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.

3

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)

4


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

5

input factors, often called growth rate of total factor productivity (TFP)


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


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


Recent IMF ResearchRecent IMF Research Results on Growth FactorsFactors

8


N t F i Di t I t t Fl

FDI is associated with higher growth:

4

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

9

LICs with weak 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

10

LICs with weak growth


Quality of institutions and governance is another important growth factoranother important growth factor

11


12Source: See Kaufmann and Kray, Growth Without Governance, p. 41


13Source: See Kaufmann and Kray, Growth Without Governance, p. 41


What does this imply for M ?Myanmar?

L t’ t k l k t thLet’s take a look at the ADB growth scenarios …

14

OutlineOutline

I. Sources of Growth

II. ADB Growth Scenarios

15

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

16

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)

17

OS=gross operating surpluses of enterprises (including profits, rents, interests)

Labor (real flow) TSP=taxes less subsidies


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

18

8/09

9/10

0/11

1/12

2/13

3/14


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

19

09/10

10/11

11/12

12/13

13/14


20


21


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

22

Growth strategies targeting industry and services have broadly similar impact


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?

23

• What are constraints for private sector economic development? World Bank’s Doing Business Survey is a good source


24

Governance matters indeed for growth in Myanmar!


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

25

FDI, which increases the available resources and simultaneously raises productivity


26

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?

27

p

Refresher on Sources of Growth & Development Strategies · Refresher on Sources of Growth &...

Documents

Transcript of Refresher on Sources of Growth & Development Strategies · Refresher on Sources of Growth &...