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Economic Diversification and Structural Challenges

Economic Diversification and Structural Challenges. Thorvaldur Gylfason. What it takes. The advancement from widespread poverty to widely shared affluence requires one thing, and one thing only: Economic growth Must ask: What are the main pillars of economic growth?. What it takes to grow.

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Economic Diversification and Structural Challenges

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  1. Economic Diversification and Structural Challenges Thorvaldur Gylfason

  2. What it takes • The advancement from widespread poverty to widely shared affluence requires one thing, and one thing only: • Economic growth • Must ask: What are the main pillars of economic growth?

  3. What it takes to grow • Saving and investment Physical capital • Education, education Human capital • Exports and imports Foreign capital • Democracy Social capital • Diversification Undisputed Controversial

  4. What it takes to diversify • Saving and investment Physical capital (Infrastructure, tourism, etc.) • Education, education Human capital (Ireland) • Exports and imports Foreign capital (Botswana, Estonia, Ireland, Korea) • Democracy Social capital (Botswana)

  5. Botswana and Nigeria: GDP per capita 1960-2002 (1995 USD) Botswana 6.3% Nedadi Usman, Nigeria’s economy minister: “Oil has made us lazy” Nigeria 0.2%

  6. Natural resources: A mixed blessing Listen to King Faisal of Saudi Arabia (1964-1975): “In one generation we went from riding camels to riding Cadillacs. The way we are wasting money, I fear the next generation will be riding camels again.”

  7. Three main sources of economic growth See Figures 1-6 + + + denotes a positive effect in the direction shown +

  8. Two further determinantsof economic growth + + + + + Diversification Democracy

  9. Growth and political liberties, 1965-98 Democracy is good for growth: No visible sign that democracy stands in the way of economic growth Brazil Botswana China Korea Venezuela Central African Republic Niger r = -0.62 85 countries

  10. Growth and political liberties, 1965-98 Political liberty is good for growth because oppression breeds inefficiency, and so does corruption Brazil Botswana China Korea Venezuela Central African Republic Niger r = -0.62

  11. Growth and natural resources, 1965-98 See Figures 7-8 Natural resource dependence tends to hurt growth through rent seeking and by creating a false sense of security r = -0.64 Mauritius Cameroon Mali Madagascar

  12. Sir Arthur Lewis got it right Since the second world war it has become quite clear that rapid economic growth is available to those countries with adequate natural resources which make the effort to achieve it. W. Arthur Lewis (Accra, 1968)

  13. Conclusion: It can be done These slides – and more! – can be viewed on my website: www.hi.is/~gylfason To grow or not to grow is in large measure a matter of choice Many of the constraints on growth are man-made, and can be removed The End

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