Perspectives on Global Development

OECD Development Centre

Frequency :
Annual
ISSN :
2222-4475 (online)
ISSN :
2222-4467 (print)
DOI :
10.1787/22224475
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Also available in: French
 
Perspectives on Global Development 2013

Perspectives on Global Development 2013

Industrial Policies in a Changing World You do not have access to this content

OECD Development Centre

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Author(s):
OECD
Publication Date :
21 June 2013
Pages :
250
ISBN :
9789264194397 (PDF) ; 9789264177116 (print)
DOI :
10.1787/persp_glob_dev-2013-en

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First launched in 2010, Perspectives on Global Development (PGD) is OECD’s annual publication on emerging development issues. The PGD takes the new geography of economic growth, poverty and power as a point of departure. Each year, the report identifies, analyses and provides evidence and policy solutions to the most pressing global development challenges in the new multipolar world. It provides an overview of global trends and structural transformations in the world economy and informs policy makers in developing countries on the implications in the formulation and implementation of national policies. Each year, the report focuses on a different topic covering diverse socio-economic facets of development from trade, development finance, infrastructure, production development and innovation to gender, employment, migration, fiscal and social policies.

During the past decade, the global economic centre of gravity has shifted eastwards and southwards, creating new opportunities for economic co-operation, trade and investment but also new challenges. This "shifting wealth" is a game changer for economic policy and is at the centre of the first three editions of the Perspectives on Global Development, which document the phenomenon (PGD 2010) and analyse its implications for social cohesion (PGD 2012) and productive growth strategies (PGD 2013).

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    Foreword

    Emerging economies and developing countries are playing an increasingly important role as new engines of global growth. The OECD described this gradual shift of the world’s economic centre of gravity from North to South and from West to East in the its first edition of OECD Perspectives on Global Development, published in 2010 under the title Shifting Wealth. In our second edition of this series, Social Cohesion in a Shifting World, published in 2012, we analysed the implications of Shifting Wealth for social cohesion and proposed an integrated policy framework for a sustainable, more cohesive policy agenda.

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    Acronyms and abbreviations
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    Editorial

    The world has undergone profound and rapid transformations over the past decade, with the economic centre of gravity shifting towards Asia and the South. This process was initially driven by the integration of China and India into the world economy, but the story did not end there: a wider number of developing countries have already begun writing the next chapter. They are putting in place industrial policies, aimed at upgrading their productive structure and increasing their participation in global value chains. These policies also respond to a growing awareness about the risk of falling into a middle-income trap and experiencing economic stagnation and turbulence before getting to the desired level of development.

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    Executive summary

    The last two decades have seen a shift in the centre of gravity of the global economy to Asia and the South. Since the mid-1990s, GDP growth in large and populous middle-income countries has substantially outpaced that of OECD countries. Despite concerns about the recent slowdown, this shifting wealth is a structural phenomenon that will persist and shape economic development in the future. Against this background, most developing countries have improved their macroeconomic management and started to implement industrial policies to address long-term structural issues.

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    Overview

    Since the mid-1990s, economic growth rates in large and populous middle-income countries have substantially outpaced those in OECD countries (). This has reshaped the global economy and favoured convergence in global income per capita. In the 2000s, 83 developing countries doubled OECD per capita growth rates, compared with only 12 in the 1990s. The process of shifting wealth was led by China and India, but other countries are also contributing to it, including Brazil and South Africa. In spite of the persistence of large gaps in income per capita between OECD and non-OECD economies and the wide inequality within developing countries, most developing countries have improved their macroeconomic management and have started to address long-term structural challenges. New forms of foreign direct investment (FDI) to and from developing countries, the increase in South-South trade and the demands from the new middle classes in developing countries are helping to open up new growth opportunities. Developing countries are still accumulating capital and labour but they are also improving their capabilities and increasingly using and producing innovations. However, mastering technology and knowledge in order to move up the value chain is still a goal to be achieved for most of them.

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    Shifting wealth and the new world economy

    Doubts have intensified over whether the recent process of income convergence will continue. The growth performance of developing countries in the 2000s was indeed largely linked to China and other emerging economies. However, the economic challenges associated with China’s rebalancing from investment-led to consumption-driven growth, and also doubts about whether other emerging economies can sustain their growth trend raise concerns regarding growth prospects. Nevertheless, the relatively low level of per capita income in many countries with a large population, which illustrates the significant space for catch-up growth, and the rise of the middle classes in such countries give reason for optimism. It is likely that the recalibration of the world economy will continue for the foreseeable future. Its scale will depend on what happens in large emerging economies as well as on domestic development policies.

