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STRUCTURAL TRANSFORMATION AND ITS ROLE IN REDUCING POVERTY

Findings and perspectives of the Countries with Special Needs Development Report 2019

Oliver Paddison, PhD

Chief, Countries with Special Needs Section Macroeconomic Policy and Financing for Development Division United Nations Economic and Social Commission for Asia and the Pacific

Structural transformation

• Definition
• Structural transformation in countries with special needs and changes in

recent years

• Sectoral changes

Structural transformation and poverty reduction

• Poverty profiles of countries with special needs
• Structural transformation and poverty

Policy considerations

Table of contents

2

What are ‘Countries with special needs’?

Bangladesh Cambodia Myanmar Armenia Azerbaijan Kazakhstan Kyrgyzstan Mongolia Tajikistan Turkmenistan Uzbekistan Fiji Maldives Marshall Islands Micronesia (Fed. States) Nauru Palau Papua New Guinea Samoa Singapore Tonga American Samoa Cook Islands French Polynesia Guam New Caledonia Niue Northern Mariana Islands Kiribati Solomon Is. Timor-Leste Tuvalu Vanuatu Afghanistan Bhutan Lao PDR Nepal Landlocked developing countries

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Least developed countries Small island developing States

Why is structural transformation important?

Structural transformation (ST):

• Defined as the change in the long-term composition and distribution of

economic activities Why is it important?

• ST results in higher productivity gains, higher wages and stable sources of

incomes, thereby reducing poverty and closing productivity gaps across sectors

• It is a key feature of broad-based and inclusive economic growth

What causes ST?

• Push/Supply Side
• Pull/Demand Side

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10 20 30 40 50 60 70 80 90 100

1991 2016 1991 2016 1991 2016 1991 2016 1991 2016 1991 2016 1991 2016 1991 2016 2002 2016 1991 2016 Afghanistan Bangladesh Bhutan Cambodia Lao PDR Myanmar Nepal Solomon Islands Timor-Leste Vanuatu

Percentage share

Least developed countries

Agriculture Industry Services

Where do countries stand?

20 40 60 80 100

1991 2016 1991 2016 1991 2016 1991 2016 1991 2016 1991 2016 1991 2016 1991 2016 Armenia Azerbaijan Kazakhstan Kyrgyzstan Mongolia Tajikistan TurkmenistanUzbekistan

Percentage share

Landlocked developing countries

Agriculture Industry Services

10 20 30 40 50 60 70 80 90 100 1991 2016 1991 2016 1991 2016 1991 2016 1991 2016 Fiji Maldives Papua New Guinea Tonga Samoa Percentage share

Small island developing States

Agriculture Industry Services

• Structurally underdeveloped: Agriculture > Industry and services
• Structurally developing: Services > Agriculture > Industry
• Structurally developed: Services > Industry > Agriculture

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Structural transformation: relocating from agriculture

Countries in the upper right quadrant stand to gain the most from reallocation

• Employment and GDP shares are higher than average.
• Labour productivity in agriculture is often low -> to be boosted

Afghanistan Bangladesh Bhutan Cambodia Lao PDR Myanmar Nepal Solomon Islands Timor-Leste Vanuatu Armenia Azerbaijan Kazakhstan Kyrgyzstan Mongolia Tajikistan Turkmenistan Uzbekistan Fiji Maldives Papua New Guinea Tonga Samoa 5 10 15 20 25 30 35 40 10 20 30 40 50 60 70 80

Gross value-added share in Agriculture (percentage)

Employment share (percentage)

Average agriculture employment share in countries with special needs: 37.3% Average gross value-added share of agriculture in countries with special needs: 17.3%

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Move to services

• 100
• 50

50 100 150 200 250 300 Armenia Azerbaijan Kazakhstan Kyrgyzstan Mongolia Tajikistan Turkmenistan Uzbekistan Fiji Maldives Papua New Guinea Samoa Tonga Landlocked developing countries Small island developing States

