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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