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economic growth

Of Dark Matter and Domesday

Kirk Hamilton's picture

As surprising as it may seem, there is a deep dark secret at the core of the System of National Accounts (SNA) – the accounts used by Finance ministries worldwide to measure economic performance. The numbers don’t add up. We can see this in the table below, showing the net worth of Brazil and its composition in 2005. The final two lines in the table report a measure of Brazil’s net national income and the implicit rate of return on wealth (the ratio of income to net worth). The return to Brazil’s produced and natural capital is over 18%! As good economists, we should all be investing our pension funds in Brazil. Why? Because financial market data tell us that the long run real rate of return across the broad range of assets averages only about 5% a year.
 

Table – Net worth and net national
Income (NNI) in Brazil, 2005, $million
Produced capital  1,909,259
Natural capital 1,713,939
Net financial assets -117,221
   
Net worth 3,505,978
   
Adjusted NNI 636,356
Implicit rate of return 18.2%
Source: The Changing Wealth of Nations
World Bank (2011)

 

The global economy ushers in new phase of recovery, but vigilance is required

Justin Yifu Lin's picture
Photo: © World Bank

Two years after the crisis triggered by the collapse of Lehman Brothers, the world economy has entered a new phase of recovery. Most developing countries have recovered to pre-crisis (or close to pre-crisis) levels of activity and have transitioned from a bounce-back phase to more mature growth.

We estimate in our new online Global Economic Prospects 2011 report that the growth rate for the world economy was 3.9% in 2010 and is likely to be to 3.3% this year, then 3.6 % in 2012.

The GDP growth rate for developing countries was a robust 7 percent in 2010, up sharply from 2% growth in 2009. This year we project the developing world will record GDP growth of 6%, then edge to an estimated 6.1% in 2012. This far outstrips the high income countries, which grew by 2.8% in 2010 and are estimated to growth by 2.4% this year and 2.7% next year.

International capital flows: Final picture from 2009

Shahrokh Fardoust's picture
 Photo: Istockphoto.com

As snow covers ground in Washington, D.C., debt markets swoon, and another year comes to a close, it seems like a good time to look at what actually happened to international capital flows to developing countries last year and what that might portend for flows in 2010, as this year’s numbers will be finalized in coming months.

At a time when the global economy has seen the most severe slowdown since the end of WWII, capital flows to the developing world—including private flows (debt and equity) and official capital flows (loans and grants from all sources)—are in an overall slump, well below their level in 2007 ($1.1 trillion). According to the just-published Global Development Finance: External Debt of Developing Countries, which contains detailed data on the external debt of 128 developing countries for 2009, net capital flows to these countries fell by 20 percent from $744 billion in 2008 to $598 billion in 2009. 

The Great Recession – Lessons from 10 Countries

Vamsee Kanchi's picture

How did developing countries fare during the crisis and what are their medium term prospects? These questions are at least partly answered in a new book covering 10 countries. Titled 'The Great Recession and the Developing Countries: Economic Impact and Growth Prospects,’ the book analyzes the  growth before, during and after the crisis of Brazil, China, Ethiopia, India, Malaysia, Mexico, Philippines, Poland, Turkey, and Vietnam.

The book’s editor, Mustapha Nabli, estimates that the average potential growth rate for the ten countries before the financial crisis was about 6 percent.  Unlike the overheated financial sector, pre-crisis trade and remittance levels were sustainable.
Once the crisis hit, however, less diversified countries really felt the heat. Their financial sectors eventually recovered, but trade remained low, thus adversely affecting their growth.  13.6 percent of Turkey’s 2009 GDP, for example, was shaved off during the financial crisis.  Possibly this was due in part to fears left over from past financial crises.

China's secret weapon in light manufacturing: Small and Medium Enterprise-oriented "Plug and Play" industrial zones

Vincent Palmade's picture

 

Light manufacturing operations in a Chinese standardized factory building
  Light manufacturing operations in a Chinese standardized factory building
The success of Chinese manufacturing growth in recent decades is indisputable and has irrevocably shifted the global landscape for manufacturing competitiveness. In contrast, manufacturing in Sub -Saharan Africa has failed to deliver broad-based growth and poverty reduction on anything close to the scale as has been observed in East Asia. As countries, such as China and Vietnam, look to upgrade technology and move up the value-chain, there may be an opportunity for Africa to become competitive in the low-technology, labor-intensive light manufacturing sectors and enter the global manufacturing supply chain.

Trade, Employment, and Structural Transformation

Margaret McMillan's picture
  Photo: istockphoto.com

There is a shared sense that globalization has a strong potential to contribute to growth and poverty alleviation.  There are several examples of countries in which integration into the world economy was followed by strong growth and a reduction of poverty, but evidence also indicates that trade opening does not automatically engender growth. The question therefore arises, why the effects of globalization have been so different among countries of the world.

A look at changes in the structure of employment in Latin America and in Asia hints at possible explanations for observed differences in the growth effects of trade.  Since the 1980s, Asia and Latin America have both rapidly integrated into the world economy.  Asia has enjoyed rapid employment and productivity growth, but the consequences for Latin America have been less stellar.

The chart below shows how the pattern of structural change has differed in the two continents. The chart decomposes labor productivity growth in the two regions into three components: (i) a “within” component that is the weighted average of labor productivity growth in each sector of the economy; (ii) a “between” component that captures economy-wide gains (or losses) from the reallocation of labor between sectors with differing levels of labor productivity; and (iii) a “cross” component that measures the gains (or losses) from the reallocation of labor to sectors with above-average (below-average) productivity growth.  The underlying data for the charts come from the Groningen Growth and Development Centre.

Getting to the Seoul of the Matter: Moving beyond currency disputes

Shahrokh Fardoust's picture
Photo: www.istockphoto.com

(Also available in Spanish)

Many observers predict that this week’s G-20 Summit in Seoul will be remembered mainly as a dance of high diplomacy aimed at persuading members to refrain from competitive devaluation of currencies and to reign in excessive current account imbalances.

If most headlines from Seoul are about spats over currencies and whose deficit or surplus is most harmful, then leaders  will have missed the Seoul of the Matter.

Indeed, such an outcome would be a setback for developing countries and could potentially erode the legitimacy of the G-20 as an inclusive broker of financial and economic cooperation in the global economy.

Food Security and Poverty—a precarious balance

Will Martin's picture

Children haveing a meal at school. Ghana. Photo: © Arne Hoel/The World Bank

“Food security exists when all people, at all times, have physical and economic access to sufficient, safe and nutritious food to meet their dietary needs and food preferences for an active and healthy life.”

This profoundly important—and seemingly-simple—definition of food security from the World Food Summit of 1996 actually has four elements:

1. Enough food must be available to meet people’s needs.
2. People must have access to the food that is available under normal circumstances.
3. Volatility in production or prices must not threaten this availability, and
4. The quality of food that people consume must be adequate for their needs.

Sectoral upgrading a half century later – 2010 is not 1960

Howard Pack's picture

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.

*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.

Where is the Wealth of Nations?

Kirk Hamilton's picture

Ghana. Photo: © Arne Hoel/The World Bank

If you have ever had a conversation with a finance minister couched in terms of hectares of forestland or tons of greenhouse gases, then you appreciate one of the central problems of environment and development. It tends to be a short conversation, and for good reason – talking about the environment and natural resources this way simply doesn’t fit the model used by economists. If we want to reach ministers of finance and development planning we need not only to value the economic contribution of nature, but to express it in the framework of the System of National Accounts (which includes, among other measures, Gross Domestic Product or GDP as the predominant indicator of economic progress used by macroeconomists).

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