rethinking productive development - world...
TRANSCRIPT
Edited by
DEVELOPMENT IN THE AMERICAS IDB
Rethinking Productive Development Sound Policies and Institutions for Economic Transformation
Problem: Low and falling productivity
73.4
52.0 49
54
59
64
69
74
79
1960 1964 1968 1972 1976 1980 1984 1988 1992 1996 2000 2004 2008
Porc
enta
je d
e Pr
oduc
tivid
ad T
otal
de
los F
acto
res
de E
stad
os U
nido
s
País típico de América Latina
Source: Own calculations based on Fernández-Arias (2014).
7/16/2015 2
73.4
52.0 49.4
66.7
49
54
59
64
69
74
79
1960 1964 1968 1972 1976 1980 1984 1988 1992 1996 2000 2004 2008
Porc
enta
je d
e Pr
oduc
tivid
ad T
otal
de
los F
acto
res
de E
stad
os U
nido
s
País típico de América Latina País típico tigres asíaticos
Source: Own calculations based on Fernández-Arias (2014).
Problem: Low and falling productivity
7/16/2015 3
Countries like Korea Invested much more in R&D…
0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5
ParaguayEl Salvador
PerúBolivia
ColombiaPanamáEcuador
América LatinaUruguay
ChileMéxico
Costa RicaArgentina
BrasilItalia
EspañaReino Unido
FranciaOCDE
AlemaniaEstados Unidos
DinamarcaSuecia
Corea del SurFinlandia
Israel
Fuente: OCDE (2010) y RICYT (2013).
Source: Author’s calculations based on Hausmann et al (2011).
…and used industrial policies to produce deep economic transformation
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
1984 1988 1992 1996 2000 2004 20082008
7/16/2015 5
Source: Author’s calculations based on Hausmann et al (2011).
Latin America underwent little transformation
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
1984 1988 1992 1996 2000 2004 20082008
7/16/2015 6
Searching for the right PDPs
Latin America adopted widespread industrial policies in the 60s and 70s but, in contrast to the successful countries, many caused more harm than good.
Indiscriminate rejection was not a solution either: the Washington Consensus was not enough for satisfactory growth.
Countries are now aiming at going beyond the WC, searching for the right productive development policy solutions, but not always with clarity.
New fruitful approaches are emerging, alongside the industrial policies of the past.
IM
Policies of the past… IM
H V
7/16/2015 16
…and policies of the future
7/16/2015 17
Rice Productivity
50
75
100
125
150
175
200
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012
Prod
uctio
n In
dex
by h
ecta
re (1
990=
100)
Sources: Own calculations based on FAO (2013).
Costa Rica
Argentina
Productive development policies: Can be done succesfully…if done right
7/16/2015 18
It is now time to rethink productive development policy
It is clear that PDPs can be good or bad. The key is how countries can engage in effective PDPs that have played an important role in successful countries, while avoiding the problems of the past
In the book, we propose a conceptual framework to help policymakers tell apart the good policies from the bad
Framework starts with three basic tests
First basic test: Market Failure
Why is it that the market
does not do by itself what appears desirable?
7/16/2015 20
Second basic test: Policy Design
Is the policy intervention
a proper remedy for the market failure?
7/16/2015 21
What to do…
7/16/2015 22
…and not to do
7/16/2015 23
Third basic test: Institutions
Does the country have
the required institutions to adopt the policy effectively?
7/16/2015 24
How can we apply these basic tests to diverse policies?
To analyze merits and risks of PDPs, we classify them in different categories, along two dimensions:
Scope: horizontal (broad-based) or vertical (sector-specific)
Type of intervention: public inputs (e.g. phytosanitary control) or market interventions (subsidies)
7/16/2015 25
Public Inputs
Market Interventions
H V
A Typology of PDP Interventions
7/16/2015 26
Public Inputs
Market Interventions
H V
A Typology of PDP Interventions
One-stop shop for business registration
7/16/2015 27
Public Inputs
Market Interventions
H V
A Typology of PDP Interventions
One-stop shop for business registration
R&D subsidies
control
Tax exemptions for tourism
R&D subsidies
7/16/2015 28
Public Inputs
Market Interventions
H V
A Typology of PDP Interventions
One-stop shop for business registration
R&D subsidies
Phytosanitary control
R&D subsidies
7/16/2015 29
Public Inputs
Market Interventions
H V
A Typology of PDP Interventions
One-stop shop for business registration
R&D subsidies
Phytosanitary control
Tax exemptions for tourism
R&D subsidies
7/16/2015 30
Horizontal market intervention stimulate certain activities
BP
IM
BP
IM
H V
IP
IM
V H
R&D
Investment in machinery
7/16/2015 31
Identification of market failures BP
IM
BP
IM
H V
IP
IM
V H
7/16/2015 32
Identification of market failures BP
IM
BP
IM
H V
IP
IM
V H
=> Potential spillover
7/16/2015 33
Identification of market failures BP
IM
BP
IM
H V
IP
IM
V H
=> Potential spillover
7/16/2015 34
Identification of market failures BP
IM
BP
IM
H V
IP
IM
V H
=> Potential spillover
7/16/2015 35
Identification of market failures BP
IM
BP
IM
H V
IP
IM
V H
=> Potential spillover
⇒Where’s The Failure?
7/16/2015 36
The pioneer’s dilemma BP
IM
BP
IM
H V
IP
IM
V H
7/16/2015 37
The pioneer’s dilemma BP
IM
BP
IM
H V
IP
IM
V H
7/16/2015 38
Vertical public inputs BP
IM
BP
IM
H V
IP
IM
V H
BP
IM
BP
IM
H V
IP
IM
V H
Vertical public inputs
7/16/2015 40
Vertical Market Interventions •BP
•IM
•BP
•IM
•H
•V
IP
IM
V H
7/16/2015 41
Temporary financial support for hotels and airport can lead to a “good” equilibrium with investment
7/16/2015 42
The missing link in the value chain: sterilization of medical devices in Costa Rica
7/16/2015 43
Strategic bets are risky
How to structure the selection process? – Selection criteria tend to be ad-hoc, subjetive => Rent-seeking
Book discusses how countries (Ireland, Chile, Costa Rica) organized these processes, proposes objective criteria to identify sectors with latent competitiveness facing market failures
Strong institutions key to avoid capture by private interests, and phase out support when no longer required or bet fails
Mistakes bound to be made. But with solid institutions and a solid process, a few successes can pay for several failures.
Still, this quadrant should be handled with care!
7/16/2015 44
Industrial policies are complex and risky. They require: – Process of discovering right policies – Long time horizons so that policies can work – Collaboration with private sector, which opens the door to
capture and rent seeking – Close cooperation across government agencies
Institutional capabilities vary greatly across countries, so policies that work in one context may not work in others.
Different policies require different capabilities
Rather than best practices, contries should adopt policies that best match existing capabilities and institutions
Don’t bite off more than you can chew
Institutions are key for success
7/16/2015 45
7/16/2015 47