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    Channels of shifting wealth

    Shifting wealth – driven primarily by China’s rise but also by the dynamism of some other developing countries – has been a major force behind reshaping global economic relations. To adopt the right strategies in this changing landscape, it is useful to understand the channels through which countries are affected. The impact of shifting wealth on other countries – through the channels of trade, investment, financial and knowledge flows – will be shaped by the combination of the type of endowments and the strategies adopted to integrate into the global economy. The challenges countries face and their potential arsenal of policy tools also hinge on the combination of these factors. Countries that are rich in natural resources of which China is in great need have enjoyed rising terms of trade, increasing exports and improving current account balances, but have also seen their competitiveness challenged. Countries that share supply chains with China are benefiting from an ever-increasing demand for their exports but have also been facing increasing competitive pressure as China has been entering into the production of an ever-widening range of goods. Services exporters in developing countries have often been less successful in meeting China’s large appetite for imports of services. In the medium term China’s changing growth pattern will offer new challenges for developing countries: slower, but stable, demand for raw materials and higher demand for consumer goods and for a wide range of services.

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    The new productive landscape and the renewed interest of developing countries in industrial policy

    This chapter discusses the renewed interest of developing countries in industrial policy. The global economic landscape is undergoing deep and rapid changes. The development of China and other emerging economies is reshaping the geography of production and innovation. In response to the new landscape, many developing economies are implementing targeted policies both to sustain growth and to support structural transformation.

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    Emerging issues in implementing industrial policy in developing economies

    This chapter sketches out some of the major issues that developing economies face in implementing industrial policy in the new global economic landscape. It highlights that: i) empowered institutions and performance-based incentives help to deal with the risks of capture; ii) promotion of innovation, start-ups and cluster development are increasingly used as mechanisms to support production upgrading and transformation; iii) empowering regions increases the effectiveness of industrial policy; iv) sustainable development opens opportunities for developing countries, but specific policy measures are needed; v) monitoring and evaluation mechanisms need to be in place to improve policy implementation and design.

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    Upgrading skills for current and future needs

    Skills are a key component of industrial development. By making economies more flexible in the face of technological change and spurring innovation, they enable developing countries to shift from an input-driven to a productivity-driven growth model. Skills are necessary to increase total factor productivity, hence to move up the value chain. By contrast, skills mismatches – either shortages or surpluses – curb productivity growth and affect the ability of firms to compete globally. In this respect, co-ordination failures in developing countries translate into a suboptimal allocation of skills, thus slowing down economic growth. To remain competitive in the global economy and shift into industries with higher technology and greater knowledge intensity, industrial policies should not only invest in more and better skills, but also align education with labour market needs, improve the school-to-work transition, encourage the long-term adaptability of skills and promote international skills mobility. The international experience shows that the co-ordination of action between the main stakeholders in the skills market is a significant condition of success.

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    Mobilising financial resources

    Adequate access to finance is essential for productive upgrading and economic growth. The scarcity of funds in developing countries is often the outcome of a low level of financial intermediation. Small firms, which rely almost exclusively on bank loans for external funding, are more affected by this financing gap, and even more so for long-term financing. To tackle these barriers, development banks have gained importance as instruments for facilitating access to credit and have recently expanded their activities. Credit guarantee schemes have also grown considerably in recent decades. International financial institutions, such as domestic public institutions, have contributed to expanding financial access to firms. Alongside traditional financing mechanisms, new instruments have been tailored to respond to the specificities of small and medium-sized enterprises (SMEs) in non-OECD economies.

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    Bridging infrastructure gaps

    Any successful transformation strategy requires effective infrastructure planning and development to build the necessary domestic and foreign linkages. Significant gaps in the provision of infrastructure hold back competitiveness and the expansion of production in developing countries. These economies therefore need to invest more in infrastructure but above all to improve the effectiveness of public infrastructure policies. Co-ordination between different agencies in charge of such policies is essential for overcoming multiple gaps, including coverage, access and costs. Using recent data from a survey of policy makers, this chapter identifies ways to improve the policy-making process for infrastructure and the management of public and private financing options.

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    The political economy of industrial policies

    Not only is a strategic and integrated framework important for the effectiveness of industrial policies but so, too, are the political willingness and institutional arrangements that will govern the design and implementation of these policies. This chapter looks into the political economy of industrial policies. Their success will depend on the capacity of governments to open political spaces for dialogue with essential stakeholders such as the private sector. It will also require building institutional capabilities and ensuring co-ordination between the different institutional players involved in the design and implementation of these policies. Critical elements of the design of a credible industrial development plan include the need to secure stable sources of funding, to define clear mandates and a governance scheme that foster smooth co-ordination and effective execution, and to invest in the training of management and professional staff.

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