Changes in industrial structure during transition

1
INDUSTRIAL STRUCTURE, INDUSTRIAL POLICY,
EXTERNAL TRADE AND CAPITAL FLOWS

• Changes in industrial structure during
  transition
• Export orientation versus import substitution
• Industrial policy
• Directions (support of exports versus imports,
  support in line with comparative advantages
  versus support defying comparative advantages
• Forms (tariffs, exchange rate protectionism,
  subsidies, credits, government purchases)
• Structure of trade
• Commodity structure
• Geographic structure
• FDI
• Capital flows
• Balance of payments

2
Differences in productivity by sectors of the
economy
3
(No Transcript)
4
(No Transcript)
5
(No Transcript)
6
Industrial companies with largest sales in
2005-06 (Source Expert 400)
7
(No Transcript)
8
(No Transcript)
9
(No Transcript)
10
(No Transcript)
11
(No Transcript)
12
Import tariffs - impact on growth

• We tried to find a GDP per capita threshold for
  the 19th century using data from (Irwin, 2002),
  but failed. The best equation linking growth
  rates in 1870-1913 to GDP per capita and tariff
  rates (27 countries, two periods 1870-90 and
  1890-1913 54 observations overall) is
• Regression for 1870-1913
• GROWTH 0.24 0.04Y 0.0004Y2 0.05T
  0.001T2 0.0006YT,
• Where Y GDP per capita in 1870 or 1890
  respectively, T average tariff rates
• (R2adj. 33, all coefficients significant at
  11 level or less).

13
Data on corruption

• Corruption perception index (CPI) for 1980-85
  these estimates are available from Transparency
  International for over 50 countries
• CPI 2.3 0,07Ycap75us,
• N45, R2 59, T-statistics for Ycap75
  coefficient is 9. 68.
• CORRres 10 CPI (2.3 0.07Ycap75us)
  12.3 CPI 0.07Ycap75us

14
Data on investment climate

• RISK84-90 average investment risk index for
  1984-90, varies from 0 to 100, the higher, the
  better investment climate
• RISK 62.1 0.19Ycap75us, N 88, R236,
  T-statistics for Ycap75us coefficient is 3.95.
• RISKres RISK84-90 (62.1 0.19Ycap75us) 100

15
(No Transcript)
16
Import tariffs - impact on growth.

• GROWTHCONST.CONTR.VAR.Tincr.(0.06
  0.004Ycap75us0.004CORRpos0.005T)
• GROWTH, is the annual average growth rate of GDP
  per capita in 1975-99,
• the control variables are population growth rates
  during the period and net fuel imports (to
  control for resource curse),
• T average import tariff as a of import in
  1975-99,
• Tincr. increase in the level of this tariff
  (average tariff in 1980-99 as a of average
  tariff in 1971-80),
• Ycap75us PPP GDP per capita in 1975 as a of
  the US level,
• CORR pos positive residual corruption in 1975,
  calculated as explained earlier.
• R240, N39, all coefficients are significant at
  5 level, except the last one (33), but
  exclusion of the last variable (a multiple of T
  by Tincr.) does not ruin the regression and the
  coefficients do not change much.

17
Import tariffs and accumulation of FOREX- impact
on growth

• If import duties are included into growth
  regressions without the interaction terms with
  GDP per capita and/or a measure of institutional
  strength (corruption), the coefficient on import
  duties is not significant
• But when interaction terms are included, all
  coefficients become statistically significant.
  Here is an additional equation that give similar
  thresholds on GDP per capita and corruption
• GROWTHCONSTCONTR.VART(0.050.005Ycap75us0.007R
  pol)
• where Rpol is the indicator of the accumulation
  of foreign exchange reserves computed as
  explained later, in the third section, N40,
  R240, all coefficients significant at 8 level
  or less, control variables positive residual
  corruption and population growth rates.

