1、Kuznets LectureNew Structural Economics:A Framework for Rethinking DevelopmentJustin Yifu LinChief Economist and Senior Vice Presidentthe World BankMarch 1,2011-1Overview of Presentation Why do we need to rethink development The New Structural Economics Industrial Policy and Growth Identification an
2、d Facilitation:An application of new structural economics-2WHY DO WE NEED TO RETHINK DEVELOPMENT-3Economic Crisis and Crisis in EconomicsEconomic TheoryExplain Observed Economic PhenomenaGuide Economic Policies or ChoicesRethinkingEconomicsFailure to:Failure to:-4How has economic development theory
3、evolved?1950196020102000197019801990Structuralist ApproachFocus on Market Failures:Import Substitution StrategyMiserable resultsLiberalization ApproachFocus on Government Failures:Privatization and Marketization Mixed ResultsMarket based economies with proactive role for governmentSuccessful East As
4、ian Tigers:Export PromotionChina,Vietnam and Mauritius:Dual-track approach to transition RethinkDevelopment-5World Bank has been in the process of rethinking economic developmentExport Orientation and Market Friendly Government(i)Openness;(ii)Macro stability;(iii)High rates of saving&investment;(iv)
5、Market mechanism;(v)Committed,credible&capable governmentNo one-size fits all-6THE STRUCTURAL ECONOMICS-7IntroducingNew Structural Economics Application of neoclassical economic approach to understand changing economic structure in development Provides a consistent framework for the five stylized fa
6、cts of Growth Report as well as the findings from the East Asian Miracle and Lessons from the 1990s Contributes to new theoretical and policy insights for economic development-8IntroducingNew Structural EconomicsSustainable income growth is the foundation for poverty reduction and developmentSustain
7、able income growth is a recent phenomenon The sustainable income growth is a result of continuous technological innovation as well as structural change-9Industrial Structure in New England,1900s-10Industrial Structure in New England,1600s -11Industrial Structure in New England,1800s -12New Structura
8、l Economics(NSE):Key Concepts The main hypothesis:Industrial structure is endogenous to endowment structure Initial Endowments(determine the economys total budgets and relative factor prices at time t)Comparative advantage Optimal industrial structure(endogenous).Dynamics:Income growth depends on Up
9、grading of endowments Upgrading industrial structure “hard”and“soft”infrastructure Following comparative advantage is the best way to upgrade endowment structure and to sustain industrial upgrading,income growth and poverty reduction.-13New Structural Economics(NSE):Key Concepts(2)Firms maximize pro
10、fitschoice of technology and industries based on relative factor pricesNeed for competitive market system Industrial upgrading needs toSolve coordination problemsAddress externalities Need for a facilitating state-14NSE and The Growth Commissions Stylized Facts Policy Recommendation from NSE Followi
11、ng comparative advantage:Conditions Market economy Facilitating State The results:Openness and advantage of backwardness Competitiveness and strong external as well as fiscal accounts:fewer home-grown crises and larger scope for countercyclical fiscal policies.Large economic surplus and high returns
12、 to investment:high rate of savings and investment.The NSEs recommendations are consistent with the East Asian Miracles findings.Growth Report Stylized Facts:#4#5#1#2#3 -15“No one size fits all”then“What size fits what?”New theoretical insights from the NSE:New structural economics emphasizes that c
13、ountries at different levels of development have different optimal industrial structures,firm sizes,capital requirements and nature of risks,therefore,many institutions and policies should be different accordingly and have different policy insights compared to the old structuralism and neoclassics:F
14、inancial institutions:Old structuralism:Direct government mobilization and allocation of financial resources.Neoclassics:Financial liberalization and development of modern big banks and equity marketNew structural economics:Optimal financial structure will be different depending on level of developm
15、ent.For low-income countries,small,local financial institutions should be the core of financial structure;and big banks and equity market will play increasingly important role as the firm size and risks increase with the level of development.Fiscal stimulus:Old structuralism:Keynesian stimulus,using
16、 tax and expenditure policies to offset business cycles.Neoclassics:Ricardian Equivalence,warming against the use of fiscal stimulus.New Structural economics:Beyond Keynesianism,using public investments to invest in productivity-enhancing,bottleneck-releasing infrastructure projects as countercyclic
17、al measures.-16THE INDUSTRIAL POLICY&GROWTH IDENTIFICATION AND FACILITATION-17The desirability and failures of Industrial PolicyEconomic development is a process of continuous process of industrial upgrading and structural transformation.The state should play a facilitating role in the process.Indus
18、trial policy is a necessary instrument for the state to play the facilitating role Contents of coordination will be different,depending on industries.The governments resources and capacity are limited.The government needs to use them strategically.The sad fact is that most governments in the develop
19、ing world used industrial policies but failed,the reason was:Attempt to develop industries that went against comparative advantage The firms in the industrial policys targeted sectors were non-viable in competitive markets and required government policy supports for their initial investment and cont
20、inuous operations.The supports were implemented through price distortions.As a result,planning and administrative allocations were required.This led to rent-seeking,directly unproductive profit seeking,and soft budget constraints.-18The existing approaches for industrial development and their drawba
