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Have technology and globalization kicked away the ladder of ‘easy’ development? Dani Rodrik thinks so

Duncan Green's picture

Dani RodrikEconomic transformation is necessary for growth that can lead to poverty reduction. However, economic transformation in low-income countries is changing as recent evidence suggests countries are running out of industrialization options much sooner than once expected. Is this a cause for concern? What does the past, present, and likely future of structural transformation look like? Read on to find out why leading economist Dani Rodrik is pessimistic and what some possible rays of light are. 

Dani Rodrik was in town his week, and I attended a brilliant presentation at ODI. Very exciting. He’s been one of my heroes ever since I joined the aid and development crowd in the late 90s, when he was one of the few high profile economists to be arguing against the liberalizing market-good/state-bad tide on trade, investment and just about everything else. Dani doggedly and brilliantly made the case for the role of the state in intelligent industrial policy. But now he’s feeling pessimistic about the future (one discussant described it as ‘like your local priest losing his faith’).

The gloom arises from his analysis of the causes and consequences of premature industrialization. I blogged about his paper on this a few months ago, but here are some additional thoughts that emerged in the discussion. He’s also happy for you to nick his powerpoint.

Dani identified two fundamental engines of growth. The first is a ‘neoclassical engine’, consisting of a slow accumulation of human capital (eg skills), institutions and other ‘fundamental capabilities’. The second, which he ascribed to Arthur Lewis, is driven by structural differences within national economies – islands of modern, high productivity industry in a sea of traditional low productivity. Countries go through a ‘structural transformation’ when an increasing amount of the economy moves from the traditional to the modern sector, with a resulting leap in productivity leading to the kinds of stellar growth that has characterized take-off countries over the last 60 years.

Simulated Manufacturing Employment SharesManufacturing has been key to that second driver. It is technologically dynamic, with technologies spreading rapidly across the world, allowing poor countries to hitch a ride on stuff invented elsewhere. It has absorbed lots of unskilled labour (unlike mining, for example). And since manufactures are tradable, countries can specialize and produce loads of a particular kind of goods, without flooding the domestic market and driving down prices.

But that very dynamism has produced diminishing returns in terms of growth and (especially) jobs. Countries are hitting a peak of manufacturing jobs earlier and earlier in their development process (see graph). And it could get much worse – just imagine the impact if/when garments, the classic job-creating first rung on the industrialization ladder, shift to automated production in the same way as vehicle production.
 

Reflections on Investment Prospects for Countries Facing Fragility and Conflict

Kyoo-Won Oh's picture

Facilitating investments into Fragile and Conflict-Affected States (FCS) is one of the most important strategic pillars in MIGA’s Strategy. In an effort to further expand MIGA’s support in FCS countries, I recently visited Burundi, South Sudan, and Afghanistan and met with investors, government agencies, and donors. Although the investment climate varies in these FCS countries, I observed the following four common threads during my visit.

First, despite the deteriorating security situations, there are still investors seeking business opportunities in FCS countries, as long as the expected return on investment is sufficiently high to cover a required level of return plus risk premium.[1] When it comes to the investors actively operating in FCS countries, their concerns appeared to be more focused on unexpected and arbitrary changes in government policies against their investments, rather than the security issue itself. Most aspects of the government-related procedures are risks beyond the control of investors, for example, renewal of licenses and permits, taxation, and various contracts signed with the government. Investors usually go through several political cycles during their investment horizon. An approval from the current government does not guarantee the same approval would be obtained from the succeeding government. A foreign investor I met in Afghanistan cemented this notion by telling me that “when we made a decision to invest in Afghanistan, we were already well-aware of the security issue in the country. For us, the security was a foreseeable risk that could be mitigated to some extent, if not entirely avoidable. We can take care of security risks as well as commercial risks; but what concerned us the most was the risks related to uncertainties in the government’s regulation and policy.”
 

Juba, South Sudan
Juba, South Sudan

Media (R)evolutions: The 3D printing revolution

Roxanne Bauer's picture

New developments and curiosities from a changing global media landscape: People, Spaces, Deliberation brings trends and events to your attention that illustrate that tomorrow's media environment will look very different from today's, and will have little resemblance to yesterday's.

3D printing, also known as "additive manufacturing", is changing the way products are created and reproduced.  It makes it possible to create a part from scratch in just hours and allows designers and developers to experiment with new ideas or designs without extensive time or assembly expenses.

Using a 3D computer modeling program or a 3D scanner (which makes a 3D copy of an object for a 3D modeling program), designers can now create or reproduce items for 3D printing. Once the design or copy of the object is prepared, the 3D modeling program slices it into hundreds or thousands of horizontal layers. This model is then uploaded in the 3D printer, which creates the object by printing layer upon layer of material. Each layer is blended together, resulting in one three-dimensional object.



 

Weekly Wire: The Global Forum

Roxanne Bauer's picture

These are some of the views and reports relevant to our readers that caught our attention this week.

 
The Challenge Of Connecting The Unconnected
TechCrunch
Every time we return to or sign up for an Internet service (e.g. Facebook, Google, Gmail, YouTube, etc.), we rely on what UX experts call a “mental model” for navigating through the choices. A mental model is essentially a person’s intuition of how something works based on past knowledge, similar experiences and common sense. So even when something is new, mental models help to make sense of it, utilizing the human brain’s ability to transcode knowledge and recognize patterns. For instance, most of our grandparents can hit the ground running with changing the channel or increasing the volume when handed the remote control for the latest television available in the market today, squarely because of a well-developed mental model for TV remote control units. But our grandparents may not have the same level of success when using Internet services, smartphones or tablets. Under-developed mental models in these domains are their primary obstacles

Beyond Magic Bullets in Governance Reform
Carnegie Endowment for International Peace
Domestic reformers and external donors have invested enormous energy and resources into improving governance in developing countries since the 1990s. Yet there is still remarkably little understanding of how governance progress actually occurs in these contexts. Reform strategies that work well in some places often prove disappointing elsewhere. A close examination of governance successes in the developing world indicates that effective advocacy must move beyond a search for single-focus “magic bullet” solutions toward an integrated approach that recognizes multiple interrelated drivers of governance change.
 