18
Import tariffs and accumulation of FOREX- impact
on growth

• GROWTHCONST.CONTR.VAR.
• T(0.001RISK0.0038Ycap75us)
• Rpol(0.23-0.014T), where
• N48, R2 46, all coefficients significant at 7
  or less,
• control variables PPP GDP in 1975 and
  population
• growth rate.
• Here Rpol is the residual from the equation
• linking the increase in reserves to GDP ratio to
  (1) average
• trade/GDP ratio, (2) increase in trade/GDP ratio,
  
• (3) external debt/GDP ratio and (4) debt
  service/GDP ratio.

19
Import tariffs - impact on growth

• GROWTHCONSTCONTR.VAR.
• T(0.005RISK0.002Ycap75us0.3)
• (N 87, R2 42, all coefficients significant at
  10 level or less, control variables are
  population growth rates, population density and
  total population).
• The equation implies that for a poor country
  (say, with the PPP GDP per capita of 20 of the
  US level or less) import duties stimulate growth
  only when investment climate is not very bad
  (RISK gt 50) the expression in brackets in this
  case becomes positive.

20
(No Transcript)
21
(No Transcript)
22
(No Transcript)
23
Medium term perspective since 1949 Beijing
consensus versus Washington consensus

• The catch-up development of China since 1949
  looks extremely impressive
• not only the growth rates in China were higher
  than elsewhere after the reforms (1979-onward),
• even before the reforms (1949-79), despite
  temporary declines during the Great Leap Forward
  and the Cultural Revolution, the Chinese
  development was quite successful.

24
Since 1979 Chinese economic model is based on

• Gradual democratization and the preservation of
  the one party rule in China allowed to avoid
  institutional collapse, whereas in Russia
  institutional capacity was adversely affected by
  the shock-type transition to democracy
  (Polterovich, Popov, 2006)
• Gradual market reforms dual track price
  system (co-existence of the market economy and
  centrally planned economy for over a decade),
  growing out of socialism (no privatization
  until 1996, but creation of the private sector
  from scratch), non-conventional forms of
  ownership and control (TVEs)
• Industrial policy strong import substitution
  policy in 1949-78 and strong export-oriented
  industrial policy afterwards with such tools as
  tariff protectionism (in the 1980s import tariffs
  were as high as up to 40 of the value of import)
  and export subsidies (Polterovich, Popov, 2005)
• Macroeconomic policy not only in traditional
  sense (fiscal and monetary policy), but also
  exchange rate policy rapid accumulation of
  foreign exchange reserves in China (despite
  positive current and capital account) led to the
  undervaluation of yuan, whereas Russian ruble
  became overvalued in 1996-98 and more recently
  in 2000-07. Undervaluation of the exchange rate
  via accumulation of reserves became in fact the
  major tool of export-oriented industrial policy
  (Polterovich, Popov, 2004).

25
(No Transcript)
26
(No Transcript)
27
(No Transcript)
28
(No Transcript)
29
Actual sophistication of exports as compared to
predicted one (based on GDP per capita) is very
informative for explaining variations in growth
rates among countries

• Dani Rodrik. WHATS SO SPECIAL ABOUT
• CHINAS EXPORTS? Harvard University,
• January 2006

