Economic Premise

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The Economic Premise series summarizes good practices and key policy findings on topics related to economic policy. They are produced by the Poverty Reduction and Economic Management (PREM) Network Vice-Presidency of the World Bank.

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Now showing 1 - 10 of 41
  • Publication
    Making Global Value Chains Work for Development
    (World Bank, Washington, DC, 2014-05) Taglioni, Daria; Winkler, Deborah
    Global value chains (GVCs) are playing an increasingly important role in business strategies, which has profoundly changed international trade and development paradigms. GVCs now represent a new path for development by helping developing countries accelerate industrialization and the servicification of the economy. From a firm perspective, production in the context of GVCs highlights the importance of being able to seamlessly connect factories across borders, as well as protect assets such as intellectual property. From the policy maker perspective, the focus is on shifting and improving access to resources while also advancing development goals, and also on the question of whether entry into GVCs delivers labor-market-enhancing outcomes for workers at home, as well as social upgrading. GVCs can lead to development, but, at the country level, constraints such as the supply of various types of labor and skills and inadequate absorptive capacity remain. GVCs can create new opportunities on the labor demand side, but supply and demand cannot meet if the supply is missing. This potential gap illustrates the importance of embedding national GVC policies into a broader portfolio of policies aimed at upgrading skills, physical and regulatory infrastructure, and enhancing social cohesion.
  • Publication
    From Imitation to Innovation : Public Policy for Industrial Transformation
    (World Bank, Washington, DC, 2013-05) Agénor, Pierre-Richard; Dinh, Hinh T.
    What role does public policy play in helping countries accelerate the industrialization process? This note aims to answer this question by applying a framework to analyze the process of transitioning from imitation to innovation. Based on a dynamic model of growth, simulations suggest that learning through imitation may enable firms to improve productivity significantly in a first stage, and that this may eventually benefit innovation activity as well. The model also shows how failure to switch from imitation as the main source of productivity growth to broad-based, homegrown innovation could lead to the 'middle-income trap' that has befallen some countries.
  • Publication
    Asset Prices, Macro Prudential Regulation, and Monetary Policy
    (World Bank, Washington, DC, 2013-05) Canuto, Otaviano
    Confidence in combining inflation-targeting-cum-flexible-exchange-rate regimes with isolated micro prudential regulation as a means to guarantee both macroeconomic and financial stability has been shattered by the scale and synchronization of the asset price booms and busts that preceded the global financial crisis. It has now become clear that if monetary policy makers and prudential regulators are to succeed in achieving stability, there can be no complacency regarding asset price cycles. This note explores some of the ways in which monetary policy can address asset price booms and busts through its integration with macro prudential regulation.
  • Publication
    A Changing China : Implications for Developing Countries
    (World Bank, Washington, DC, 2013-05) Schellekens, Philip
    Three decades of rapid growth and structural change have transformed China into an upper-middle-income country and global economic powerhouse. China's transformations over this period wielded increasing influence over the development path of other countries, either directly through bilateral trade and financial flows or indirectly through growth spillovers and terms of trade effects. Looking ahead, as China embarks on a new phase in its development journey, a phase characterized by slower but higher-quality growth, the economic landscape facing the developing world is expected to be redefined yet again. As China changes, so will its interactions with the outside world. China is expected to remain both a market and a competitor, but its changes are likely to lead to new opportunities for many and new challenges for some. Key questions in this respect are: (i) how will the level and composition of China's import demand evolve as its economy slows and rebalances; (ii) to what extent will the presumed out-migration of labor-intensive manufacturing materialize and create new opportunities elsewhere; and (iii) how quickly will China move up the value chain and redefine its competitive advantage in the global marketplace? How these uncertain long-term developments affect individual countries will depend on differences in total supply chain costs, resource availability, and innovation capability. As in the past, China's transformations are expected to put formidable pressure on countries to adapt and reform, requiring both political will and entrepreneurial capacity, in a collective race where success will be measured against a rapidly moving frontier.
  • Publication
    Can Trade Reduce Poverty in Africa?
    (World Bank, Washington, DC, 2013-04) Le Goff, Maëlan; Singh, Rajun Jan
    While most economists accept that, in the long run, open economies fare better in aggregate than closed ones, many fears that trade could harm the poor. African countries, for example, have realized significant improvements in trade liberalization in recent decades, yet Africa remains the poorest continent in the world. It seems that the large gains expected from opening up to international economic forces have been limited in Africa, especially for poor people. Drawing on the findings of a recently published working paper (Le Goff and Singh 2013), this note argues that the benefits of trade are not automatic, but rather depend on accompanying policies aimed at developing the financial sector, promoting primary education, and improving governance. This accompanying policy agenda allows people to take advantage of the opportunities offered by freer trade, by reallocating resources away from less productive activities to more promising ones. Trade liberalization therefore should not be implemented on its own, but with the necessary complementing policies.