Tales from the Development Frontier

Hinh T. Dinh's picture

How have China and other countries resolved the binding constraints in light manufacturing to create jobs and prosperity? This vital question is answered in a new book based on unprecedented access and detailed interviews at hundreds of Chinese firms in more than 15 cities (including the coastal regions that have fuelled the export boom), as well as visits to a dozen countries in Africa and Asia. The book, Tales from the Development Frontier: How China and Other Countries Harness Light Manufacturing to Create Jobs and Prosperity, focuses on labor-intensive manufacturing (apparel, leather goods, agribusiness, woodworking, and metal products). It is part of the Light Manufacturing in Africa Project being undertaken by a World Bank team in the Development Economics Vice Presidency. We draw from  analytical reviews, case studies, and the testimony of individual entrepreneurs to show how developing countries can grow manufacturing to create jobs and foster prosperity.

Innovator-in-Chief: The Public Sector – Catalyst of Creativity

Christopher Colford's picture



Brace yourself for some dramatic new evidence about innovation and entrepreneurship – and and circle the dates October 16 and 17 on your calendar.

Propelling leading-edge ideas about competitiveness, Professor Mariana Mazzucato will be among the luminaries at a major conference at the World Bank in mid-October, organized by the Bank's global practice on Competitive Industries. An all-star array of policymakers, academics, business leaders and development practitioners will focus on today's top global economic-policy challenge: spurring growth and job creation.

Exploring “Making Growth Happen: Implementing Policies for Competitive Industries,” the conference in the Bank's Preston Auditorium will include Mazzucato among
some of the world’s foremost analysts of competitiveness. A professor at the University of Sussex in the U.K., Mazzucato’s iconoclastic new book  – “The Entrepreneurial State: Debunking Public vs. Private Sector Myths” – is now rocking the economics world. Mazzucato's insights are forcing a rethinking about the essential role of the public sector in driving the investments that are shaping the modern economy.
 
Public sector? Shaping the economy? Yes, you read that right: Mazzucato amasses persuasive evidence that the government-funded development and deployment of advanced technologies has been pivotal in changing the economic landscape.

Government’s role as a growth catalyst has been just as creative as the role of the private sector – and perhaps even more venturesome. Despite their buccaneering bravado, for-profit firms have lately shied away from high-stakes, high-risk investments in unproven technologies. Mazzucato refutes the defeatist dogma that claims, falsely, that public-sector investment can never do anything right.

Innovating to get things done: Lessons from an industrial park program in India

Yannick Saleman's picture


Successful industrial parks can drive economic competitiveness  (Credit: World Bank, Flickr)

Why do so many industrial park programs fail? They are popular across the developing world, inspired perhaps by China, where they are widely used as a policy tool and where their products are impressive to the visitor: functional parks with many firms and bustling activity. But horror stories abound, even in China, of empty parks, subsidized land speculation and tax erosion, and often no parks at all. This has not dampened enthusiasm, however. The theory is simply too seductive. By providing high-quality, shared infrastructure to firms in specific areas, industrial parks are meant to create pockets of competitiveness that eventually spill over onto the rest of the economy. For capacity-constrained governments, they have the further appeal of focus.

China: The Morphing Dragon

Otaviano Canuto's picture

The Chinese economy has changed dramatically over the last three decades. While its per-capita income was only a third of that of Sub-Saharan Africa in 1978, it has now reached an upper-middle income status, lifting more than half a billion people out of poverty. The numbers are dramatic: per capita income has doubled for more than a billion people in just 12 years. What was once a primarily rural, agricultural economy has been transformed into an increasingly urban and diversified economic structure, with decentralization and market-based relations rising relative to the traditional government driven command-based economy.

Brazilian Competitiveness: Folia and Hangover

Otaviano Canuto's picture

As the Carnival in Brazil kicked off last weekend, Brazilians were ready for a party. They have reasons to celebrate. Despite a lackluster GDP performance in the last two years, unemployment rates remain at record low levels.

Friday Roundup: Manufacturing, Inequality, and the MDGs

LTD Editors's picture

For those of us following the US Election 2012, the words ‘manufacturing’ and ‘jobs’ are hard to miss. Building on that buzz, The Economist recently conducted a debate: “Will manufacturing return to the West?” While the US election is a good ten days away, the decision on this debate is out: Manufacturing will return to the west. Irrespective of the verdict, both the sides – opposing and defending the motion- have provided numerous insights in to the trends that are unfurling in China and US. Read them here.

Inequality, alongside jobs, is the proverbial elephant in the room amidst the US presidential elections. Joe Stiglitz has a new 'Campaign Stops' blog in the New York Times online that draws on The Economist magazine's special series from earlier this month. Stiglitz discusses the perils of underplaying the great divide between the one percent in the US and the middle class. Meanwhile, on the other side of the debate, Kevin Hasset of the American Enterprise Institute along with Aparna Mathur, write in the WSJ that inequality studies that focus mainly on pre-tax incomes are flawed because they overlook transfer payments such as food stamps, unemployment insurance and other safety net programs. Read the article here.


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