This document discusses the challenges and opportunities facing middle-income countries as global wealth shifts. It notes that while shifting wealth has created opportunities through reduced poverty and new development resources, middle-income countries face challenges around productivity growth, social cohesion, environmental sustainability, and maintaining fiscal revenue levels. Specific challenges discussed include the risk of falling into a "middle income trap" with slowing growth, rising inequality and labor disputes, high youth unemployment in Africa, and tax revenues generally being lower in Latin American countries compared to OECD nations.

1. Development Strategies:
Middle-income countries’
challenges and answers
Costa Rica,31 July 2012
Mario Pezzini
Director
OECD Development Centre

2. Outline
1 Shifting Wealth: an unprecedented opportunity?
2 Shifting Wealth: challenges and threats

3. The four-speed world in the 1990s
Source: OECD Development Centre, Perspectives on Global Development 2010 - Shifting Wealth

4. The four-speed world in the 2000s
Source: OECD Development Centre, Perspectives on Global Development 2010 - Shifting Wealth

5. Shifting Wealth
China India
% of world GDP % of world GDP
14% 14%
12% 12%
10% 10%
8% 8%
6% 6%
4% 4%
2% 2%
0% 0%
1980 1985 1990 1995 2000 2005 2010 1980 1985 1990 1995 2000 2005 2010
Market Exchange Rate PPP Exchange Rate Market Exchange Rate PPP Exchange Rate

6. The rise of China in global supply chains
as a dominant supplier
Major trade partners for Asia’s intermediate exports in goods and services
Source: OECD Input-Output Database, March 2010; IDE-JETRO Asian International Input-Output Database
2006; OECD Bilateral Trade Database, March 2010; OECD Trade in Services, January 2010.

7. Shifting wealth: poverty reduction
SW is moving South = less poverty

8. Shifting Wealth:
New resources for development
Greater fiscal space in the 2000s vis-à-vis the 1990s
Fiscal revenue to GDP ratio (%)
Source: Authors’ calculations based on World Bank (2011)

9. Shifting Wealth: New “Emerging Partners”
Africa’s Trade with the Emerging Partners in 2011
US$ billion and % of Total
China 19.5% • Countries outside
($171 bn) OECD DAC in 2000
Turkey 1.7%
($14.5 bn) Korea, Rep. 2.8% whose economic
($25 bn) relations with Africa
have risen fast over
the decade
• China, India, Korea,
Brazil and Turkey
India 3.5% are leading the pack
Brazil 3.2% ($31 bn)
($27.6 bn)
Other Eps 8.8 %
($ 77.5 bn)
9

10. Shifting Wealth: Industrialization
Africa’s exports of manufactured products
100
Billion USD
EU25
80
USA
60
Other Traditional
40 Partners
Other Emerging
20 Partners
China
0
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
10

11. Outline
1 Shifting Wealth: an unprecedented opportunity?
2 Shifting Wealth: challenges and threats

12. A success story?
• A lower-middle income country
• Average 5% annual growth rate since 1990
• Nearly 100% primary enrolment in 2008
• 80% health care coverage
• ‘Prudent public debt management’ (42.8% of GDP in 2009)
• 3% fiscal deficit
• Inflation at approx. 3% in the 2000s

13. Tunisia
Source: OECD/AfDB/UNECA (2010), African Economic Outlook.

14. Growth in life satisfaction and
income do not necessarily coincide
Sources: Authors‘ calculation based on Gallup World Poll (2010) and World Bank (2010)

15. Middle Income Trap
Transitions from Middle-Income to Advanced-Country Levels
27
GDP/cap_PPP, at current international dollars, thousands
2004
2007 2000 2005
25 2004 2004 2004 1994
1996 1998 2005 2001 1998
1997 2008
2005
23
21
19
17
15 1987
1986 1994 1997 1989 1998
1995 1994 2000 1988 1995 1988 1993 1993 1999 1991
13
Singapore
Spain
Slovenia
Cyprus
Finland
Ireland
Korea
Portugal
Israel
Iceland
Hong Kong, China
Czech Republic
Sweden
New Zealand
Chinese Taipei
Greece
Start of transition period End of transition period
Eichengreen: 2015 at $ 17,000/cap_PPP)

16. •.
Shifting Wealth: Smoothed Growth
Smoothed annual growth rates, 1980-2010
(Hodrick-Prescott filter)
7%
6%
5%
4%
3%
2%
1%
0%
1980 1985 1990 1995 2000 2005 2010
Low income Middle income OECD members
Source: DEV calculation based on WDI data

17. Outline
1 Shifting Wealth: an unprecedented opportunity?
2 Shifting Wealth challenges and threats
 Productivity

18. Catching up in labour productivity
Korea, 1970-2009

19. Productivity:
Low levels & low growth
Source: OECD Development Centre

20. Outline
1 Shifting Wealth: an unprecedented opportunity?
2 Shifting Wealth challenges and threats
 Productivity
 Social Cohesion

21. Inequalities remain
Gini coefficients before and after taxes and transfers in Latin American countries
Source: OCDE (2008a) for OECD countries excluding LAC, OECD (2008b) for Argentina, Brazil Colombia and Peru.

22. Labour and social cohesion:
Increase in labour disputes in China
800
600
Number of Labor Dispute Cases
(thousand)
400
200
0
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Source: Cai and Wang (2011)

23. Labour markets:
Reforming labour institutions (China)
Reponses: increase in minimum wages… …and wider use of collective bargaining
Average minimum wage in Chinese cities Thousand Number of collective contracts (left axis) Million
(1999 = 100) 1 000 Number of employees covered (right axis) 100
300 900 90
250 800 80
700 70
200
600 60
150 500 50
100 400 40
300 30
50
200 20
0 100 10
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
0 0
1998 1999 2000 2001 2002 2009
Source: Authors’ calculations based on Du and Pan (2009) and CASS. Source: Cai and Wang (2011).

24. Africa’s young population is growing
but jobs are not keeping up
250 1,000
Young (15-24) People, Million
GDP, Billion (2005 PPP int. $)
900
200 800
700
150 600
500
100 400
300
50 200
100
0 0
Youth Population Youth Employment GDP (right axis)

25. Outline
1 Shifting Wealth: an unprecedented opportunity?
2 Shifting Wealth challenges and threats
 Productivity
 Social Cohesion
 Environment

26. Outline
1 Shifting Wealth: an unprecedented opportunity?
2 Shifting Wealth challenges and threats
 Productivity
 Social Cohesion
 Environment
 Fiscal Revenue

27. Tax Revenues: OECD vs LAC
Total tax revenues as percentage of GDP, 1990-2009
Difference (A-B) Selected LAC¹ (A) OECD (34)² (B)
40
35
30
25
20
15
10
5
0
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008