Technology, structural change and growth - PowerPoint Presentation

Slide1

Technology, structural change and growth

Summer 2014Slide2

Objectives of the paperTo present basic insights on structural change and

growth in a simple frameworkTo show some empirical evidence and stylized facts that are consistent with the “structural change” storySlide3

Variables and interrelations

Technology gap (TN/TS)= G



Asymmetries in productivity [ (

p

S

/pN) = p] which combined with relative wages (W = WS/WN)  specialization pattern (N) + patterns of domestic and world demand Income elasticity ratio (e=eS/eN) relative growth (y = yN/yS=e(N)) Feed back to the technology gap and wages Slide4

The starting point: the international diffusion of technology is slow and asymmetric (North-South technology gap)Technology diffuses only partially to the South and is highly localized in few activities

A Schumpeterian flavor: technical change and innovation as the driving force of development. Starting pointSlide5

Impacts on:

a) Heterogeneity (implications for employment and income distribution / duality / informality) b) Specialization (

implications

for

growth, technical change and macro stability)Slide6

A graphic representation: heterogeneitySlide7

a) Heterogeneity

Large differences in labor productivity emerge within and between sectorsGraphic: two structures that differ in terms of number of sectors, technological intensity (complexity) and asymmetries in labor productivitySlide8

How specialization emerges: N is an index of technological complexitySlide9

b) Specialization

Ranking sectors according with South-North relative productivity pUnitary costs depends on the productivity gap and relative wageThe productivity gap is higher in sectors which are more technologically-intensive (comparative advantage of the South is lower in high-tech sectors)

Given the wage ratio, the South specializes in sectors with lower technological intensitySlide10

Dynamics of relative productivity

Relative South-North productivity:p = p S /

p

N

it increases with relative growth and falls with the technological intensity of the goods: a, b and

a

are technological parameters Slide11

Relative wagesIn our examples relative wages will be considered constant, but they can easily be made a function of the diversification of the productive structure or of the relative rate of growth in South and North Slide12

c) Growth (Keynesian side)

-> The pattern of specialization implies lower dynamism of world and domestic demand for Southern goods-> a less articulated productive structure gives rise to losses of effective demand and a strong propensity to import that reduces the momentum of growth and leads to BOP and exchange rate crisisSlide13

Falling behind

Growth will be constrained by external disequilibriumBOP constraint: yS/y

N

=

e

=eX/eMElasticity ratio depends on N: e = hNFalling behind: Low income elasticity of the demand for exports and high income elasticity of the demand for imports, yS < yNSlide14

From specialization to growth

A

e

/

N

N

1

Slide15

Macrodynamics

The technology gap shapes relative productivities (box A)This in combination with relative wages define the pattern of specialization (boxes A and D)Specialization defines the BOP-constrained rate of relative growth (B)Growth defines labor demand and the absorption of informality and subsistence workers (E) Slide16

The complete systemSlide17

Equations of the model (

Cimoli and Porcile, 2013, CJE)Slide18

EquilibriumSlide19

DynamicsSlide20

Shocks and policiesIndustrial and technological policy

Vent for surplus versus Dutch diseaseUnilateral trade liberalizationSlide21

Case 1: Technological policySlide22

Technological policy

An active technological policy reduces the technology gap enhancing diversification towards sectors with higher technological-intensity and higher demand growthSlide23

2 tales in the 2x2 modelSlide24

Shifting equilibrium in Asia and Latin AmericaSlide25

Structural change and specialization

AMÉRICA LATINA Y ASIA: PATRÓN DE CAMBIO ESTRUCTURAL Y PARTICIPACIÓN EN LAS EXPORTACIONES, 1985-2011

Fuente: Comisión Económica para América Latina y el Caribe (CEPAL), sobre la base de

United

Nations

Commodity Trade Statistics Database (COMTRADE).Slide26

Elasticities: South AmericaSlide27

Elasticities: KoreaSlide28

Co-evolution between KE and SESlide29
Slide30

Production structure: an international comparisonSlide31

A sample of countriesSlide32

Relative wagesSlide33

IRP (engineering)Slide34

Productivity

growth

in LA and SE Asia

Latin

America

(12 countries) and Asia (7 countries): labor productivity(1980 = 100)Fuente: Comisión Económica para América Latina y el Caribe (CEPAL), sobre la base de cifras oficiales de los países de la región, de la base de datos Laborsta de la Organización Internacional del Trabajo (OIT), y de World Development Indicators

(WDI) del Banco Mundial.Slide35

An economy that fails to diversify will not be able to raise employment and productivity at the same time

Latin America (12 countries): labor productivity and value added, 1980-2010

a

(thousands and millions of 2000 US dollars)Slide36

Productivity and employment in KoreaSlide37

Gini in productivity and incomeSlide38

Inequality and the production structureSlide39

Production structure and educationSlide40

The evolution of N and GSlide41

Case 2: Dutch diseaseSlide42

Case 2: Dutch disease

A positive shock in commodity prices leads initially to higher growth, more learning and investment (vet for surplus)If the real exchange rate rises, then there will be less diversification and slower growth at the end of the adjustment (regressive structural change)A key point is the policy reaction to the shock and how to neutralize appreciation Slide43

Case 3: unilateral trade liberalizationSlide44

Case 3: unilateral trade liberalization

Reduces diversificationIncreases heterogeneityRising productivity levels in commodities, falling in industryOf course trade liberalization plus industrial policy may significantly change the outcomesSlide45

Brief notes on evolutionary microdynamics

Why technical change does not diffuse uniformly across countries and within sectors? Which policies close the technology gap and which policies lead to divergence?Conventional micro usually avoids these questions; on the other hand, they are at the core of evolutionary microSlide46

Evolutionary perspective on technical change 1

It has a critical tacit component that could not be obtained from importing capital goods nor from reading manual and other forms of codified information; Cumulativeness:

firms that are closer to the technological frontier have an advantage in innovation and will tend to increase their distance with respect to the laggards (cumulative processes leading to virtuous or vicious cycles)Slide47

Evolutionary perspective on technical change 2

It is subject to path-dependency, i.e. the evolution of capabilities depends on previous experience and directions of past learningThere exists

complementary

between sectors and capabilities, in such a way that externalities and increasing returns are crucial at both the industrial and economy levels

There is

irreversibility

in the building of certain (physical and technological) assets, which cannot be just abandoned or replacedSlide48

Convergence and divergence

There is no reason for naïve optimism about convergence. Path-dependency and cumulativeness lead to strong inertia in the patterns of learning and specialization. On the other hand, catching up may be possible under specific circumstances, when industrial policies and institution-building create a favorable environment for learning from imported technology.Slide49

Industrial and technological policy

Market forces tend to endogenously reinforce asymmetries; active policies are required to enhance diffusionFocus on institutions, complementarities and increasing returns rather than on flexibility in the goods, financial and labor markets. Slide50

The other supply side

For having this virtuous cycle there must be in place an articulated institutional framework in which firms and non-profit organisations (particularly those directly related to education and R&D) are nested in a network of technological and productive flows which enhances the problem-solving capabilities of producers and stimulates the various forms of interactive learning – what has been called the National System of Innovation, NSI (Nelson, Freeman, Lundvall

, Metcalf).