Guest Lecturer Robert Z Lawrence
Albert L Williams Professor of International Trade and Investment Harvard Kennedy School & Senior Fellow Peterson Institute for International Economics
Punuka Annual Lecture 2016
Introduction: A New Global Environment
- Slow growth in advanced economies.
- Brics (besides India) all face growth problems.
- Commodity markets are depressed.
- Wages rising in China: supply chains are moving.
- Middle Classes in China and India are growing.
- Kinds of Growth.
- Tariffs on inputs.
- Infant Industry Protection.
- Competitive exchange rates.
- Implications for Nigeria.
Where does growth come from?
- Sustainable Growth comes from
convergence with the productivity levels (the
"technology") that prevail in the rich
- "Technology" is the name for the stock of ideas and knowledge that is available for developing countries to absorb (and disseminate throughout their economies)
- This stock does not disappear
or dissipate when rich countries grow more slowly or when world
trade is less buoyant.
- As long as developing nations follow the appropriate strategies
Wages reflect Productivity!
Where does growth come from?
There is "bad" growth (1)
- Foreign borrowing-led
- Examples: countries in the periphery of EU in 1990s, Latin America in 1970s, Iceland, Ireland and Greece in 2000s.
- Good to the extent that it eases the financing constraint of firms
- Inevitably comes to an end when capital flows dry up
- This pattern of growth is associated with current account deficits and the overvaluation of the currency
- and the booming of the
"wrong" kinds of economic activities, which do not
promote long-term growth
- non-tradables such as construction and real estate
There is "bad" growth (2)
- Commodity boom-led
- Examples: 19th century, many African (and Latin American) countries in the last decade
- Not sustainable in the longer term, because of both cyclicality and long-term downwards trend in the commodity terms of trade
- Also associated with the booming of the "wrong" kinds of economic activities
- And produces bad politics on
- Resource rents and the rentier state
- Chile a rare example of a country that has (so far) managed resource rents well
... and then there is "good" growth (3)
- Structural transformation-led
- From low-productivity
- traditional agriculture and informality
- to modern, non-traditional
- manufacturing, non-traditional export crops, and tradable services
- Examples: Japan, S. Korea, China, India
- Based not on (static)
comparative advantage, but on producing what countries richer than
- Associated with "productivist" policies
- policies that explicitly promote structural change, through removal of constraints on investments in modern activities
- And through industrial policies, undervalued currencies, financial controls
- Underpinned by sound macro/fiscal policies
- This is the only model that generates reliably sustained convergence with income levels in the advanced countries
- From low-productivity traditional products
Example: Manufacturing Share Rises and then Falls
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