Ludovico Alcorta Development Policy, Statistics and Research Branch United Nations Industrial...

Ludovico AlcortaDevelopment Policy, Statistics and Research Branch

United Nations Industrial Development Organization

International Economic AssociationPretoria, 3-4th July 2012

Industrial Structural Change, Growth Patterns and Industrial Policy

Outline• Research for Industrial Policy• Structural Change and Development• Industrial Structural Change Research at

UNIDO• Results and Findings• Applications to Industrial Policy• Extensions

2

Research for Industrial Policy

3

1. Providing:• Descriptive analysis on structural change and identifying manufacturing growth patterns

• Exploring relationships between patterns and stylized facts and their determinants

2. Embedding the analysis into a broader industrial policy assessment framework, which links the degree of economic attractiveness of industry to governments with aspects of the present and future feasibility of reaping those gains

Structural Change and Development• Definitions

– Long-term change in the composition of an aggregate (Syrquin, 2007)– Ability of an economy to constantly generate new dynamic activities characterized by

higher productivity and increasing returns to scale (Ocampo, 2005; UNDESA, 2006)

• The importance of (industrial) structural change for economic growth – Sustained economic growth is associated with the speed and nature of structural change

(McMillan and Rodrik, 2011; Ocampo and Vos, 2008; Taylor and Codrina, 2006)– Economic growth is associated with the size and growth of manufacturing industry

(Prebisch, 1948; Kaldor, 1967; Rodrik, 2006)– Modern economic growth is a process of continuous technological innovation, industrial

upgrading and technological diversification (Lin, 2012)– As countries get richer they diversify and produce a wider range of goods. Only at high

level of incomes countries specialise (Imbs and Wacziarg, 2003) – Economic growth and industrial structural change are positively associated (UNDESA,

2006).

• How does structural change impact the rate of growth?– Reallocation effects – Shifts in resource endowments– Technological change and technological capabilities– Learning by doing– Intra-national trade

4

Structural change and economic growth

5

0 5 10 15 20 25

Food and beveragesTobacco

TextilesWearing apparel

Wood productsPaper

Printing and publishingCoke and refined petroleum

ChemicalsRubber and plastic

Non-metallic mineralsBasic metals

Fabricated metalsMachinery and equipment

Electrical machinery and apparatusPrecision instruments

Motor vehicles

Large countries: VA share in MVA

Indu

stri

es

Real GDP per capita (PPP adjusted): 500 $US


6

0 5 10 15 20 25



Wood productsPaper






Motor vehicles


Indu

stri

es

Real GDP per capita (PPP adjusted): 1,000 $US


7

0 5 10 15 20 25



Wood productsPaper






Motor vehicles


Indu

stri

es



8

0 5 10 15 20 25



Wood productsPaper






Motor vehicles


Indu

stri

es



9

0 5 10 15 20 25



Wood productsPaper






Motor vehicles


Indu

strie

s



10

0 5 10 15 20 25



Wood productsPaper






Motor vehicles


Indu

stri

es



11

0 5 10 15 20 25



Wood productsPaper






Motor vehicles


Indu

stri

es



12

0 5 10 15 20 25



Wood productsPaper






Motor vehicles


Indu

stri

es



13

0 5 10 15 20 25



Wood productsPaper






Motor vehicles


Indu

stri

es



14

0 5 10 15 20 25



Wood productsPaper






Motor vehicles


Indu

stri

es



15

0 5 10 15 20 25



Wood productsPaper






Motor vehicles


Indu

stri

es


Industrial Structural Change Research at UNIDO• Starting point

– Chenery’s work (Chenery and Watanabe 1958; Chenery 1960; Chenery and Taylor 1968, etc.)

– UNIDO statistics• Departures

– Data: • Value added in nominal and real terms • 18 manufacturing industries • Stretching into 120 countries• Covers 45 years, 1963-2008

– Selection of appropriate estimation methodology:• Cubic form

• Fixed effects estimation procedure to control for unobserved country conditions

• Variables expressed in logarithmic terms to measure elasticity in each variable

16

Where X stands for dependent variables – value added share, value added per capita output, value added per worker (labor productivity) and employment share.

Results and findings 1. Country-size matters

2. Most manufacturing sectors in large countries peak in terms of value added share in total MVA – there is an inverted U-pattern.

