Front Matter Page
March/2014
IMF POLICY PAPER
SUSTAINING LONG-RUN GROWTH AND MACROECONOMIC STABILITY IN LOW-INCOME COUNTRIES—THE ROLE OF STRUCTURAL TRANSFORMATION AND DIVERSIFICATION—BACKGROUND NOTES
March 05, 2014
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The Policy Paper on Long-Run Growth and Macroeconomic Stability in Low-Income Countries—The Role of Structural Transformation and Diversification—Background Notes, prepared by IMF staff and completed on March 5, 2014 for the Executive Board’s consideration on March 20, 2014.
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Front Matter Page
SUSTAINING LONG-RUN GROWTH AND MACRO STABILITY IN LOW-INCOME COUNTRIES: THE ROLE OF STRUCTURAL TRANSFORMATION AND DIVERSIFICATION—BACKGROUND NOTES
March 5, 2014
Approved By Siddharth Tiwari
Led by Chris Papageorgiou and prepared by Lisa Kolovich (SPR). Contributing authors of the notes are Giang Ho, Ke Wang (SPR), Nikoloz Gigineishvili (AFR), Alexander Pitt, Thelma Seoeun Choi (APD), Nombulelo Duma (MCM), Samuele Rosa (OBP), Christian Henn (World Trade Organization), Theo Eicher, and David Kuenzel (University of Washington).
Contents
DIVERSIFICATION: A GROWTH DETERMINANT IN LOW-INCOME COUNTRIES
A. Introduction
B. Conceptual Framework
C. Econometric Methodology
D. A Brief Look at the Data
E. Output Diversification and Growth
F. Conclusions
DIVERSIFICIATION AND VOLATILITY
A. Introduction
B. Export Diversification and Volatility
C. Empirical Results
D. Conclusions
STRUCTURAL TRANSFORMATION AND SECTORAL PRODUCTIVITY IN LOW-INCOME COUNTRIES
A. Introduction
B. Contribution to Aggregate Productivity Growth
C. Drivers of Sectoral Productivity and Structural Transformation
D. Results
E. Conclusions
OPPORTUNITIES FOR QUALITY UPGRADING IN LOW-INCOME COUNTRIES
A. Introduction
B. Export Quality: Stylized Facts
C. Quality in Important LIC Export Sectors
D. Quality Ladders: Potential for Quality Upgrading
E. Export Quality and Development
F. Quality Upgrading and Growth
G. Determinants of Quality Upgrading
H. Conclusions
EXPERIENCES AND POLICY LESSONS FROM FIVE CASE STUDIES
A. Introduction
B. Diversification—Cross-Country Evidence
C. Export Diversification
D. Diversification—Country Experiences
E. Conclusions
References
APPENDIXES
I. OLS and 2SLS Growth Regression
II. IVBMA Methodology
APPENDIXES TABLES
A1. Export Diversification
A2. Real Sector Diversification
A3. OLS and 2SLS Estimation
A4. Data Appendix
BOX
1. Quality Upgrading in Small States
FIGURES
1. Posterior Inclusion Probabilities from BMA Growth Regression, Developing Countries, 1965-2009
2. Growth volatility by Income Groups, 1962-2010
3. Growth Volatility and Export Diversification by IMF Income Group, 1962-2010
4. Export Diversification and Growth Volatility, 1962-2010
5. Growth Volatility and Diversification Spurts in LICs, 1962-2010
6. Intensive Diversification and Growth Volatility
7. Interaction of Diversification and Openness vs. Growth Volatility
8. Output Diversification vs. Growth Volatility
9. Sectoral Dynamics Around Growth Takeoffs
10. Dynamics of Sectoral Shares in LICs
11. Sectoral Productivity Growth in LICs
12. Distribution of Value Added and Employment in Manufacturing
13. Aggregate Productivity Growth, 1990-2010
14. Decomposition of Aggregate Productivity Growth, 1990-2007
15. Sectoral Productivity and Employment Changes in Selected Economies
16. Correlation with Sectoral Shifts Component
17. The Agricultural Productivity Gap in LICs
18. Export Quality in LICs Quality Over Time for All Sectors Relative to Quality Ladder
19. Export Quality by Region for LICs and Lower Middle Income Countries
20. Quality and Unit Values
21. Quality, Export Prices, and Market Shares in Three Important LIC Export Sectors
22. Quality Ladders by SITC1 Sector, 2010
23. Quality and GDP per Capita
24. Quality Upgrading and GDP per Capita Growth, 1995-2010
25. Quality Upgrading and Sectoral Growth in LICs, 2000-10
26. Country-level Heterogeneity in Quality Upgrading in Asia and Africa
27. Additional GDP per Capita Growth in Fast Convergers
28. Quality Upgrading and Destination Markets, by Country Group
29. Quality Upgrading and Destination Markets, for Fast and Slower Quality Convergers among Low- and Lower-Middle-Income Countries
30. Output Diversification
31. Export Diversification
32. Malaysia
33. Vietnam
34. Tanzania
35. Bangladesh
36. Angola
TABLES
1. IVBMA Regressions for Growth on Export Diversification
2. IVBMA Regressions for Growth on Output Diversification, Developing Countries, 1965-2009
3. System GMM Regressions for Growth Volatility on Export Diversification of Products, Developing Countries, Panel of 5 Year Average, 1962-2010
4. System GMM Regressions for Growth Volatility on Export Diversification on Products, All Countries, Panel of 5 Year Average, 1962-2010
5. System GMM Regressions for Growth Volatility on Output Diversification, Panel of 5 Year Average, 1970-2010
6. Policy Determinants of Sectoral Productivity
7. Policy Determinants of Sectoral Shifts