Industrial policy is tainted with bad reputation among policymakers and academics and is often viewed as the road to perdition for developing economies. Yet the success of the Asian Miracles with industrial policy stands as an uncomfortable story that many ignore or claim it cannot be replicated. Using a theory and empirical evidence, we argue that one can learn more from miracles than failures. We suggest three key principles behind their success: (i) the support of domestic producers in sophisticated industries, beyond the initial comparative advantage; (ii) export orientation; and (iii) the pursuit of fierce competition with strict accountability.
Manoj Atolia, Mr. Prakash Loungani, Milton Marquis, and Mr. Chris Papageorgiou
This paper takes a fresh look at the current theories of structural transformation and the role of
private and public fundamentals in the process. It summarizes some representative past and
current experiences of various countries vis-a-vis structural transformation with a focus on the
roles of manufacturing, policy, and the international environment in shaping the trajectory of
structural transformation. The salient aspects of the current debate on premature
deindustrialization and its relation to a middle-income trap are described as they relate to the
path of structural transformation. Conclusions are drawn regarding prospective future paths for
structural transformation and development policies.
This report describes the world economic outlook as of April 2018, projecting that advanced economies will continue to expand above their potential growth rates before decelerating, while growth in emerging markets in developing economies will rise before leveling off. It details global prospects and policies, including risks to the forecast, and essential determinants of long-term economic growth: labor force participation in advanced economies, the declining share of manufacturing jobs globally and in advanced economies, and the process through which innovative activity and technological knowledge spread across national borders.
This paper examines whether the rapid growing firm patenting activity in China is associated
with real economic outcome by building a unique dataset uniting detailed firm balance sheet
information with firm patent data for the period of 1998-2007. We find strong evidence that
within-firm increases in patent stock are associated with increases in firm size, exports, and
more interestingly, total factor productivity and new product revenue share. Event studies
using first-time patentees as the treatment group and non-patenting firms selected based on
Propensity-Score Matching method as the control group also demonstrate similar effects
following initial patent application. We also find that although state-owned enterprises
(SOEs) on average have lower level of productivity and are less innovative compared to their
non-state-owned peers, increases in patent stock tend to be associated with higher
productivity growth among SOEs, especially for patents with lower innovative content. The
latter could reflect the preferential government policies enjoyed by SOEs.
Daniel A Dias, Christine J. Richmond, and Carlos Robalo Marques
Recent empirical studies document that the level of resource misallocation in the
service sector is significantly higher than in the manufacturing sector. We quantify the
importance of this difference and study its sources. Conservative estimates for Portugal
(2008) show that closing this gap, by reducing misallocation in the service sector to
manufacturing levels, would boost aggregate gross output by around 12 percent and
aggregate value added by around 31 percent. Differences in the effect and size of
productivity shocks explain most of the gap in misallocation between manufacturing
and services, while the remainder is explained by differences in firm productivity and
age distribution. We interpret these results as stemming mainly from higher output price
rigidity, greater labor adjustment costs and more informality in the service sector.
Mr. Tiago Cavalcanti, Daniel Da Mata, and Mr. Frederik G Toscani
This paper provides evidence of the causal impact of oil discoveries on development. Novel data on
the drilling of 20,000 oil wells in Brazil allows us to exploit a quasi-experiment: Municipalities where
oil was discovered constitute the treatment group, while municipalities with drilling but no discovery
are the control group. The results show that oil discoveries significantly increase per capita GDP and
urbanization. We find positive spillovers to non-oil sectors, specifically, an increase in services GDP
which stems from higher output per worker. The results are consistent with greater local demand for
non-tradable services driven by highly paid oil workers.
The process of economic development is characterized by substantial reallocations of resources
across sectors. In this paper, we construct a multi-sector model in which there are barriers to the
movement of labor from low-productivity traditional agriculture to modern sectors. With the barrier
in place, we show that improvements in productivity in modern sectors (including agriculture) or
reductions in transportation costs may lead to a rise in agricultural employment and through terms-oftrade
effects may harm subsistence farmers if the traditional subsistence sector is larger than a critical
level. This suggests that policy advice based on the earlier literature needs to be revised. Reducing
barriers to mobility (through reductions in the cost of skill acquisition and institutional changes) and
improving the productivity of subsistence farmers needs to precede policies designed to increase the
productivity of modern sectors or decrease transportation costs.
Most estimates of Indian manufacturing productivity find a slowdown in the 1990s. This has puzzled analysts, given that 1990s reforms were deeper and wider than the 1980s reforms that raised the growth rate of the Indian economy by 2 per cent points. This paper tests the hypothesis of the J curve of Productivity and Growth following major liberalization and finds it to be broadly supported by the data: Technological obsolescence, gradual adoption of new technology and learning by doing result in negative effects on measured productivity.