3. Manufacturing sectors in large countries peak in stages at different income levels 4. In sectors that peak early valued added, employment and labour productivity growth slow down as income expand5. In middle-peaking sectors value added and employment growth slows down but labour productivity growth holds steady as income expand 6. In late industries value added and productivity grow faster compensating for the slow down in employment

17

Results and Findings

18

-1.5

-1

-0.5

0

0.5

1

1.5

2

2.5

1000

4000

7000

1000

0

1300

0

1600

0

1900

0

2200

0

2500

0

2800

0

3100

0

3400

0

3700

0

4000

0Gro

wth

ela

stici

ty

GDP per capita in $US (PPP adjusted)

Large countries

Value added per capita

Labor productivity

Employment-population ratio

-1.5

-1

-0.5

0

0.5

1

1.5

2

2.5

1000

4000

7000

1000

0

1300

0

1600

0

1900

0

2200

0

2500

0

2800

0

3100

0

3400

0

3700

0

4000

0Gro

wth

ela

stici

ty


Medium countries


Labor productivity


1. Country-size matters : e.g. food and beverages

-1

-0.5

0

0.5

1

1.5

2

2.5

10

00

40

00

70

00

10

00

0

13

00

0

16

00

0

19

00

0

22

00

0

25

00

0

28

00

0

31

00

0

34

00

0

37

00

0

40

00

0

Gro

wth

ela

stici

ty


Small countries


Labor productivity



19

2. Most manufacturing sectors in large countries peak in terms of value added share in total MVA – there is an inverted U-pattern.


20

3. Manufacturing sectors in large countries peak at different income stages - early-peaking, middle-peaking and late-peaking sectors.


21

4. Early Industries: Slow down of value added, employment and productivity as incomes grow but……

-2

-1

0

1

2

1,0

00

3,0

00

5,0

00

7,0

00

9,0

00

11

,00

0

13

,00

0

15

,00

0

17

,00

0

19

,00

0

21

,00

0

23

,00

0

25

,00

0

27

,00

0

29

,00

0

31

,00

0

33

,00

0

35

,00

0

37

,00

0

39

,00

0

Gro

wth

ela

stici

ty

Real GDP per capita ($US)

Non-metallic mineral

Value added per capita Employment-population ratio Labor productivity

-2

-1

0

1

2

3

1,0

00

3,0

00

5,0

00

7,0

00

9,0

00

11

,00

0

13

,00

0

15

,00

0

17

,00

0

19

,00

0

21

,00

0

23

,00

0

25

,00

0

27

,00

0

29

,00

0

31

,00

0

33

,00

0

35

,00

0

37

,00

0

39

,00

0

Gro

wth

ela

stici

ty


Wood products


-2

-1

0

1

2

3

1,0

00

3,0

00

5,0

00

7,0

00

9,0

00

11

,00

0

13

,00

0

15

,00

0

17

,00

0

19

,00

0

21

,00

0

23

,00

0

25

,00

0

27

,00

0

29

,00

0

31

,00

0

33

,00

0

35

,00

0

37

,00

0

39

,00

0

Gro

wth

ela

stici

ty


Wearing apparel



22

5. Middle Industries: Slow down of value added and employment is kept in check by productivity growth except for…

-2

-1

0

1

2

3

1,000

3,000

5,000

7,000

9,000

11,00

013

,000

15,00

017

,000

19,00

021

,000

23,00

025

,000

27,00

029

,000

31,00

033

,000

35,00

037

,000

39,00

0Grow

th ela

sticit

y


Basic metals


-2

-1

0

1

2

3

1,000

3,000

5,000

7,000

9,000

11,00

013

,000

15,00

017

,000

19,00

021

,000

23,00

025

,000

27,00

029

,000

31,00

033

,000

35,00

037

,000

39,00

0Growt

h elas

ticity


Fabricated metals



23

6. Late industries: Value added and labor productivity grow much faster than GDP growth arresting the slow down in employment growth

-2

-1

0

1

2

3

1,0

00

3,0

00

5,0

00

7,0

00

9,0

00

11

,00

0

13

,00

0

15

,00

0

17

,00

0

19

,00

0

21

,00

0

23

,00

0

25

,00

0

27

,00

0

29

,00

0

31

,00

0

33

,00

0

35

,00

0

37

,00

0

39

,00

0

Gro

wth

ela

stici

ty


Chemical products


-2

-1

0

1

2

3

1,0

00

3,0

00

5,0

00

7,0

00

9,0

00

11

,00

0

13

,00

0

15

,00

0

17

,00

0

19

,00

0

21

,00

0

23

,00

0

25

,00

0

27

,00

0

29

,00

0

31

,00

0

33

,00

0

35

,00

0

37

,00

0

39

,00

0

Gro

wth

ela

stici

ty


Machinery and equipment


-2

-1

0

1

2

1,00

0

3,00

0

5,00

0

7,00

0

9,00

0

11,0

00

13,0

00

15,0

00

17,0

00

19,0

00

21,0

00

23,0

00

25,0

00

27,0

00

29,0

00

31,0

00

33,0

00

35,0

00

37,0

00

39,0

00

Gro

wth

ela

stici

ty


Electrical machinery and apparatus


Applications to Industrial Policy

• Benchmarking– Any country at any level of income– Grouping of countries

• Entry and exit points– At which level of income an industry becomes

attractive according to its value added growth, labour productivity and employment potential

