2017-09-20, Hallward-Driemeier, Mary, Nayyar, Gaurav

Globalization and new technologies are impacting the desirability and feasibility of what has historically been the most successful development strategy. Manufacturing has been seen as special, promising both productivity gains and job creation. But trade is slowing. Global value chains (GVC) are maturing. Robotics, artificial intelligence, 3D printing, and the Internet of things are shifting what makes locations attractive for production and threatening significant disruptions in employment. There is a risk of increased polarization, within countries and across countries. Shifting the attention from high-income countries, this report takes the perspective of developing countries to ask: -- If new technologies reduce the importance of low-wage labor, how can developing countries compete? -- Do countries need to industrialize to develop? -- How can countries at different levels of development take advantage of new opportunities? Development strategies need to broaden. Different manufacturing sub-sectors can still provide productivity growth or jobs; fewer can deliver both. Many of the pro-development characteristics traditionally associated with manufacturing--tradability, scale, innovation, learning-by-doing--are increasingly features of services. With faster diffusion of technology, it will be all the more important for countries to improve the enabling environment, remain open to trade, and support capabilities of firms and workers to ensure future prosperity is shared.

2003-08, Hallward-Driemeier, Mary

Touted as an important commitment device that attracts foreign investors, the number of bilateral investment treaties (BITs) ratified by developing countries has grown dramatically. The author tests empirically whether BITs have actually had an important role in increasing the foreign direct investment (FDI) flows to signatory countries. While half of OECD FDI into developing countries by 2000 was covered by a BIT, this increase is accounted for by additional country pairs entering into agreements rather than signatory hosts gaining significant additional FDI. The results also indicate that such treaties act more as complements than as substitutes for good institutional quality and local property rights, the rationale often cited by developing countries for ratifying BITs. The relevance of these findings is heightened not only by the proliferation of such treaties, but by recent high profile legal cases. These cases show that the rights given to foreign investors may not only exceed those enjoyed by domestic investors, but expose policymakers to potentially large-scale liabilities and curtail the feasibility of different reform options. Formalizing relationships and protecting against dynamic inconsistency problems are still important, but the results should caution policymakers to look closely at the terms of agreements.

2004-06, Dollar, David, Hallward-Driemeier, Mary, Mengistae, Taye

Drawing on recently completed firm-level surveys in Bangladesh, Brazil, China, Honduras, India, Nicaragua, Pakistan, and Peru, this paper investigates the relationship between investment climate and international integration. These standardized surveys of large, random samples of firms in common sectors reveal how firms experience bottlenecks and delays in hard infrastructure such as power and telecom as well as in soft infrastructure such as customs administration. The authors focus primarily on measures of the time or monetary cost of different bottlenecks (e.g., days to clear goods through customs, days to get a telephone line, sales lost to power outages). For many of these costs, the obstacles are lower in China than in the South Asian or Latin American countries. There is also systematic variation across cities within countries. The authors estimate a probit function for the probability that a randomly chosen firm is foreign-invested and a separate probit for the probability that a randomly chosen firm is an exporter. These measures of international integration are higher where investment climate is better. For locations to take advantage of opportunities in the international market, they need good infrastructure and a sound regulatory environment. The interaction of openness and sound investment climate creates a good environment for investment and production. This paper helps explain why China has been so successful over the past decade, both in terms of integration and of rapid growth, while other countries have had varied success.

2003-03, Wallsten, Scott, Hallward-Driemeier, Mary, Xu, Lixin Colin

The importance of a country's "investment climate" for economic growth has recently received much attention. The authors address the general lack of appropriate data for measuring the investment climate and its effects. The authors use a new survey of 1,500 Chinese enterprises in five cities to more precisely define and measure components of the investment climate, highlight the importance of firm-level data for rigorous analysis of the investment climate, and investigate empirically the effects of this comprehensive set of measures on firm performance in China. Overall, their firm-level analysis reveals that the main determinants of firm performance in China are international integration, entry and exit, labor market issues, technology use, and access to external finance.

2020-11-09, Fengler, Wolfgang, Hallward-Driemeier, Mary, Aridi, Anwar, Nayyar, Gaurav, Gill, Indermit, Aridi, Anwar

This report examines the underlying economics of different types of digital technologies. It highlights what the new drivers of change are, why the dynamics with this latest round of technological change may be different, and what the distributional impacts may be within and across countries. It then examines the evidence for how different digital technologies are – or are not – contributing to competitiveness and opportunities for small and young firms, and firms in less developed areas, and what can be done about it. Europe faces a digital dilemma. European firms are particularly strong in operational technologies such as smart robotics and 3D printing. While this helps Europe's competitiveness, it also widens the divide between large and small firms, and leading and lagging regions. On the other hand, digital technologies, such as transactional technologies or matching platforms, have the greatest potential for market inclusion and convergence, but this is where Europe remains less competitive. The report lays out how Europe 4.0 is attainable. The COVID-19 (coronavirus) pandemic has highlighted the importance of the data economy — and raised the risks if the digital dilemma is not addressed. This report provides a framework, evidence and recommendations on how governments can respond. Europe has the chance to attain a dynamic and inclusive technologically enhanced future, it should take that chance.

2019-12, Hallward-Driemeier, Mary, Nayyar, Gaurav

For decades, manufacturers around the world have outsourced production to countries with lower labor costs. However, there is a concern that robotization in high-income countries will challenge this shifting international division of labor known as the "flying geese" paradigm. Greenfield foreign direct investment decisions constitute a forward-looking indicator of where production is expected, rather than trade flows that reflect past investment decisions. Exploiting differences across countries and industries, the intensity of robot use in high-income countries has a positive impact on foreign direct investment growth from high-income countries to low- and middle-income countries over 2004-15. Past a threshold, however, increased robotization in high-income countries has a negative impact on foreign direct investment growth. Only 3 percent of the sample exceeds the threshold level beyond which further automation results in negative foreign direct investment growth and is consistent with re-shoring. For another 25 percent of the sample, the impact of robotization on the growth of foreign direct investment is positive, but at a rate that is declining. So, although these are early warning signs, automation in high-income countries has resulted in growing foreign direct investment for more than two-thirds of the sample under consideration. Some geese may be slowing, but for now, most continue to fly.