Development Strategies:

Middle-income countries’ challenges and answers

Mario Pezzini

Director

OECD Development Centre

Costa Rica,31 July 2012

1 Shifting Wealth: an unprecedented opportunity?

2 Shifting Wealth: challenges and threats

Outline

The four-speed world in the 1990s

Source: OECD Development Centre, Perspectives on Global Development 2010 - Shifting Wealth

The four-speed world in the 2000s

Source: OECD Development Centre, Perspectives on Global Development 2010 - Shifting Wealth

China% of world GDP

India% of world GDP

0%

2%

4%

6%

8%

10%

12%

14%

1980 1985 1990 1995 2000 2005 2010

Market Exchange Rate PPP Exchange Rate

0%

2%

4%

6%

8%

10%

12%

14%

1980 1985 1990 1995 2000 2005 2010

Market Exchange Rate PPP Exchange Rate

Shifting Wealth

The rise of China in global supply chains as a dominant supplier

Major trade partners for Asia’s intermediate exports in goods and services

Source: OECD Input-Output Database, March 2010; IDE-JETRO Asian International Input-Output Database 2006; OECD Bilateral Trade Database, March 2010; OECD Trade in Services, January 2010.

Shifting wealth: poverty reduction

SW is moving South = less poverty

Shifting Wealth: New resources for development

Greater fiscal space in the 2000s vis-à-vis the 1990sFiscal revenue to GDP ratio (%)

Source: Authors’ calculations based on World Bank (2011)

Other Eps 8.8 % ($ 77.5 bn)

China 19.5%($171 bn)

India 3.5% ($31 bn)

Korea, Rep. 2.8% ($25 bn)

Brazil 3.2% ($27.6 bn)

Turkey 1.7%($14.5 bn)

• Countries outside OECD DAC in 2000 whose economic relations with Africa have risen fast over the decade

• China, India, Korea, Brazil and Turkey are leading the pack

9

Shifting Wealth: New “Emerging Partners”

Africa’s Trade with the Emerging Partners in 2011 US$ billion and % of Total

Shifting Wealth: Industrialization

Africa’s exports of manufactured products

10

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

0

20

40

60

80

100

EU25

USA

Other Traditional Partners

Other Emerging Partners

China

Billion USD

1 Shifting Wealth: an unprecedented opportunity?

2 Shifting Wealth: challenges and threats

Outline

A success story?

• A lower-middle income country• Average 5% annual growth rate since 1990• Nearly 100% primary enrolment in 2008• 80% health care coverage• ‘Prudent public debt management’ (42.8% of GDP in 2009) • 3% fiscal deficit • Inflation at approx. 3% in the 2000s

Source: OECD/AfDB/UNECA (2010), African Economic Outlook.

Tunisia

Growth in life satisfaction andincome do not necessarily coincide

Sources: Authors‘ calculation based on Gallup World Poll (2010) and World Bank (2010)

1995 1994 2000 1988 1995 19881986

1993 1993 19991994 1997 1989 1998 1991

1987

2004

20042007 2000 2004

1996 1997 19982005

2005

20042008

19942005 2001 1998

13

15

17

19

21

23

25

27

Chi

nese

Taip

ei

Cyp

rus

Cze

ch R

epub

lic

Finla

nd

Gre

ece

Hong

Kon

g, C

hina

Icel

and

Irela

nd

Israe

l

Kore

a

New

Zeal

and

Portu

gal

Sing

apor

e

Slov

enia

Spai

n

Swed

en

GD

P/ca

p_PP

P, a

t cur

rent

inte

rnat

iona

l dol

lars,

thou

sand

s

Transitions from Middle-Income to Advanced-Country Levels

Start of transition period End of transition period

Middle Income Trap

Eichengreen: 2015 at $ 17,000/cap_PPP)

Shifting Wealth: Smoothed Growth

Smoothed annual growth rates, 1980-2010(Hodrick-Prescott filter)

•.

0%

1%

2%

3%

4%

5%

6%

7%

1980 1985 1990 1995 2000 2005 2010

Low income Middle income OECD members

Source: DEV calculation based on WDI data

1 Shifting Wealth: an unprecedented opportunity?

2 Shifting Wealth challenges and threats

Outline

Productivity

Catching up in labour productivity Korea, 1970-2009

Productivity: Low levels & low growth

Source: OECD Development Centre

1 Shifting Wealth: an unprecedented opportunity?

2 Shifting Wealth challenges and threats

Outline

Productivity

Social Cohesion

Inequalities remain

Gini coefficients before and after taxes and transfers in Latin American countries

Source: OCDE (2008a) for OECD countries excluding LAC, OECD (2008b) for Argentina, Brazil Colombia and Peru.

Labour and social cohesion: Increase in labour disputes in China

Source: Cai and Wang (2011)

0

200

400

600

800

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Num

ber o

f Lab

or D

ispu

te C

ases

(t

hous

and)

Labour markets: Reforming labour institutions (China)

Reponses: increase in minimum wages… …and wider use of collective bargaining

Source: Authors’ calculations based on Du and Pan (2009) and CASS. Source: Cai and Wang (2011).

0

10

20

30

40

50

60

70

80

90

100

0

100

200

300

400

500

600

700

800

900

1 000

1998 1999 2000 2001 2002 2009

Number of collective contracts (left axis)

Number of employees covered (right axis)

Thousand Million

0

50

100

150

200

250

300

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

Average minimum wage in Chinese cities (1999 = 100)

Africa’s young population is growing but jobs are not keeping up

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

0

50

100

150

200

250

0

100

200

300

400

500

600

700

800

900

1,000

Youth Population Youth Employment GDP (right axis)

Yo

un

g (

15

-24

) P

eo

ple

, M

illi

on

GD

P,

Bil

lio

n (

20

05

PP

P i

nt.

$)

1 Shifting Wealth: an unprecedented opportunity?

2 Shifting Wealth challenges and threats

Outline

Productivity

Social Cohesion

Environment

1 Shifting Wealth: an unprecedented opportunity?

2 Shifting Wealth challenges and threats

Outline

Productivity

Social Cohesion

Environment

Fiscal Revenue

Total tax revenues as percentage of GDP, 1990-2009

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 20090

5

10

15

20

25

30

35

40

Difference (A-B) Selected LAC¹ (A) OECD (34)² (B)

Tax Revenue: OECD vs LAC