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.
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.
From the World Development Report 2013.
Jobs are on the move. The past four decades have been marked by the outsourcing of manufacturing tasks from industrial countries to the developing world, especially to East Asia.
I blogged a few months ago about a paper Justin Lin and I were writing that focused on applying the Growth Identification and Facilitation Framework in Nigeria. The paper has just recently been completed and is now available online.
In the meantime, attacks on the UN house in Abuja have highlighted the extreme social tensions experienced by Nigeria. Many of these tensions may be related to the country’s persistent poverty. In fact, notwithstanding high and sustained growth over the past decade, Nigeria’s job creation has barely kept up with the relentless growth of its workforce, and youth unemployment has further risen. Moreover, formal sector employment has fallen, as a result of privatization and civil service retrenchment, while employment in informal family agriculture has increased.
Nigeria urgently needs to increase employment intensity and sustainability of its growth performance, and our paper can be a useful tool for developing a strategy to do so.
Remember the famous joke about an economist who believes so much in rational expectation theory that he would not pick up a $100 dollar bill off the sidewalk under the pretense that if it were actually there someone would have already picked it up? A similar excuse may be invoked to justify why low-income countries that are currently facing high underemployment are not organizing themselves to seize the extraordinary bonanza of the 85 million manufacturing jobs that China will have to shed in the coming years because of fast rising wages for unskilled workers.
Economic development is a process of continuous industrial and technological upgrading in which each country, regardless of its level of development, can succeed if it develops industries that are consistent with its comparative advantage, determined by its endowment structure. As I explained in an earlier blog post for China to maintain GDP growth of nearly 10 percent a year in the coming decades, it must keep moving up the value chain and relocate many of its existing labor-intensive manufacturing industries to countries where wage differentials are large enough to ensure competitiveness in global production networks.
‘Gender Equality’ is a concept that's finally entering the mainstream. It connotes equal rights to education, to vote, to work, to have access to finance, and other basic entitlements for both men and women. Unfortunately, while some equality milestones have been reached, in many cases attainment is a distant goal. Take the case of ‘Justice’. “In many countries of the world the rule of law still rules women out,” says the latest UN Report ‘Progress of the Worlds Women – In Pursuit of Justice’. The report, released today, highlights women’s access to justice systems in almost every country in the world. It focuses on issues such as number of seats held by women in their country’s parliament, laws against domestic violence, and so on. “The Paradox confronted by the report is that despite the recent and rapid expansion of women’s legal entitlements, what is written in the statute books does not always translate into real progress on equality and justice on the ground,” says Claire Provost in a post on the Guardian’s Poverty Matters blog. The report also has a wealth of data; see the interactive map here.
The potential for expanding the industrial sectors of African countries is substantial – this was a message I delivered on a recent trip to Italy, Tanzania, Mozambique and Malawi. This can happen through an improved understanding of the mechanics of economic transformation as well as by focusing on how such countries can follow their comparative advantage in natural resources and labor supply.
During my site visits and meetings with the private sector for the African segments of my trip, I became more convinced than ever of the strong untapped potential for private sector-led industrialization. Yet that can only happen when the government plays a facilitating role, such as by overcoming information asymmetries, coordination failures and externalities associated with first-mover actions. In Tanzania, initial experiments with industrial parks look promising, as do agricultural development projects and rural transport initiatives currently under way. In the case of industrial parks, it’s important to have a one-stop shop for registration and other administrative obligations, adequate electricity and water supply, and good transport/logistics links.
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(Available in Chinese)
Food prices have received a lot of attention recently. Understandably, much of the attention is on recent developments and short term prospects. But in this blog post I try to look back at some longer term trends, in order to look further ahead.
Since the early 2000s, food related prices have trended up (Figure 1). The deflator of agricultural value added has risen 8% per year on average since 2000, after falling during the second half of the 1990s. Producer Price Index (PPI) food prices (factory gate) have risen much less because prices of other inputs into the food processing industry have gone up less and rapid productivity growth in food processing has dampened the transmission of higher raw food prices.