• 50

50 100 150 200 250 Afghanistan Bangladesh Bhutan Cambodia Lao PDR Myanmar Nepal Solomon Islands Timor-Leste Vanuatu Least developed countries Change in employment share Change in labour productivity

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• > mostly low productivity and informal

Decomposing productivity changes

(1991-2016)

• 600
• 400
• 200

200 400 600

• 80 %
• 60 %
• 40 %
• 20 %

0 % 20 % 40 % 60 % 80 % 100 % Afghanistan Bangladesh Bhutan Cambodia Lao PDR Myanmar Nepal Solomon Islands Timor-Leste Vanuatu Armenia Azerbaijan Kazakhstan Kyrgyzstan Mongolia Tajikstan Turkmenistan Uzbekistan Fiji Maldives Papua New Guinea Samoa Tonga Least developed countries Landlocked developing countries Small island developing States Per cent change Percentage share Demographic change Employment rate Inter sector shift Within sector improvement Total change in gross value-added per capita (right axis)

8

Structural Transformation and Productive Capacities

Countries with special needs

Economic complexity index

(changes between 1991/1992 and 2016)

9 From MIT Media Lab

Structural transformation

• Definition
• Structural transformation in countries with special needs and changes in

recent years

• Sectoral changes

Structural transformation and poverty reduction

• Poverty profiles of countries with special needs
• Structural transformation and poverty

Policy considerations

Table of contents

10

ST and poverty reduction: A conceptual framework

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Poverty reduction

10 20 30 40 50 60 70 80 90 100 Timor-Leste Solomon Islands Bangladesh Lao PDR Vanuatu Kiribati Nepal Myanmar Tuvalu Bhutan Uzbekistan Tajikistan Turkmenistan Kyrgyzstan Armenia Mongolia Kazakhstan Azerbaijan Papua New Guinea Micronesia Maldives Samoa Tonga Fiji Least developed countries Landlocked developing countries Small island developing States Poverty headcount ratio (percentage of population) 1990 2015 $3.20 poverty line

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How have earnings and employment shares evolved?

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Structural Transformation: Correlates of poverty reduction

Pairwise correlations between the measures

• f

structural transformation and poverty headcount ratio at the $3.20 per day international poverty line, average for 2012-2016, Asia-Pacific developing countries Correlations between labour productivity and poverty headcount ratio at the $1.90, $3.20 and $5.50-per-day international poverty lines, average of 2012-2016, Asia- Pacific developing countries

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• 0,8
• 0,6
• 0,4
• 0,2

0,2 0,4 0,6 0,8 Employment share (percentage of total) Value-added share (percentage of total) Labour productivity (constant 2010 US$)

Agriculture Industry Services

Structural transformation

• Definition
• Structural transformation in countries with special needs and changes in

recent years

• Sectoral changes

Structural transformation and poverty reduction

• Poverty profiles of countries with special needs
• Structural transformation and poverty

Policy considerations

Table of contents

15

Policy Considerations (I)

• The State must occupy the central position in structural economic

transformation and poverty reduction efforts;

• Industrial Policy, either selective or functional, is the State’s instrument for ST;
• Targeting depicts State’s comprehensive support for a given industrial sector it

chooses to develop.

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Policy Considerations (II)

Least Developed Countries:

• Rural modernization
• Human capital
• Foreign direct investment / Special Economic Zones

17

Policy Considerations (III)

Landlocked Developing Countries:

• Stopping premature deindustrialization
• Preventing the resource curse;
• Restructure capital-intensive industries
• Promote modern business services

Small Island Developing States:

• Targeting specific sectors
• Sustainable ocean management and fisheries
• Environmentally sustainable tourism
• High-value agriculture

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Policy Considerations (IV)

Cooperation and the Role of the International Community

• Asia and the Pacific is the place of various integration and cooperation efforts:

e.g. BRI, EAEU; The International Community must:

• Support cooperation between Landlocked Developing Countries and transit

countries to ensure the former access to the global economy;

• Augment productive capacities of Least Developed Countries so that they can

join the global economy through GVC and RVC;

• Mitigate the consequences of and altogether stop the climate change to allow

the Small Island Developing States to survive.

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