Ed: This guest post is by Professor Eric A. Hanushek, a Paul and Jean Hanna Senior Fellow at the Hoover Institution of Stanford University. Join us online on January 28, 2016 to listen to Prof. Hanushek as he discusses his latest book “The Knowledge Capital of Nations”.
In September 2015, the United Nations adopted an aggressive development agenda that included 17 separate Sustainable Development Goals (SDGs) designed to guide investment and development over the next 15 years. Two of these assume particular importance because they will determine whether or not the other 15 can be achieved.
Firmin gets by doing small odd jobs. One day he is a street vendor, the next day a carpenter, and on other days he’s a gardener. He arrived in Abidjan two years ago with high hopes of joining the National Police Academy. His story resembles that of thousands of Ivorians who join the domestic workforce each year. Today, there are about 14 million people of age to work in the country, and by 2025, there will be approximately 22 million - all of whom seek a secure well-paying job.
If you are curious to know which country has achieved double digit growth in the last 12 years, making it the fourth fastest-growing in the world, the answer is Ethiopia. And what is more striking is that if Ethiopia sustains its current pace of growth, it will become a middle income country by 2025.
The recently-published Regional Economic Outlook for Sub-Saharan Africa (SSA) by the International Monetary Fund underscores the enduring view of international financial institutions that the depth, pace and perfecting of structural reforms needs to continue, not only for competitiveness and growth but also for resilience should external headwinds emerge. The report also presents an important opportunity to further develop this agenda, by the additional treatment of the underlying causes, particularly non-price based ones, and thereby generate a more actionable view of the growth, competitiveness and equality trends so incisively presented in the report.
It’s human nature to fill the time and space available to us. This phenomenon, known as Parkinson’s Law, states that, “Work expands so as to fill the time available for its completion.”
Other variations of the principle include “The more money you earn the more money you spend,” or “The bigger the available space, the more junk it can hold.”
This principle comes from the opening line of a humorous essay by Professor Cyril Northcote Parkinson published in The Economist in 1955.
The essay explains the results of a study he conducted of the British Civil Service. The British Civil Service grew between 1914-1928, with a noticeable rise in administrative positions and a concurrent decline in ‘fighting’ positions. In 1914 there were 2,000 Admiralty officials with this number growing to 3,569 in 1928, creating “a magnificent Navy on land.” The interesting part of this shift, however, is that this growth was unrelated to any possible increase in their work. The British Navy during that period had diminished by a third in men and two-thirds in ships. From 1922 onwards it was limited by the Washington Naval Agreement, signed among the major nations that had won World War I, which limited naval construction to prevent an arms race. Thus, the number of people employed in the bureaucracy increased even as the British Empire collapsed — an event that decreased the amount of work available.
Africa’s population grew at an average annual rate of 2.6 percent between 1950 and 2014, much faster than the global average of 1.7 percent as estimated from UN population projection data. During this time, the region experienced a demographic transition, moving from a period of high mortality and fertility rates to one of lower mortality, yet still high fertility rates. Other regions, most notably East Asia, took advantage of their transitions to accelerate growth, and reap a so-called ‘demographic dividend’. Africa is now being presented a similar opportunity.
From my house in northern Quezon City, I drive more than two hours every day to get to the office in Bonifacio Global City, which is about three cities away where I come from, and two cities away from the capital Manila. It’s a journey that should only take around half an hour under light traffic. That is a total of four hours on the road a day, if there is no road accident or bad weather. It takes me an hour longer whenever I use the public transport system. Along with hundreds of thousands of Metro Rail Transit (MRT) commuters, I have to contend with extremely long lines, slow trains, and frequent delays due to malfunctions. This has been my experience for several years. Many of us might be wondering: why have these problems persisted?
Concerns about the so-called “middle-income trap” have recently emerged among many middle-income countries, particularly after the term was coined in 2007 by two World Bank economists. Worried that they may become “trapped” at the middle-income level, these countries are seeking a set of policies that can help them achieve strong and sustained growth and eventually help them join the league of high-income countries.
In our recent paper, we try to shed some light on both issues. First, we do not find that countries are trapped at middle income. “Escapees” – countries that escaped the middle-income trap and obtained a per capita income higher than 50% of the U.S. level – tend to grow fast and consistently to high income, and do not stagnate at any point as a middle-income trap theory would suggest. In contrast, “non-escapees” tend to have low growth at all levels of income. In other words, while the existence of a middle income trap implies that growth rates systematically slow down as countries reach middle-income status, no such systematic slowdown is apparent in the data. Second, we provide some descriptive and econometric evidence for a different set of “fundamentals” that enable middle-income countries to grow faster than their peers. We find that faster transformation to industry, low inflation, stronger exports, and reduced inequality are associated with stronger growth.
- Middle Income Trap
- Middle Income Countries
- Global Economy
- South Asia
- Middle East and North Africa
- Latin America & Caribbean
- Europe and Central Asia
- East Asia and Pacific
- Korea, Republic of
- Hong Kong SAR, China
- Taiwan, China
- Puerto Rico
- United States