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| Light manufacturing operations in a Chinese standardized factory building |
There is an increasing consensus about the need of poorer economies to shift away from low technology, low productivity areas into new product areas, particularly to generate non-commodity exports. The figure below shows the low level of manufactured exports from the poorest region, sub-Saharan Africa (SSF) as well as from Southeast Asia (SAS) compared to other regions. It is this disparity that many have in mind in urging a sectoral transformation. In the 1950s and early ‘60s there was an argument for a “big push” in development premised on export pessimism.
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| *lcn- Latin America & Caribbean, mea- Middle East & Africa, SAS - Southest Asia, ssf- Sub-Saharan Africa, eap- East Asia & Pacific, and eca- Europe & Central Asia |
The emphasis on the big push and balanced growth continued until the 1970s when the success of export oriented countries in Asia such as Korea and Taiwan (China) demonstrated that it was possible to escape the need to have balanced internal growth. Annual export growth of 15 percent or more helped to effect a major transformation in many of the newly industrialized Asian nations. A critical question is whether five decades later this option is still open.
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| Image courtesy of Caitfoto through a Creative Commons license |
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| Image courtesy of Caitfoto through a Creative Commons license |
Following the very successful earlier engagements of a Khmer palm reader and a celebrity turtle-shell fortune teller, the Thailand economic team has recently hired the forecasting star of the moment to divine the future of the economy. I am not talking about Professor Nouriel “Dr. Doom” Roubini, but Octopus Paul, who had to escape Germany in a hurry to avoid becoming “pulpo a la Gallega”. For a hefty fee of a five shrimps, the wise cephalopod spent a few hours in our offices sharing his prognosis for the Thai economy.
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When thinking about development, I always look for opportunities for cross learning between regions. Having lived in and traveled extensively in East Asia and having worked in the South Asia Region for over a year, I often compare and think about prospects between the two regions. One question in particular is whether South Asia should aim to emulate East Asia’s manufacturing and export driven development model. Japan began using this model starting in the 1950’s and most East Asian countries particularly, South Korea, Malaysia, Taiwan, and most recently China have used manufacturing as a catalyst for growth.
According to the World Development Indicators, manufacturing accounted for over 30% of GDP in East Asia and Pacific while it is around 15% in South Asia. Bangladesh’s ready-made garment (RMG’s) industry is one example of manufacturing success as it has proven to be exceptionally competitive in the global market. However, holistically, I found that South Asia has distinctive characteristics and quickly moving towards an East Asian export-led model may not be most effective.
As Malaysia redefines its growth strategy, the question of which sector to promote has been a subject of ongoing debate. Some have argued that the strategy should emphasize manufacturing – and preferably high-tech manufacturing – as innovation activity is most forthcoming in this sector. Others have countered that services are key, as the typical economic structure of an advanced economy is oriented towards services. Tradable services are also fast becoming an engine of growth.
As part of its regular monitoring of the corporate sector in Southeast Asia, the World Bank economic team I am part of in Thailand has been working on a short case study of supply chains of Japanese multinational companies (MNCs) in the electrical and electronics (E&E) industry. We wanted to hear directly from firms about how the crisis affected them, how they were able to adjust so quickly to the drop in demand, what the rebound looked like, and what were the prospects going forward to upgrade along the value chain. I have learned a great deal from these interviews, and have become convinced that supply chains are central to understanding the current crisis in Thailand and East Asia more generally.
Some facts: the crisis had a disproportionate impact on manufacturing. In Thailand, manufacturing represents about 40 percent of GDP, but contractions in manufacturing value added have accounted for about 75 percent of the contraction of headline GDP. Within manufacturing, the auto and E&E industries account for the bulk of the contraction. Most of the output in those industries is exported, and more than three-fourths of the decline in Thai exports during the crisis was due to falls in shipments from the auto and E&E industries. My conclusion is that the magnitude of the crisis in Thailand has been driven primarily by these two industries.
