sarwat jahan, june 30, 2014 tokyo, japan, adbi spr seminara closer look at the extensive margina...
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SUSTAINING LONGSUSTAINING LONG--RUN GROWTH ANDRUN GROWTH ANDSUSTAINING LONGSUSTAINING LONG RUN GROWTH AND RUN GROWTH AND MACROECONOMIC STABILITY IN LICS: MACROECONOMIC STABILITY IN LICS:
THE ROLE OF STRUCTURALTHE ROLE OF STRUCTURALTHE ROLE OF STRUCTURAL THE ROLE OF STRUCTURAL TRANSFORMATION AND TRANSFORMATION AND
DIVERSIFICATIONDIVERSIFICATIONDIVERSIFICATIONDIVERSIFICATION
Sarwat JahanJJapan
June 30th, 2014
The team also comprises Chris Papageorgiou (lead), Giang Ho, Ke Wang, Lisa Kolovich, Camelia Minoiu, Alun Thomas, Alex Pitt (all IMF), Nikola Spatafora (World bank) and Christian Henn (WTO), under the overall guidance of Seán Nolan and Catherine Pattillo (IMF).
MotivationMotivationMotivationMotivation LICs have historically been heavily dependent on a narrow range LICs have historically been heavily dependent on a narrow range y y p gy y p g
of traditional primary products and on few export markets.of traditional primary products and on few export markets.
There is limited analysis of what aspects of diversification areThere is limited analysis of what aspects of diversification are There is limited analysis of what aspects of diversification are There is limited analysis of what aspects of diversification are important. important.
K iK i Key questions:Key questions:
•• What is the state of diversification in LICs? What is the state of diversification in LICs?
h i h i h d l ili ?h i h i h d l ili ?•• What is the impact on growth and volatility?What is the impact on growth and volatility?
•• What are the drivers of diversification in LICs and its What are the drivers of diversification in LICs and its i li ti li ?i li ti li ?implication on policy ?implication on policy ?
Presentation OutlinePresentation OutlinePresentation OutlinePresentation Outline
Stylized Facts on
Link with growth and Policy Accessing the on
Diversificationgrowth and
volatility
yImplications
gToolkit
Stylized Facts:Stylized Facts:yyExport DiversificationExport Diversification
Snapshot of Export DiversificationSnapshot of Export DiversificationSnapshot of Export DiversificationSnapshot of Export Diversification
Export Diversification 2010Export Diversification, 2010
Export Diversification vs. GDPExport Diversification vs. GDP
Export Diversification and Concentration, 1962-2010
64nd
exve
rsifi
catio
n In
2Div
0
0 20000 40000 60000Real GDP Per Capita
Nonparametric Quadratic
Export Diversification by RegionExport Diversification by RegionExport Diversification by RegionExport Diversification by Region
E P d Di ifi i
5
Export Product Diversification, Developing Countries, by Region
3 5
4
4.5
atio
n In
dex
2.5
3
3.5
port
Div
ersi
fica
1.5
2
5 7 9 1 3 5 7 9 1 3 5 7 9 1 3 5 7 9 1 3 5 7 9
Exp
1965
1967
1969
197
197 3
1975
1977
1979
198
1983
1985
1987
1989
199
199 3
1995
1997
1999
200
2003
2005
2007
2009
Sub-Saharan Africa Middle East & North AfricaLatin America & Caribbean East Asia & PacificSouth Asia Europe & Central Asia
Export Concentration in Export Concentration in Asia:Asia:Extensive Margin and Intensive MarginExtensive Margin and Intensive Margin
A Closer Look at the Extensive MarginA Closer Look at the Extensive MarginA Closer Look at the Extensive MarginA Closer Look at the Extensive Margin
Number of Export Product Categories by CountryNumber of Export Product Categories, by Country
00
BGD CHN IDN0
200
400
60
orie
s0
400
600
IND JPN LKA
odu
ct c
ate
go0
200
0
MYS THA VNM
um
ber
of p
ro0
200
400
600
Nu
1960 1970 1980 1990 2000 20101960 1970 1980 1990 2000 20101960 1970 1980 1990 2000 2010
year
Another measure of Export DiversificationAnother measure of Export DiversificationAnother measure of Export DiversificationAnother measure of Export DiversificationHerfindahl Index, by Country
.5
BGD CHN IDN
0
IND JPN LKA
.5
IND JPN LKA
HF
I in
dex
0.5
MYS THA VNM
H0
1960 1970 1980 1990 2000 20101960 1970 1980 1990 2000 20101960 1970 1980 1990 2000 2010
yearGraphs by exname
Stylized FactsStylized FactsyyQuality UpgradingQuality Upgrading
Snapshot of Quality UpgradingSnapshot of Quality UpgradingSnapshot of Quality UpgradingSnapshot of Quality Upgrading
Export Quality Index 2010Export Quality Index, 2010
Export Quality and Export Quality and GDPGDPp yp y
1.2
Quality across all Exports
.81
rcen
tile
= 1
.4.6
90th
pe r
.2
0 10000 20000 30000 40000Exporter GDP per capita (2000 constant Dollars)
HIC MICLIC Lowess Fit
Quality Upgrading in Asia 2010Quality Upgrading in Asia 2010Quality Upgrading in Asia, 2010Quality Upgrading in Asia, 2010
Quality Index 2010
Sub-Saharan Africa
Quality Index, 2010Developing countries, by Region
Middle East & North Africa
Sub-Saharan Africa
Latin America & Caribbean
South Asia
Eastern Europe & Central Asia
Latin America & Caribbean
0.5 0.6 0.7 0.8 0.9
East Asia & Pacific
Quality Upgrading in East Asia & PacificQuality Upgrading in East Asia & PacificQuality Upgrading in East Asia & PacificQuality Upgrading in East Asia & Pacific
E t A i & P ifi Q lit L dd 2010
11
.2
East Asia & Pacific, Quality Ladder, 2010
.4.6
.8q
ual
.2
&Veg O
ils
Tobac
co
hem
icals
eria
ls,et
c
Anim
als
rt Equ
ip.
