent)

Thailand

SouthKorea

USIndonesia

Japan (1980)

Malaysia (1970)

Malaysia (1980)

Malaysia (1990)

Malaysia

Japan

Japan (1990)

Malaysia (1960)

India (2005)

China (2005) South Korea (1990)

Source: He and Kuijs 2007.

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China’s consumption declined since 2000(Percent of GDP)

Source: China Statistics Yearbook 2007, National Bureau of Statistics of China.

Consumption

Investment

Net Export

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Fiscal Reform and quality growth

• Quality of growth: a type of growth that is equitable, stable

and sustainable over time.

• The 12th five-year plan has provided a credible roadmap

• Fiscal policies could be reformed:

– To reduce subsidies on fuel and water

– To reduce other environmentally damaging subsidies

– To increase spending on public goods and social

services

– To increase payment for eco-services

– To pilot resource tax and property tax (local taxes)

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Policies for quality growth• Rural health and education, rural-urban migration, and

equal job opportunities

• Conditional cash transfers or unconditional ones, such as China’s low income guarantee (Dibao)

• Investing in green energy—Korea and China being the leaders

• Improving energy efficiency

• Green technology can also help poverty reduction, such as solar (e.g. Laos and Vietnam)

• Encouraging carbon trading and other market-based pricing measures

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References

• Canuto, Otaviano and Guigale, Marcelo, The Day After Tomorrow ,

The World bank, 2010.

Lin, Justin Yifu, Making the Poor More Resilient to Overcome Future Crises, Sustainable Food Systems: Food for all, Forever Conference, Copenhagen , June 29, 2010.

Lopez, Ramon, Vinod Thomas, and Yan Wang, ―The Quality of Growth: Fiscal Policies for Better Results‖, IEG Working Paper no. 6, July 2008.

Ravallion and Chen, 2008. ―China is Poorer than we Thought, But No Less Successful in the Fight against Poverty‖, World Bank Policy Research Working Paper 4621

Ravallion and Chen, 2007. ―China’s Uneven Progress against Poverty‖.

• He, Jianwu and Louis Kuijs, 2007, ―Rebalancing China’s Economy—

Modeling a Policy Package‖, World Bank China Research Paper No.

7, World Bank.

• World Bank, 2010. East Asia and Pacific Economic Update.

World Bank, China Quarterly Update, various issues.