30

31
Vietnam export oriented development
32
Until recently Chinese import tariffs were
extremely high
33
(No Transcript)
34
(No Transcript)
35
(No Transcript)
36
(No Transcript)
37
Ratio of Russian domestic energy prices to world
prices,
38
Domestic energy prices in terms
39
(No Transcript)
40
(No Transcript)
41
Energy efficiency and relative fuel prices
42
(No Transcript)
43
(No Transcript)
44
(No Transcript)
45
(No Transcript)
46
(No Transcript)
47
Trade flows and trade balances for the republics,
1988, as a percentage of GNP
a (ExportsImports) (2xGNP), at domestic
prices, assuming the same GNP/NMP ratios for the
republics as for the USSR as a whole. Domestic
trade is trade with the rest of the Union.
Foreign trade is trade with the rest of the
world. b Estimates of the balance of tourist
trade are shown in brackets. Source
Stabilization, Liberalization and Devolution
Assessment of the Economic Situation and Reform
Process in the Soviet Union. A Report, prepared
by Commission of the European Communities.
December 1990, p. 173. (Data is derived from
official Soviet statistics) Narodnoye
Khozyaistvo SSSR v 1989 godu (National Economy of
the USSR in 1989). Moscow, 1990, p. 638.
48
(No Transcript)
49
(No Transcript)
50
(No Transcript)
51
(No Transcript)
52
(No Transcript)
53
(No Transcript)
54
(No Transcript)
55
(No Transcript)
56
(No Transcript)
57
Inward FDI flows amount to 5-30 of total
domestic investment. For smaller countries this
ratio is higher
58
China imports capital mostly in the form of FDI
(over 10 of total domestic investment, even
though for smaller countries this ratio is higher)
59
(No Transcript)
60
(No Transcript)
61
(No Transcript)
62
The inflow of FDI per capita appears to be weakly
positively correlated with the share of private
sector, but there are too many outliers
63
Russia has attracted less FDI per capita than
Belarus, not to speak about Kazakhstan and
Azerbaijan (that have over 1000 of FDI per
capita)
64
(No Transcript)
65
(No Transcript)
66
FDI is attracted by resource abundance and
government effectiveness

• FDI1.8.05Ycap7533.3Y99_AREA .65GovEff
• ImDuties(.002Ycap75.09) .01IDincr
• (N46, Adjusted R2 65, all coefficients
  significant at 9 level or less), where
• FDI average annual inflow of FDI in 1980-99 as
  a of GDP of the recipient country,
• Ycap75 PPP GDP per capita in 1975 as a of the
  US level,
• Y99_AREA ratio to PPP GDP in 1999 in to the
  area of national territory in sq km,
• GovEff government effectiveness index, WB,
  2000, ranges from 2.5 to 2.5, the higher the
  more
• effective is the government,
• ImDuties average import duties as a of total
  import in 1980-99,
• IDincr - average import duties as a fraction of
  import in 1980-99 as a of 1971-80 level.
• The level of GDP per capita
• Economic activity per unit of territory (GDP per
  1 square km of territory)
• The effectiveness of the government
• The level of tariff protection and the increase
  in this level (the higher the tariff, the
  greater the stimuli to invest in a country
  instead of exporting

67
Panama - high FDI, low growthKorea and Hong
Kong - high growth, low FDI
68
(No Transcript)
69
Cross country regression of growth rates in
1975-99 on the FDI inflows works only with few
the control variables

• GROWTH a0 a1POPgr a2Ycap75 a3FDI
• (N54, Adjusted R2 17, all coefficients
  significant at 8
• level or less), where
• GROWTH annual average growth rates of GDP per
  capita in
• 1975-99,
• POPgr annual average growth rates of population
  in 1975-99,
• Ycap75 GDP per capita in the beginning of the
  period, 1975,
• FDI annual average net inflow of FDI as a of
  GDP of the
• recipient country in 1980-99.
• If the other control variables are added
  (investment
• climate index or average share of investment to
  GDP in
• 1975-99), the impact of FDI on growth becomes
• negative and insignificant, whereas R2 increases
  to 50.

70
FDI is not always good for growth

• GROWTH CONST. CONTR. VAR. FDI (0.02ICI
  1.61),
• where ICI investment climate index, FDI
  average
• foreign direct investment inflow as a of GDP in
  1980-99.
• Equations with different control variables give
  about the
• same and a very high threshold of investment
  climate
• index about 80, which is basically the level
  of developed
• countries. Only a few developing countries
  (Botswana,
• Hong Kong, Kuwait) have such a good investment
  climate.

71
Type of the balance of payments depends on
capital flight and policies
72
(No Transcript)
73
(No Transcript)
74
For some countries (EE) ODA as a of GDP is
higher than the regression line, for others (FSU)
- lower
75
(No Transcript)