uf G
oods
Min
eral
s
f Arti
cles
Oth
ers
Anim
al&V
Bever
ages
and
T Che
Crude
Mat
er
Food/
Live
A
Mac
hine
ry a
nd T
rans
port
Man
uf M
Misc
. Man
uf A
Ma
Quality Ladder of the World Quality of EAP
Quality Upgrading in South AsiaQuality Upgrading in South AsiaQuality Upgrading in South AsiaQuality Upgrading in South Asia
South Asia Quality Ladder 2010
.81
1.2
South Asia, Quality Ladder, 2010
2.4
.6.
qua
l.
Animal&Veg
Oils
erag
es and
Tob
acco
Che
micals
Crude
Mater
ials,etc
Food
/Live Ani
mals
and Tr
ansp
ort E
quip.
Man
uf G
oods
Miner
als
Misc. M
anuf A
rticles
Other
s
Bevera C F
Mac
hine
ry an M
i
Quality Ladder Quality of SA
Quality Upgrading in AsiaQuality Upgrading in AsiaConsiderable cross-country heterogeneity
Note: Countries with quality convergence of at least 0.05 between the 1994-96 and 2008-10 periods are assigned to the fast converger group.
Quality Upgrading in Quality Upgrading in Selected CountriesSelected CountriesQ y pg gQ y pg g
Quality Upgrading in Quality Upgrading in Selected CountriesSelected CountriesQ y pg gQ y pg g
Italy Apparel Exports K A l E tItaly Apparel ExportsSITC 84
High quality, but rising prices helped undermined market share.
Korea Apparel ExportsSITC 84
Quality has concluded convergence to world frontier, as economy
15.2
.25
rld E
xpor
ts
.81
1.2
1.4
per
cent
ile=
1)
.7.8
.91
1.1
perc
entil
e=1)
Unit Value and Quality over time for Italy for Apparey g y
diversified away from apparel.
.15
ort
s
11
.21
.4til
e=1)
.91
1.1
e=1)
Unit Value and Quality over time for Korea for Apparel S
.05
.1.1
Sha
re o
f Wor
0.2
.4.6
Uni
t Val
ue (
90th
.1.2
.3.4
.5.6
Qua
lity
(90t
h p
0.0
5.1
Sh
are
of W
orl
d E
xpo
0.2
.4.6
.8U
nit V
alue
(90
th p
erce
n
.4.5
.6.7
.8.
Qua
lity
(90t
h pe
rcen
til
1960 1970 1980 1990 2000 2010Year
Quality Unit Value
Market Share
sector:84
1960 1970 1980 1990 2000 2010Year
Quality Unit Value
Market Share
sector:84 ; pwt7.1
Quality of Apparel Exports in AsiaQuality of Apparel Exports in AsiaQuality of Apparel Exports in AsiaQuality of Apparel Exports in Asia
Potential Quality and Horizontal Potential Quality and Horizontal Q yQ yDiversification Diversification
TanzaniaTanzania
20
Tanzania: Quality by SITC1 Sector, 2010
1.5
2rc
entil
e=1)
30
40
Exp
orts
.51
Qua
lity
(90t
h pe
r
10
20
Per
cent
of E
00
Animal&Veg Oils
Beverages and Tobacco
Chemicals
Crude Materials,etc
Food/Live Animals
hinery and Transport Equip.
Manuf GoodsMinerals
Misc. Manuf ArticlesOthers
Machine
Percent of Total Exports Quality LadderTanzania position
Potential for quality upgradingPotential for quality upgradingD i i k i f LICDestination markets are no constraint for LICs
Average quality demanded in destination markets
Quality exported
0.5 0.6 0.7 0.8 0.9 1 1.1
Summary: Patterns and FactsSummary: Patterns and Facts
Export diversificationp Higher per capita income is associated with greater export diversification.
Significant heterogeneity in diversification even after controlling for income.
Si id 1990 LIC h d i di if i d d Since mid-1990s, LICs have progressed in diversifying export products and partners.
Quality UpgradingQuality Upgrading LICs are lower on sectoral quality ladders implying strong potential for quality upgrading.
Quality upgrading opportunities exist in manufacturing but also in agriculture.