  • Publication
    Global Connectivity and Export Performance
    (World Bank, Washington, DC, 2013-03) Arvis, Jean-François
    The World Bank has developed a novel method for measuring countries connectivity in global networks and has applied it to the global air transport network. Connectivity in this context is defined as a country s relative position in that network in terms of the total push and pull it exerts on air traffic, taking account of all possible links with other countries. Well-connected countries that are strongly connected to other well-connected countries are considered hubs in this definition. Less well-connected countries are spokes. The Air Connectivity Index (ACI) shows that connectivity is highly concentrated in North America and Europe ( hubs ); most developing countries are relatively poorly connected ( spokes ). Developing countries looking to increase their participation in global value chains need to improve their connectivity as part of their overall competitiveness strategy, including the progressive liberalization of their air transport sectors.
  • Publication
    What Promises Does the Eurasian Customs Union Hold for the Future?
    (World Bank, Washington, DC, 2013-02) Carneiro, Francisco G.
    Established in 2010, the Eurasian Customs Union (ECU) carries significant economic weight as three of its member countries represent a potentially large consumer market. Drawing on existing literature that has studied the likely impacts of the ECU in Central Asia, this note discusses the ECU's pitfalls and potential benefits. After briefly describing the main features of the ECU, this note assesses whether the changes introduced after its establishment have benefitted all of its members equally, and concludes with a discussion of what will need to change to achieve the ECU's full potential. Available evidence suggests that the Russian Federation has been the main beneficiary in the short term, but that there are several benefits to be gained by other members in the medium to long term. Full realization of these benefits, however, will require political commitment and steadfast action to reduce nontariff barriers (NTBs), improve trade facilitation, and reduce the costs of trading across borders in the region.
  • Publication
    The Brazilian Competitiveness Cliff
    (World Bank, Washington, DC, 2013-02) Canuto, Otaviano; Cavallari, Matheus
    Brazilian exports of goods and services have grown sharply in recent years, with sales nearly three times higher in 2010 than in 2000. However, Brazil faces considerable competitiveness challenges: its export performance depends mostly on favorable geographical and sector composition effects. Such challenges increased after the recent global economic crisis. A recent slowdown in industrial exports, production, and investments seems related to supply-side difficulties stemming from a wide range of inefficiencies and rising costs, rather than insufficient demand. Although a stronger currency is one of the factors behind the lower competitiveness of Brazil's manufacturing exports, sluggish productivity performance, lack of dynamism at the firm level, and a real wage uptrend seem to explain a significant part of the overall loss of competitiveness. This diagnostic reinforces the urgency of resuming the agenda of microeconomic reforms, increasing the investment-to-Gross Domestic Product (GDP) ratio, and advancing toward better-skilled human capital.
  • Publication
    Trade Costs and Development : A New Data Set
    (World Bank, Washington, DC, 2013-01) Arvis, Jean-François; Duval, Yann; Utoktham, Chorthip
    The World Bank and the United Nations Economic and Social Commission for Asia and the Pacific (UNESCAP) jointly prepared a new global data set of bilateral trade costs based on trade and production data. Accessible on the World Bank Open Data Web site, it opens new analytical possibilities for policy makers and researchers working on trade integration. The data stress the importance of supply chains and connectivity constraints in explaining the higher costs and lower levels of trade integration observed in developing countries. To measure trade costs in the developing world over the 1995-2010 period, UNESCAP and the World Bank embarked on a joint data collection exercise. In addition to data on export and import flows, calculation of trade costs using the inverse gravity methodology also requires information on domestic production in each country. Usage can then be calculated as domestic production less total exports. The result of the data collection exercise is a database covering up to 178 countries, two sectors, and the 1995-2010 period. Based on the available data, trade costs data are calculated for as many bilateral pairs as possible, and interpolation used to fill in missing country- year combinations when feasible.
  • Publication
    Avoiding Middle-Income Growth Traps
    (2012-11) Agénor, Pierre-Richard; Canuto, Otaviano; Jelenic, Michael
    Since the 1950s, rapid growth has allowed a significant number of countries to reach middle-income status; yet, very few have made the additional leap needed to become high-income economies. Rather, many developing countries have become caught in what has been called a middle-income trap, characterized by a sharp deceleration in growth and in the pace of productivity increases. Drawing on the findings of a recently released working paper (Agenor and Canuto 2012), as well as a growing body of research on growth slowdowns, this note provides an analytical characterization of 'middle-income traps' as stable, low-growth economic equilibrium where talent is misallocated and innovation stagnates. To counteract middle-income traps, there are a number of public policies that governments can pursue, such as improving access to advanced infrastructure, enhancing the protection of property rights, and reforming labor markets to reduce rigidities all implemented within a context where technological learning and research and development (R&D) are central to enhancing innovation. Such policies not only explain why some economies particularly in East Asia were able to avoid the middle-income trap, but are also instructive for other developing countries seeking to move up the income ladder and reach high-income status.