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 INDUSTRIAL STRUCTURE, INDUSTRIAL POLICY, EXTERNAL TRADE
AND CAPITAL FLOWS Slide 2 Differences in productivity by sectors of
the economy Slide 3 Slide 4 Slide 5 Slide 6 Industrial companies
with largest sales in 2005-06 (Source: Expert 400) Slide 7 Slide 8
Slide 9 Slide 10 Slide 11 Slide 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 +
0.04*Y 0.0004*Y 2 0.05*T + 0.001*T 2 + 0.0006*Y*T, Where Y GDP per
capita in 1870 or 1890 respectively, T average tariff rates (R 2
adj. = 33%, all coefficients significant at 11% level or less).
Slide 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 + 0,07*Ycap75us,
N=45, R 2 =59%, T-statistics for Ycap75 coefficient is 9. 68.
CORRres = 10 [CPI (2.3 + 0.07*Ycap75us)] = 12.3 CPI + 0.07*Ycap75us
Slide 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, R 2
=36%, T-statistics for Ycap75us coefficient is 3.95. RISKres =
RISK84-90 (62.1 + 0.19Ycap75us) +100 Slide 15 Slide 16 Import
tariffs - impact on growth. GROWTH=CONST.+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. R 2 =40%, N=39, 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. Slide 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:
GROWTH=CONST+CONTR.VAR+T(0.050.005Ycap75us 0.007Rpol) where Rpol is
the indicator of the accumulation of foreign exchange reserves
computed as explained later, in the third section, N=40, R 2 =40,
all coefficients significant at 8% level or less, control variables
positive residual corruption and population growth rates. Slide 18
Import tariffs and accumulation of FOREX- impact on growth
GROWTH=CONST.+CONTR.VAR.+ + T(0.001RISK0.0038Ycap75us)+ +
Rpol(0.23-0.014T), where N=48, R 2 = 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. Slide 19 Import
tariffs - impact on growth GROWTH=CONST+CONTR.VAR.+ +
T(0.005RISK0.002Ycap75us0.3) (N= 87, R 2 =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 > 50%)
the expression in brackets in this case becomes positive. Slide 20
Slide 21 Slide 22 Slide 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. Slide 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). Slide 25 Slide 26 Slide 27 Slide 28 Slide 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 Slide 30 Slide 31
Vietnam export oriented development Slide 32 Until recently Chinese
import tariffs were extremely high Slide 33 Slide 34 Slide 35 Slide
36 Slide 37 Ratio of Russian domestic energy prices to world
prices, % Slide 38 Domestic energy prices in $ terms Slide 39 Slide
40 Slide 41 Energy efficiency and relative fuel prices Slide 42
Slide 43 Slide 44 Slide 45 Slide 46 Slide 47 Trade flows and trade
balances for the republics, 1988, as a percentage of GNP a
(Exports+Imports): (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. Slide 48 Slide 49 Slide 50 Slide 51
Slide 52 Slide 53 Slide 54 Slide 55 Slide 56 Slide 57 Inward FDI
flows amount to 5-30% of total domestic investment. For smaller
countries this ratio is higher Slide 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) Slide 59
Slide 60 Slide 61 Slide 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 Slide 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) Slide 64 Slide
65 Slide 66 FDI is attracted by resource abundance and government
effectiveness FDI=1.8.05Ycap75+33.3Y99_AREA+.65GovEff+
+ImDuties*(.002Ycap75.09) +.01IDincr (N=46, 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
Slide 67 Panama - high FDI, low growth; Korea and Hong Kong - high
growth, low FDI Slide 68 Slide 69 Cross country regression of
growth rates in 1975-99 on the FDI inflows works only with few the
control variables: GROWTH = a 0 + a 1 POPgr + a 2 Ycap75 + a 3 FDI
(N=54, Adjusted R 2 = 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 R 2 increases to 50%. Slide 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.
Slide 71 Type of the balance of payments depends on capital flight
and policies Slide 72 Slide 73 Slide 74 For some countries (EE) ODA
as a % of GDP is higher than the regression line, for others (FSU)
- lower Slide 75