– At which level of income the value added growth, labour productivity and employment potential may no longer be attractive

24

Application: Comparison Egypt, South Korea and Large Countries

25

0

5

10

15

20

25Food and beverages

Tobacco

Textiles

Wearing apparel

Wood products

Paper

Printing and publishing

Coke and refined …


Non-metallic minerals

Basic metals

Fabricated metals

Machinery and …

Electrical machinery …

Precision instruments

Motor vehicles

Furniture, n.e.c.

Egypt in 2007: real GDP per capita (PPP adjusted) 5,700 US$

26

0

5

10

15

20


Tobacco

Textiles

Wearing apparel

Wood products

Paper





Basic metals

Fabricated metals

Machinery and …



Motor vehicles

Furniture, n.e.c.


Korea in 1989: real GDP per capita (PPP adjusted) 10,700 US$


27

0

5

10

15

20


Tobacco

Textiles

Wearing apparel

Wood products

Paper





Basic metals

Fabricated metals

Machinery and …



Motor vehicles

Furniture, n.e.c.


Korea in 1981: real GDP per capita (PPP adjusted) 5,700 US$


28


29

0

5

10

15

20


Tobacco

Textiles

Wearing apparel

Wood products

Paper





Basic metals

Fabricated metals

Machinery and …



Motor vehicles

Furniture, n.e.c.


Large countries: real GDP per capita (PPP adjusted) around 5,700 US$


30

Application: Comparison South Africa, South Korea and Large Countries

31


32


33


34


Application: entry and exit points

35

Growth charts: fastest and slowest growing – early, middle and late sectors

-4

-2

0

2

4

10

00

20

00

30

00

40

00

50

00

60

00

70

00

80

00

90

00

10

00

0

11

00

0

12

00

0

13

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30

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0

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00

0

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0

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00

0

40

00

0

Gro

wth

ela

stici

ty

Real GDP per capita (PPP adjusted) in US$

Real value added per capita in US$

Food and beverages: fastest growing early sector

Tobacco: slowest growing early sector

Paper: fastest growing middle sector

Fabricated metals: slowest growing middle sector

Electrical machinery and apparatus: fastest growing late sector

Motor vehicles: slowest growing late sector

Real GDP per capita (PPP adjusted) in Korea in 2007: 23,900 US$

Real GDP per capita (PPP adjusted) in South Africa in 2007: 10,400 US$

Real GDP per capita (PPP adjusted) in Egypt in 2007: 5,700 US$


36


-4

-2

0

2

4

10

00

20

00

30

00

40

00

50

00

60

00

70

00

80

00

90

00

10

00

0

11

00

0

12

00

0

13

00

0

14

00

0

15

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0

16

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0

17

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18

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0

19

00

0

20

00

0

21

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0

22

00

0

23

00

0

24

00

0

25

00

0

26

00

0

27

00

0

28

00

0

29

00

0

30

00

0

31

00

0

32

00

0

33

00

0

34

00

0

35

00

0

36

00

0

37

00

0

38

00

0

39

00

0

40

00

0

Gro

wth

ela

stici

ty


Labor productivity

Non-metallic minerals: fastest growing early sector

Furniture, n.e.c.: slowest growing early sector

Basic metals: fastest growing middle sector

Fabricated metals: slowest growing middle sector

Electrical machinery and apparatus: fastest growing late sector

Rubber and plastic: slowest growing late sector





37


-4

-2

0

2

4

10

00

20

00

30

00

40

00

50

00

60

00

70

00

80

00

90

00

10

00

0

11

00

0

12

00

0

13

00

0

14

00

0

15

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0

16

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0

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18

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0

19

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0

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0

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Gro

wth

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stici

ty



Wearing apparel: fastest growing early sector Tobacco: slowest growing early sector

Precision instruments: fastest growing middle sector Basic metals: slowest growing middle sector

Machinery and equipment: fastest growing late sector Chemicals: slowest growing late sector




Extensions• New variables: capital-labor ratio, wages,

firm size, total factor productivity, resource intensity (energy, water)

• Extension of the country classification: population density, natural resource endowments, landlocked

• More detailed manufacturing classification – 4 digit ISIC

• Expansion to international trade data• Exploration of linkages through input-output

relations 38

THANK YOU!

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