Presentation ccic fg_january23


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Presentation ccic fg_january23

  1. 1. CCIC’s Discussion: What is sustainable growth? Does it matter? And is CIDA promoting it? Franque Grimard Department of EconomicsInstitute for the Study of International Development (ISID) McGill University Canadian Economics Study Group (CDESG) January 23, 2012
  2. 2. Discussion on “What is sustainablegrowth? Does it matter? And is CIDApromoting it?” Economic Growth 101: Theories and Empirics Case Study: Growth in LAC Countries Canada and CIDA Comments and Suggestions
  3. 3. Economic Growth Basics Traditional view of capital (Harrod-Domar, Solow Models) • Tangible, includes the economy’s stock of equipment and structures • Return to capital is the profit received by the owners of equipment and structures A new view on capital (Mankiw, Phelps and Romer 1995) • Capital with externalities • If new ideas arise as capital is built and others benefit • Human capital • Capital is much broader concept than suggested by the national income accounts • People accumulate capital whenever they forgo consumption today in order to produce more income tomorrow • Schooling and on-the-job training is also investment
  4. 4. Growth accounting withhuman-capital-adjusted labor input Modified production function to capture the contribution of education (“brains”) and the size of the labor force (“brawn”) Y  AK  H (1 ) H  LPeS • S is the years of schooling • P is participation rate • ω is returns to education So that ˆ ˆ ˆ ˆ Y  K  (1   ) H  A (A) ˆ ˆ ˆ ˆ ˆ H  L  P  S (  S ) (B)
  5. 5. Determinants of income per capitaGrowth (1) After rearranging (A), substituting (B) into (A), and representing income in per capita term we get: ˆ ˆ g Y  g A   .g K  g P  S (  S )  g L N H N • where gx is the growth rate of variable x Income growth per capita is a result of: • Growth in technology gA • Changes in capacity which are determined by: • Growth in the capital stock per unit of labor adjusted for skills • Growth in the labor participation rate • Growth in returns to education and years of schooling • Demographic changes leading to changes in the dependency ratio What else? • Whatever is not explicitly in the production function: TFP
  6. 6. Determinants of income per capitaGrowth (2) Total Factor Productivity, i.e. the residual between the LHS and RHS Possible Determinants of Total Factor Productivity • Trade • Governments • Gender • Inequality • Governance • Institutions
  7. 7. Determinants of TFP for income per capita Growth : Issues Issues of causality: what determines what over what time period Can one really say that by increasing a factor, one will then a higher TFP and consequently a higher growth rate? Growth Diagnostics (Rodrick et al. 2006) applied to poverty analysis
  8. 8. Case Study: Sustainable andInclusive Economic Growth in LatinAmerica Definitions: “Sustainable and Inclusive” Historical Context of the Americas Inequalities (Rural, urban, gender, ethnicity) Governments Debt Crisis of the 1980s Conflicts (domestic, external)
  9. 9. Sustainable and Inclusive Economic Growth inthe Americas (1968-2008): GDP per capita
  10. 10. Sustainable and Inclusive Growth in theAmericas (2000-2008): Inequality
  11. 11. Sustainable and Inclusive Growth in theAmericas 1992-2008): Inequality
  12. 12. Sustainable and Inclusive EconomicsGrowth in the Americas Factors • Past • Peace • Macroeconomic Stability • Governmental Policies: Education, Health : Policies targeted towards the Poor Opportunitades, Bolsa Familia • Democratic Governments , center-left vs Populist governments • Increase in TFP • International trade • Luck
  13. 13. Social Programs Expansion
  14. 14. Trade: Terms of Trade
  15. 15. Sustainable and Inclusive Growth in theAmericas : Challenges and Constraints Expectations: Gini Reduction should be understood in the context of a very high level. Heterogeneity: within and across countries Infrastructure Population aging Trade, Natural Resources Economy Diversification Productivity Increase Governance Luck and Shocks
  16. 16. Sustainable and Inclusive Growth in theAmericas: Canada’s Role In 2009, according to DAC, Canada spent close to $US 541 millions. United States: $US 2B on LAC countries. In 2009, remittances from workers abroad into LAC countries 56,600,951,140 US$ (US$ 56 billion), which represents about 1.7% of the total GDP of the LAC countries. Official Development Assistance has relatively a small role, if any, in creating macroeconomic growth, as defined here. Free trade Treaties
  17. 17. Canadian Government:(from theWeb): CIDA’s Priority Themes CIDA has also chosen priority themes on which to concentrate its efforts. These are areas where Canada has proven its leadership: Increasing food security Securing the future of children and youth Stimulating sustainable economic growth
  18. 18. Web: CIDA’s SustainableEconomic Growth Strategy Through the Sustainable Economic Growth Strategy, CIDA will focus its main targeted investments to support sustainable economic growth that: • Fosters a stable foundation for viable businesses and industries to thrive • Increases opportunities for meaningful employment, particularly in the formal economy • Maximizes the contribution of growth to the public resources available for investment in the welfare of the population
  19. 19. CIDAS Sustainable EconomicGrowth Strategy The strategy also integrates environmental sustainability, equality between women and men, and governance as essential considerations to achieve sustainable economic growth. Within the strategy, CIDA will focus on three paths: Building economic foundations Growing businesses Investing in people
  20. 20. Comments and Suggestions Broad set of Principles, not a strategy per se. These principles cover a lot of ground in the growth and poverty literature Not about Children and Youth. Not about Food Security. In 2009, $700 million over 20 or so countries. Limited Impact in terms of macroeconomic growth. More likely in micro terms, over a long period.
  21. 21. Comments and Suggestions IDRC’s Supportive Inclusive Growth (SIG) program. This “strategy” offers flexibility, particularly at the micro level. Governance, Institutions, Infrastructure. Rights, Markets for Poor. Poverty focus: Mobile Phones