TRADE AND DEVELOPMENT REPORT 2016

Structural transformation

for inclusive and sustained grow

Main messages

• The global economy is living dangerously; biggest threat comes from

weak demand in North but developing countries feeling the downdraft

• But globalization is still working, right? Rising inequality, slowdown of

trade: a “great convergence”

• Growth did pick up in the naughties but catching-up isnt any easier:

– Manufacturing still matters; many countries stalled or losing ground

– Export-led growth has hit diminishing returns

– The profit-investment nexus has weakened

• Need a more ambitious policy mix (everywhere) with a role for industrial

policy (everywhere); the real issue with globalisation is not whether it is

advancing or contracting but who is managing it

A year of living dangerously

• Global growth is stuck in second gear will likely drop below 2.5% this

year; slow growth in advanced economies continues (below 2%), but

also slower growth in developing countries (4%, 2.5 percentage points

below the pre-crisis figure) but significant country and regional variation

• Global trade slowed even more dropping to 1.5% last year and possibly

lower again this (but its not a rising protectionism story)

• Commodity cycle is in its second year of a sharp downturn; but many

prices have been falling since 2012 (even back to 2005-6 levels)

• Capital flows have become more volatile again and debt crises are

looming … several countries going back to IMF … Brexit aftershocks?

Secular stagnation?

-8.0

-6.0

-4.0

-2.0

0.0

2.0

4.0

6.0

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Developed countries Japan United States European Union (EU 28) Euro area United Kingdom

2.8

2.0 2.2

1.1 2.7

2.1

1.5 1.0

1.9

2.3

1.6

0.7

Regional variations

Commodity prices tumble

0

100

200

300

400

500

600

2002 2004 2006 2008 2010 2012 2014 2016

Agricultural raw materialsMinerals, ores and metalsCrude petroleum

0

100

200

300

400

2002 2004 2006 2008 2010 2012 2014 2016

FoodTropical beveragesVegetable oilseeds and oils

0.9

1.0

1.1

1.2

1.3

1.4

1.5

1.6

1.7

1.8

1.9

0

50

100

150

200

250

300

350

400

450

2002 2004 2006 2008 2010 2012 2014 2016

All commoditiesNon-fuel commoditiesNon-fuel commodities (in SDRs)All commodities (in SDRs)Dollar per SDRs (right scale)

Net capital inflows to selected countries and exchange rates, 2000-16 (back)

Volatile global financial markets

Debt burdens

Debt service to income ratio of the private non-financial sector, 2007-

2015

(index numbers 2007 Q4=100

80

90

100

110

120

130

140

150

2007 2008 2009 2010 2011 2012 2013 2014 2015

Developing countries

Developed countries

Populism?

Average global tariffs, 1995-2014

(per cent) Global wage share, 1995-2014

(per cent of global income)

0

1

2

3

4

5

6

7

1995 2000 2005 2010

Applied tariff

Most favoured nation (MFN) tariff

2014

54

55

56

57

58

59

1985 1990 1995 2000 2005 2010 2014

Globalisation and convergence

• Slowdown in the North

beginning in 80s

• Fast growth in East Asia

since the 80s (building on

earlier successes)

• Erratic growth elsewhere

in South but fast

everywhere in 00s (but no

decoupling) leading to

strong convergence

• Global economy has been

slowing since the 1980s

• Capital formation has

slowed as capital flows

have boomed

• Markets have become

more competitive in some

areas, more concentrated

in others

• Instability persists

Trends in global inequality from a relative

and absolute perspective

Mind the gaps

Ratio of GDP per capita of selected countries and country groups to GDP per

capita of the US, 1950–2015

Middle income troubles

1950–1980 1981–2010

Ending position Low

income

Middle

income

High

income

Low

income

Middle

income

High

income Starting position

Low income 0.85 0.15 0.00 0.91 0.07 0.01

Middle income 0.12 0.70 0.18 0.21 0.71 0.08

High income 0.00 0.06 0.94 0.00 0.19 0.81

Probability of catch-up with the United States, by income group

Manufacturing matters

• Catching up: strong (East Asia) and weak (SE Asia)

• Stalled: (Mexico, India, SSA)

• Premature deindustrialization: (Latin America, South Africa, North Africa?))

Share of Man. VA Share of Man. Emp Industry Labor Productivity Growth

1980 2000 2014 1980 2000 2011 1980-9 1990-9 2000-7 2010-14

Developed 17.0 16.5 14.6 23.9 16.9 12.8 2.8 3.1 2.8 1.1

N Africa 15.7 19.1 17.3 13.8 14.0 11.9 2.0 0.6 -0.1 -0.4

SSA 13.8 11.9 9.4 7.2 8.3 8.4 -0.2 -0.7 0.5 2.7

LAC 18.6 17.4 13.7 15.4 13.2 11.5 -1.7 2.2 1.5 0.0

East Asia 28.3 31.2 29.3 22.5 20.9 21.5 4.9 9.1 6.4 5.1

SE Asia 21.1 26.8 22.5 14.4 16.3 14.0 1.5 1.8 2.5 1.8

India 14.2 18.4 20.3 9.1 11.4 11.6 1.3 0.7 3.3 0.5

Export-led growth

Share in global merchandise exports, selected countries,

1950-2015 (per cent)

