Will Martin
World Bank
IAAE Pre-Conference Workshop on Globalization
18 August 2012

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Masterful presentation on growth & growth prospects
◦ Sins of commission?
◦ Sins of omission?
Sins of commission?
◦ Some question about China’s growth fall to 2%?
 Given it is so far inside the frontier?
Sins of omission?
◦ Maquiladoras & macroeconomic imbalances?

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Mexico moved from import-substituting manufacturing to export-oriented manufacturing
◦ Alas, this took place after the dramatic growth associated with urbanization and the demographic transition
Maquiladoras allowed growth of export-oriented manufacturing
◦ NAFTA allowed growth of export-oriented manufactures throughout the country
 But only if inputs from NAFTA

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China started with Special Economic Zones
But, by the early 1980s, duty exemptions available throughout the country
◦ Able to use inputs from any country, and link to value chains in any country
◦ Very open to investment in export-oriented manufactures
And phased out taxation of agriculture
Built an outward-oriented manufacturing sector during a period of rapid industrialization
◦ Maximizes the return on capital– avoids risk of immiserizing growth

12
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1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
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Nontraded
D
T
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T
Traded goods

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Savings greater than investment?
◦ Or expenditure less than income
Under a floating rate, would result in the private sector accumulating foreign assets
Under China’s exchange rate system
◦ Government accumulates foreign exchange reserves
 Needs to sterilize the monetary injections so sells bonds domestically. Private sector accumulates govt bonds
◦ “Problem” is a sub-optimal portfolio for China
For the ROW, it is a supply of savings
◦ Which “currency manipulation” countervailing duties would not resolve

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Inequality as the central problem and investment in infrastructure as a solution
Is the critical problem inequality or the constraints facing the poor?
◦ Ravallion (2012) concludes that the central problem is the constraints facing the poor
 Potentially quite different policy implications from a focus on inequality

 e(p,G,u) - π(p,G) – tfr = 0
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Want to assess the level of u where e is required expenditure; π is profit; tfr is transfers; G is a vector of government goods.
Changes in infrastructure have 2 effects
◦ One on the value of output, π(p,G)
◦ One on the cost of living, e(p,G,u)
Conventional consumption measures pick up only the impact on output value
◦ Need great care when measuring impacts

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Problems
◦ Taxes too low
◦ Taxes too focused on VAT
 Too much evasion of income tax
◦ Too little taxation of resources
◦ Too little taxation of pollution
◦ What about wage taxes?
How different from other countries/regions?
◦ VAT is used in every major country but the USA
Do dirty goods have lower growth potential?
◦ Soybeans and maize in the Cerrado?

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Projections are enormously valuable
◦ Adding up conditions rigorously enforced
◦ Dependent on many unknown exogenous variables
 But appropriate sensitivity analysis
A critical issue is likely to be the rate of productivity growth in agriculture
◦ Brazil, India and China investing heavily in R&D
◦ Will there be another explosion of agric exports from
LAC?
◦ Will China fend off import growth with successful investments in R&D?
◦ Will Africa be able to replicate Brazil’s success?

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Masterful exposition of agricultural distortions
◦ Notable reduction in taxation of exports
◦ Some protection of imports
Why exports to China are so concentrated?
◦ Very special import regime for soybeans in China
Real exchange rates
◦ Two-tier exchange rates are clearly a tax on exports
◦ But real exchange rate changes under a convertible exchange rate typically reflect needed adjustments in the price of nontraded to traded goods
 Perhaps due to changes in income-expenditure balance?
 Or to a booming sector?
◦ Change incentives but don’t create distortions
 Adjustments may be painful
 But countervailing duties create further appreciation

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Export restrictions when prices rise
Variable import levies or SSMs when prices fall
Major controversy during recent price spikes and in the Doha Agenda
Can help some poor people when prices spike
◦ But these are beggar-thy-neighbor policies that destabilize world prices
◦ Ineffective if used by all countries
◦ Damaging if used by richer countries at expense of poorer countries
◦ Exporters can lose credibility & the confidence of importers

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Move to market coincided with low prices in the
80s & 90s, & the EU/US “subsidy war”
Highlights the critical importance of R&D
Rural share of population fell from 32% to 16% between 1980 and 2010
◦ Surprising given the very rapid growth in productivity

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Wonderful set of studies
◦ High quality, reflecting great depth of knowledge
Some really interesting issues omitted
◦ Especially on the topic of imbalances
◦ Of real exchange rates
◦ And perhaps on price insulation
Congratulations