Fifty students from the Institute of Business Administration in Pakistan have joined us at the Virtual Institute for a Videoconference on the latest Trade and Development Report (TDR), titled "Structural transformation for the inclusive and sustained growth" on April 28th. Piergiuseppe Furtunato, From UNCTAD's Division on Globalization and Development Strategies, reviewed recent trends in the global economy while emphasizing the need for better policies to stimulate structural transformation.
The world economy is in a fragile state, noted Fortunato. "Global growth dropped significantly in 2016. Growth was slow in advanced economies but also in most developing countries and displayed significant country and regional variation", he said before adding that "Global economy is not offering the conditions necessary for a global growth".
The likelihood of low income economies to become middle income economies dropped dramatically over the last thirty years. Many middle-income countries risk to remain stuck in a "middle-income trap" and struggle to transform into high-income economies.
"In successful economies, productivity expanded rapidly with a dynamic manufacturing sector absorbing labour force from agriculture until reaching a peak. Higher levels of peak-manufacturing tend to be associated with better long-run growth performances" explained Fortunato. Early industrializers peaked in manufacturing at higher level of per capita income. Today the peak manufacturing levels are much lower in industrializing countries.
Moreover, the successful export-led industrialization model adopted by converging East Asian economies like Korea has not proven equally effective for developing countries focusing on export nowadays.
The recent investment trends also play a role in the difficulties faced by countries trying to transform their economies and catch up. "Investment to profit ratios are declining while dividend to profits ratios are going up, especially in the manufacturing sector".
Fortunato concluded his presentation by stressing the importance of having a better industrial policy: "Such policy should not be about "picking winners" but about targeting diversification and upgrading to foster strong productivity growth". He also added that more attention should be devoted to policy coherence in order to "bring together macroeconomic, financial, trade and industrial policies".