Firms and Transformation
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Presentation to Khazanah Megatrends Forum: Growth with Inclusion in an Age of Paradox: Same Game, New Players Kuala Lumpur, Malaysia September 2013
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Firms and Transformation
- 1. Firms and Transformation Mahmoud Mohieldin* President’s Special Envoy The World Bank Presentation to Khazanah Megatrends Forum: Growth with Inclusion in an Age of Paradox: Same Game, New Players Kuala Lumpur, Malaysia September 30, 2013 *Disclaimer: The findings, interpretations, and conclusions expressed in this paper do not necessarily reflect the views of the Executive Directors of The World Bank or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work.
- 2. 2 The global economy over the past 3 decades… (15.00) (10.00) (5.00) - 5.00 10.00 15.00 20.00 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Growth in GDP per capita, PPP (constant 2005 international $) China Japan Malaysia Thailand Germany United Kingdom United States Korea, Rep. Asian Crises Eurozone Crises Source: World Development Indicators Database - 2013, World Bank Staff Collaboration GrowthRate%
- 3. 3 Crises lead to new opportunities and new players Source: Calderon, Cesar, and Tatiana Didier. 2009. “Severity of the Crisis and Its Transmission Channels.” LCR Crisis Briefs Series, Latin America and the Caribbean Region, World Bank, Washington, DC.
- 4. 4Source: Hallward-Driemeier and Rijkers, forthcoming, “Do Crises Catalyze Creative Destruction?”, Review of Economics and Statistics. The new players are more productive -1% 0% 1% 2% 3% 4% 5% 6% 7% 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 Relative Productivity Productivity of new entrants relative to incumbent firms
- 5. 5 Young-small firms grow faster Source: Fort, T., Haltiwanger, Jarmin, S., and J. Miranda, 2012. How Firms Respond to Business Cycles: The Role of Firm Age and Firm Size, available at http://econweb.umd.edu/~haltiwan/FHJM_SAC_November_1.pdf
- 6. 6 Small firms create more jobs Source: World Bank’s Enterprise Surveys, Note: In this graph, small firms are 5-19 workers, medium 20-99, and large >=100. 96 93 78 71 59 71 58 36 38 45 31 59 0 20 40 60 80 100 120 Indonesia Philippines Thailand Korea Malaysia OECD average gdp % employment % Share of SME in GDP and Employment
- 7. 7 In emerging economies… young small firms don’t grow Old firms´ (35 years in business) size compared to size at birth: India: -¼x Mexico: +2x US: +8x Source: World Development Report 2013 – Jobs, The World Bank. size compared to size at birth
- 8. 8Source: World Development Report 2013 – Jobs, The World Bank. Where and how do people work in East Asia and Pacific Region ? Primary sector continues to be an important employer
- 9. 9 Poverty rates Source: National Household Income and Expenditure Surveys, and East Asia Poverty Database; CEIC Database and China Statistical yearbook (2011) Rise in manufacturing wages, and fall in poverty rates
- 10. 10Source: World Development Indicators Database - 2013, The World Bank. Rising inequality remains a challenge…
- 11. 11 Different challenges require different solutions • Economic structure, • Demography and • Institutions • matter in determining solutions Source: World Development Report 2013 – Jobs, The World Bank.
- 12. 12 Investment in human capital matters for growth Source: World Development Indicators Database - 2013, The World Bank. Percent 2005PPP$
- 13. 13 Innovation positively correlates with growth Researchers per million people
- 14. 14 A three layered approach to policy Source: World Development Report 2013 – Jobs, The World Bank.
- 15. 15 How countries succeeded in addressing jobs challenges? Source: World Development Report 2013 – Jobs, The World Bank.
- 16. Thank You 16
Editor's Notes
- Developed countries: Firms are born small and grow into larger firms. Developing countries: Firms don’t grow much, or even decline in size A similar pattern is observed for firm productivity in these countries.
- Over 1/3 in agriculture, the largest proportion after AFR. Almost 60% in “non-wage” work (self employment, farming and non-farming), the largest after AFR. EAP nationals remitted around US$90 billion in 2010.
- Private sector has been the conduit for the decline of poverty and rising living standards (WDR, 2013) Thailand: rising agricultural labor income was the primary driver of falling poverty in 2000s (Inchauste et al 2012) Philippines: earnings from non-farm work and international remittances were the largest component of rising rural household incomes from late 1980s through 2000s (Estudillo et al 2013) Indonesia: job changes are the most important factor in explaining household income changes (Inchauste 2012, citing Fields et al 2003)
- As noted, the region’s success in raising living standards and reducing poverty has been driven by rising wages especially for skilled workers. But with the premium for skilled workers - still relatively rare in the labor force - has also come rising earnings inequality . While declining in other low- and middle-income countries, inequality has risen in several East Asian countries between the late 1990s and 2000s raising concerns among policy makers for widening disparities in the welfare of people in economically leading and lagging areas, as well as the risk of increasing social polarization, particularly in the region’s large, culturally heterogeneous countries. In addition to rising inequality and gaps between the consumption of the richest and the poorest, the differences between earnings in rural and urban areas are growing, and working women are still more likely to earn less than working men. And while rates of open unemployment are low, and Youth Unemployment is not as great a worry in the region Inequality has risen in several East Asian countries between the late 1990s and 2000s Widening income disparities is a concern to policy-makers and poses a risk for social cohesion Differences between earnings is growing between rural/urban; male/female; etc In addition, there is a widening gap in consumption between the rich and the poor within countries.
- the WDR 2013 (see next slide) presents a decomposition of labor productivity growth in 81 countries 1999-2008 (based on Kucera and Roncolato 2012). During that period, labor productivity growth increased at a faster rate in EAP countries than in other regions – 5.3% annually (the next fastest were South Asia at 5% and South Eastern Europe at 5%). Reallocation of labor across sectors accounted for 2.5% annual productivity growth of labor in EAP (more important than in other regions, where reallocation of labor within sectors was a more dominant driver of productivity). Human capital’s contribution to growth remains humble in many EAP countries. However, it appears to positively correlate to productivity particularly Malaysia. Productivity appears to be correlated with relatively higher levels of human capital. From 1995 until 2010, labor productivity growth increased at a faster rate in EAP countries with relatively higher investment in human capital.