Evidence from individual countries There is no universal trajectory for structural transformation and diversification.
Li k i h G h d V l iliLi k i h G h d V l iliLink with Growth and VolatilityLink with Growth and Volatility
Probability of Effectiveness for Probability of Effectiveness for Drivers of GrowthDrivers of Growth
Quality Upgrading and GrowthQuality Upgrading and GrowthQuality Upgrading and GrowthQuality Upgrading and GrowthQuality Upgrading and GDP per Capita Growth, 1995-2010
Diversification Growth and StabilityDiversification Growth and StabilityDiversification, Growth and StabilityDiversification, Growth and StabilityGrowth Volatility
Robust relationship between Robust relationship between diversification and growth in diversification and growth in LICLIC
Diversification is also Diversification is also associated with a reduction in associated with a reduction in
l ilil iliLICs.LICs. output volatility. output volatility.
1.2
1.4
Growth Rate, LICs, 1962-2010
4.8
5Volatility, LICs, 1962-2010
0.6
0.8
1
1.2
4.2
4.4
4.6
0
0.2
0.4
L Di ifi d M Di ifi d3.6
3.8
4
L Di ifi d M Di ifi d
Note: “Less Diversified” indicates countries with diversification level below the 30th percentile of all LICs; “More Diversified” indicates the countries with diversification level above the 70th percentile of all LICs.
Less Diversified More Diversified Less Diversified More Diversified
DriversDrivers
E i M iEconomic Fundamentals
Macroeconomic Policies
Education Trade liberalization
Institutional and regulatory environment
Agricultural reforms
Financial deepening
Investment in InfrastructureBanking sector reforms
Investment in Infrastructure
Proximity to marketsCompetitiveness through reduction in distortions
Policy ViewsPolicy Views
Development strategies in LICs should involve diversification as Development strategies in LICs should involve diversification as p gp git is conducive to faster growth and lower output volatility.it is conducive to faster growth and lower output volatility.
Development policies in LICs should include rather than abandon Development policies in LICs should include rather than abandon agriculture. Within agriculture there is significant scope for entry into agriculture. Within agriculture there is significant scope for entry into g g g p yg g g p ynew products and quality upgrading .new products and quality upgrading .
While recognizing that there is no one size fits all approach, While recognizing that there is no one size fits all approach, ssuccessful diversification is typically underpinned by reforms that are uccessful diversification is typically underpinned by reforms that are yp y p yyp y p ygeneral in scope. general in scope.
DiversificationDiversification ToolkitToolkitDiversificationDiversification ToolkitToolkit
The toolkit contains two main databases: Export Diversification DatabaseExport Diversification DatabaseExport Quality Database
The data covers 187 countries and at four digits f dof disaggregation 625 sectors.
Time coverage: 1962-2010.g
The main diversification toolkit work team comprises Ke Wang, Chris Papageorgiou, Qin Liu, Bindu Napa, and Christopher Coakley (IMF).
Di ifi iDi ifi i T lkiT lkiDiversification Diversification Toolkit:Toolkit:IMF Data MapperIMF Data MapperIMF Data MapperIMF Data Mapper
h // i f /http://www.imf.org/external/datamapper/index php?db=SPRLUndex.php?db=SPRLU
• For main diversification and quality indicators I i l f• Interactive tool for heat map and charts
Di ifi iDi ifi i T lkiT lkiDiversification Diversification Toolkit:Toolkit:IMF Toolkit WebsiteIMF Toolkit WebsiteIMF Toolkit WebsiteIMF Toolkit Website
h // i f /https://www.imf.org/external/np/res/dfidimf/diversification htm/diversification.htm
• To download the entire databases
• Relevant Links
DiversificationDiversification ToolkitToolkitDiversificationDiversification ToolkitToolkit
Example of the toolkit data: TanzaniaExample of the toolkit data: Tanzania
Tanzania: Export Diversification, 1965-2010
2
Tanzania: Quality by SITC1 Sector, 2010
4
4.5
11.
52
h pe
rcen
tile=
1)
3
3.5
0.5Qua
lity
(90t
h
2
2.5
1965 1970 1975 1980 1985 1990 1995 2000 2005 2010
Chemicals
Crude Materials,etc
Food/Live Animals
Machinery and Transport Equip.
Manuf GoodsMinerals
Misc. Manuf ArticlesOthers
Tobacco and Beverages
Veg Oils & Animals
Quality Ladder Tanzania position
Thank youThank you
Example: JapanExample: Japanp pp p
Japanese car exportsSITC 7321
Rising quality reached world frontier in the early 1970s. Rising prices put pressure on market share in 1990s.
2.3
.4W
orl
d E
xpo
rts
.8.9
11
.10
th p
erc
en
tile
=1
)
.95
1.0
5h
pe
rce
ntil
e=
1)
Unit Value and Quality over time for Japan for Car Sector
0.1
.2S
ha
re o
f W
.4.5
.6.7
Un
it V
alu
e (
90
.75
.85
Qu
alit
y (9
0th
1960 1970 1980 1990 2000 2010Year
Quality Unit ValueQuality Unit Value
Market Share
sector:SITC4=7321