21、cksThe existing practices:Business environmentThe goal is to introduce a whole set of the first-best institutions The issues are:The government may not have the capacity to introduce all those changes The first-best institutions may be different at different stage of development No identification of
22、 industries with latent comparative advantages and no compensation for the first moversGrowth DiagnosticsThe goal is to remove binding constraintsThe issues are:Binding constraints are endogenous to industries It relies on survey of existing firms.Many of them may be in industries where the country
23、has no comparative advantages.No firms will be in the new industries that the countries have latent comparative advantageAim before fire:For an industrial policy to be successful,it should target sectors that conform to the economys latent comparative advantage:Firms will be viable and the sectors w
24、ill be competitive once the government helps the firms overcome the coordination and externality issuesBut how to pick the sectors that are the economys latent comparative advantages-19What Can Be Learned From HistoryHistorical experiences show that successful countries industrial policies,in genera
25、l,targeted dynamic industries in successful countries with a similar endowment structure and somewhat higher per capita income:Britain targeted the Netherlands industries in the 16th and 17th century,its per capita GDP was about 70%of Netherlands.Germany,France,and USA targeted Britains industries i
26、n the late 19th century,their per capita income were about 60 to 75%of Britains per capita GDPIn Meiji restoration,Japan targeted Prussias industries,its per capita GDP was about 40%of Prussias.In the 1960s,Japan targeted USAs industries,its per capita GDP was about 40%of USAs per capita GDPIn the 1
27、960s-1980s,Korea,Taiwan,Hong Kong,and Singapore targeted Japans industries,their per capita income was about 30%of Japans per capita GDPIn the 1970s,Mauritius targeted Hong Kongs industries,its per capita income was about 50%of Hong Kongs.In the 1980s,Ireland targeted information industries,its per
28、capita income was about 45%of the USAs.In the 1990s,Costa Rica targeted memory chip assembly and testing,its per capita GDP was about 40%of that of Taiwan,which was the main economy in this sector.Unsuccessful industrial policies in general target industries in countries where their per capita GDPs
29、were less than 20 per cent of those targeted countries.A new approach for industrial policy:Growth identification and facilitation-20Step 1:Identifying sectors with latent comparative advantage Find dynamic growing countries with a similar endowment structure and with about 100%higher per capita inc
30、ome.Identify tradable industries that have grown well in those countries for the last 20 years as the potential targets of industries for upgrading or diversification Similar to Hausmanns idea of jumping to nearby trees,but easier to implement Consistent with FDI research suggesting technology trans
31、fer is easier when domestic and foreign firms are closer to each other on the technological frontier(Blomstrom,Kokko)-Step 2:Removing constraints for existing firms.How?See if some private domestic firms are already in those industries(of which may be existing or nascent).Identify constraints to qua
32、lity upgrading,further firm entry,and reduction of transaction costs(hard and soft infrastructure).Take action to remove constraintsMethods:Value-chain analysis Growth Diagnostics(Hausmann,Rodrik,and Velasco(2008)Investment Climate Assessments(World Bank)Successful Examples Chile:wine Ecuador:cut fl
33、owers-Step 3:Seek FDI or organize New Firm Incubation ProgramsIn industries where no domestic firms are currently present,seek FDI from countries examined in step 1,or organize new firm incubation programs.Famous examples of FDI:garment sector in BangladeshTextile industry in MauritiusMemory chip as
34、sembly and testing in Costa RicaElectronics and other consumer products in ChinaInformation industries in IrelandLaura Alfaro and Andrew Charlton,in a paper in the Journal of International Economics,show that:Many countries promote FDI selectivelyTargeted sectors grow fasterFamous example of incubat
35、ion programs:Taiwan-Chinas Hsingchu Science-based Industrial Park for the development of electronic and IT industriesFundacin Chiles demonstration of commercial salmon farming-Step 4:Scale up private firms self discovery In addition to the industries identified above,the government should also pay a
36、ttention to spontaneous self discovery by private enterprises and give support to scale up the successful private innovations in new industries Examples Indias information industry Ethiopias cut flower exports Perus asparagus exports-24Step 5:Create zones or industrial parks,and encourage industrial
37、 clustersIn countries with poor infrastructure and bad business environment,special economic zones or industrial parks may be used to overcome these barriers to firm entry and FDI and encourage industrial clusters.Examples:Chinas special economic zones Mauritius export process zoneEnormous Increase
38、in Number of Zones World Wide:from 29 in 1975 to 3500 in 2006!The zones will be successful only if the industries targeted by the zones are consistent with the comparative advantages of their economies-Step 6:Provide limited subsidies to compensate for externalitiesThe need for subsidizing pioneer f
39、irms Information externality of success and failureAsymmetry of gain of success and loss of failure The governments in developed countries compensate pioneer firms by:PatentsSupports for basic researchMandateGovernment procurementExcept for patents,the other supports are sector specificThe governmen
40、t in a developing country can compensate pioneer firms in the listed identified in step 1 with Tax incentives for a limited period Direct credits for investments Access to foreign exchangesAs the governments support is only to compensate for information externalities,the support can,and should,be limited both in magnitude and time.-26