0

3

6

9

12

15

1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015

China Germany Japan First-tier NIEs Second-tier NIEs

Trade and structural transformation

-20

-16

-12

-8

-4

0

4

8

12

16

20

24

-20 -15 -10 -5 0 5

Cha

nges

in th

e sh

are

of e

xpor

ts

of m

anuf

actu

res

in G

DP

Changes in the share of manufacturing value added in GDP

A. Gross exports

-20

-16

-12

-8

-4

0

4

8

12

16

20

24

-20 -15 -10 -5 0 5

Cha

nges

in th

e sh

are

of n

et e

xpo

rts

of m

anuf

actu

res

in G

DP

Changes in the share of manufacturing value added in GDP

B. Net exports (exports minus imports)

Africa Latin AmericaAsia

Trade and structural transformation

Changes in domestic VA in exports of manufactures and

manufacturing VA as share of GDP, selected countries, 1995-2011

(percentage point changes)

Argentina

Brazil

CambodiaChile

China

Colombia

Costa Rica

Hong Kong, China

India

Indonesia

Malaysia

Mexico

Philippines

Republic of Korea

RussianFederation

Singapore

South Africa

Taiwan Provinceof China

Thailand

Tunisia

Turkey

Viet Nam

-5

0

5

10

15

-15 -10 -5 0 5 10

Do

me

sti

c v

alu

e a

dd

ed

in

ex

po

rts

of m

an

ufa

ctu

res

Manufacturing in total value added

What you export matters Relationship between export sophistication and per capita income growth,

selected developing economies

How you export matters: chains or chained?

Changes in the shares of foreign VA in manufacturing exports and of

manufacturing VA in GDP, 1995-2011

(percentage point changes)

China

Hong Kong (China)

Indonesia India

Cambodia

Republic of Korea

Malaysia

PhilippinesSingapore

Thailand

Taiwan Province of China

Viet Nam

-15

-10

-5

0

5

10

-20 -10 0 10 20 30 40

Ch

an

ge

in

th

e s

ha

re o

f m

an

ufa

ctu

ring

va

lue

ad

de

d i

n G

DP

Change in the share of foreign value added in manufacturing exports

Asia

Argentina

Brazil

Chile

Colombia

Costa Rica

Mexico

Russian Federation

Tunisia

Turkey

South Africa

-15

-10

-5

0

5

10

-20 -10 0 10 20 30 40

Other developing and transition economies

Is Import substitution industrialization dead?

Degree of import dependency of exporting industries in selected

countries, 2002-2014 (per cent)

30

40

50

60

70

80

2002 2004 2006 2008 2010 2012 2014

China Mexico

Republic of Korea Thailand

Investment pushes

Fixed investment in selected rapidly growing countries, 1950-2015 (percent GDP)

0

0.05

0.1

0.15

0.2

0.25

0.3

0.35

0.4

0.45

0.5

195

0

195

2

195

4

195

6

195

8

196

0

196

2

196

4

196

6

196

8

197

0

197

2

197

4

197

6

197

8

198

0

198

2

198

4

198

6

198

8

199

0

199

2

199

4

199

6

199

8

200

0

200

2

200

4

200

6

200

8

201

0

201

2

201

4

China,P.R.: Mainland Germany India Japan Korea, Republic of

The profit-investment nexus revisited

• Investment to profit ratios declining, while dividend

to profits going up

• Investment rates in most developing regions not

high enough to support rapid structural

transformation

30

31

32

33

34

35

36

37

16

17

18

19

20

21

22

1980 1985 1990 1995 2000 2005 2010 2015

Private investment (left scale)

Profit share (right scale)

Private investment and profits, developed

economies, 1980–2015 (Per cent GDP)

The profit-investment nexus revisited

Sectoral contribution of the increase in the nominal value of total

debt and capital stock between 2010 and 2014

(per cent)

Oil and gas,15.3

Electricity,14.8

Constructionand materials

13.3

Industrialmetals,

9.7

Industrialengineering,

6.7

Real estate,6.1

Mobiletelecom-�

munication,5.2

Mining,4.7

Other28 sectors,

24.2

A. Debt

Oil and gasproducers,

24.2

Electricity,22.8

Industrialcommodities,

11.6

Mining,7.1

Airlines,4.7

Automobilesand parts,

4.5

B. Investment

Other30 sectors,

25.3

The profit-investment nexus revisited

Investment as a proportion of total capital stock of non-financial and

manufacturing firms in Brazil and South Africa, 2000-2014 (per cent)

Investment in the manufacturing sector has been particularly affected

5

10

15

20

25

30

2000 2002 2004 2006 2008 2010 2012 2014

A. Brazil

Non-financial firms Manufacturing firms

5

10

15

20

25

30

2000 2002 2004 2006 2008 2010 2012 2014

B. South Africa

Industrial Policy Revived

• Not about “picking winners” but about targeting diversification

and upgrading to foster strong productivity growth

• Beyond selecting sectors - building linkages and capabilities

• Policy coherence - bringing together macroeconomic, financial,

trade and industrial policies

• Institutions - building a capable and stable bureaucracy, closely

connected to, but still independent of, the business community

and willing and able to discipline firms

• Global dimension: competition, tax and technology