Theme 5: Sectoral composition and patterns of economic growth - implications for job-creation, employment and poverty reduction
Motivation and situation analysis
While it is generally accepted that rapid economic growth is a favourable factor in reducing poverty (at least absolute poverty), opinions differ widely when assessing the impact of growth on distribution of income and equity. Many differences also exist in the literature on key engines of growth. Among the key factors considered and often put forward are the following: open trade policies, access to foreign capital and the ability of countries to create a favourable climate for foreign direct investment, human capital formation and the availability of a skilled workforce, existence of natural resources, public expenditure policies and infrastructure investments, public regulatory policies and practice, etc.
As illustrated in a recent IMF report "Sub Saharan Africa - Fostering Sustainable and Inclusive Growth" (Regional Economic Outlook 2014), several authors are beginning to accept the idea that patterns of economic growth and their impact on poverty and income distribution are extremely diverse even for countries that, in principle, are comparable in terms of size, access to the sea, natural resources endowment, population growth rate, education level, etc. Others are also wondering what types of sectoral growth will have the largest impact on aggregate economic growth including the impact on poverty and income distribution. The functioning of the labour market, nationally and locally, is frequently a key determinant in a) the mechanisms transmitting benefits of a higher growth rate, and b) the mechanisms for generating local development – especially to understand the contribution and the access of men and women to the labour market.
It is largely recognised that changes in poverty brought by any macroeconomic policy has two components: a distributive component and a growth component (Decaluwe et al., 1999; Bourguignon, 2002). Similarly, there is extensive literature and empirical evidence on the impact of trade policy on growth and inequality (e.g. Winters, 2003; Anderson, 2005). However, it remains unclear how these elements could be decomposed since the sectoral composition of activities and the regional distribution of activities are interlinked and both have a strong impact on regional poverty and income distribution. There is also a considerable knowledge gap in the understanding of the impact of public investment on poverty and particularly on the regional decomposition of poverty. For example, the studies of Dumont and Mesple Somps (2000) or Dissou and Didic (2011) assessed the interaction between public infrastructure and economic growth with some reference to poverty and distribution of income. However, the link between public infrastructure and income generation at the regional level was not captured. As poverty is more importantly a rural development issue with substantial differences between agro- ecological zones, the understanding of the interaction between macro policies and sectoral growth will help in carefully designing promising policy interventions.
The purpose of this thematic area is therefore to explore the engines of economic growth, to assess the consequence at the regional level in terms of their effects on employment creation and the generation of income and poverty reduction, with particular emphasis on vulnerable groups and women.
While aiming to address knowledge gaps in understanding the impact of patterns of economic growth on job creation, employment and poverty reduction in developing countries, this thematic area also seeks to improve our understanding on the interaction between the labour markets and economic growth. With these objectives, this thematic area will focus on determining sectoral patterns of economic growth that could lead to an improvement in welfare and employment for a specific country as well as cross-country comparisons; understanding the relationship between economic growth and regional composition of poverty; women’s participation in the formal labour market; trade policy, FDI and integration in the world economy; price shocks and compensatory mechanisms for the economies in the agriculture and energy sectors. Drawing on synthesis of findings, the research will identify determining policies that are required to support the improvement of proposed economic patterns (e.g. labour market, infrastructure, gender inclusion, ICT), and relating these findings to projected changes in the global economy and consequent challenges for policy makers.
Countries are very diverse in their economic structures. Depending on whether the pattern of growth is based on natural resources, export, rural-oriented agricultural production, industrial mass production (especially in Asian countries) or the development of services (telecommunications, tourism, etc.), the impacts on employment creation and income generation for the poor can be very different. We therefore intend to generate a number of comparative studies to analyse the impact of sectoral economic growth policies and patterns on overall growth and employment creation.
Research questions that address these issues include:
· What would be the sectoral effects on employment as a result of increases in agricultural total factor productivity (TFP)?
· What are the benefits of specialisation, in comparison to diversification, of the agricultural sector?
· Can higher growth rate in some sectors lead to a higher growth rate in other sectors?
· Which sectors should public investment be directed in order to generate higher growth rate?
· Are sectoral discriminated fiscal measures favourable to economic growth?
· What type of fiscal measures could lead to higher growth rate?
· Which policies can be implemented to change the sectoral structure of production?
· Which sectors have higher payoff in terms of employment creation and formality of employment?
In developing countries, rural poverty generally exceeds urban poverty. The regional dimension of economic growth is an important issue especially if an equitable distribution of the benefits of growth is considered to be an important factor of stability in a country. High economic growth in urban areas may have very low impact on poverty in general and even lower on extreme poverty, particularly in rural areas. Regional dimension of poverty can be related to the nature of regional economic activities and some studies have shown the strong impact of agricultural growth on reducing rural poverty. These issues will be analysed in order to illustrate the ways in which regional economic policies at sub-national level could have a significant impact on overall economic growth and poverty reduction through employment creation.
· What would be the regional impacts of external shocks (positive and negative) on economic growth and regional poverty?
· Which regional policies are applicable to mitigate the negative regional impact of some external shocks?
· How would changes in the labour market regulation (e.g., minimum wages) impact regional labour market?
· What types of policies could be implemented to reverse the direction of labour mobility from rural to urban areas?
· What are the consequences of fiscal measures that favour some sectors on regional poverty?
Women often have less access and participation to the formal labour market than men and certain activities are identified, socially and culturally, as “reserved” either for men or for women. In many countries the textile and garment industries are typically female jobs while natural resources sectors are predominantly male. As women are often relegated to employment in the informal sector with low pay and precarious livelihood, sectoral growth strategies are therefore important to enable women to access formal employment and participation in the modern economy. In addition, policies that acknowledge gender differentiation can be important to support women’s participation in the formal labour market. For example, fiscal measures can provide incentives for companies in hiring female staff. We would therefore bring attention to these issues while taking into account the macro context - in particular the budget constraint of the government in the short term and in the long term.
· What would be the economy-wide impact of subsidising (formal) female employment in selected sectors under alternative financing mechanisms?
· How sensitive are the results to different assumptions regarding labour mobility among sectors, especially for women in comparison to men?
· What would be the economy-wide impact of such policies on the unpaid activities (i.e. home care) performed by women?
Free trade policies and integration into the global economy are often seen as means to accelerate economic growth. The reduction of trade barriers and trade facilitation measures are expected to attract foreign firms to increase their direct investments. The distribution of these foreign direct investments by sector across activities will have major impacts on the pattern of growth and distribution of benefits in terms of sectoral job creation and income generation for different strata of the population. We would therefore aim to conduct retrospective and prospective analysis on sectoral trade and foreign direct investment patterns to propose economic policy options for job creation through following research questions:
· What would be the economy-wide impact in terms of employment and welfare from sectoral patterns of FDI-led growth?
· How would FDI increase in natural resource-based and services sectors affect the employment and welfare in an economy?
· What would be the employment consequences of sectoral public investment?
5.5 Price shocks and compensatory mechanisms for economies based on the development of the agriculture, mining or energy sectors
Fluctuating world prices of major agricultural commodities and mineral or energy resources pose major problems for economies that rely their growth strategies on development of the international market of these commodities. In many cases the impact on employment and income can be significant both at the household and firm level. Distributional effects of these shocks are significant but public policies to mitigate them are not clearly identified. In this regard, we would seek to generate some case studies to determine the effects of public policies that can be set up to mitigate the negative effects of these price fluctuations:
· What would be the regional employment consequences (for men and women) of trade reforms and international prices fluctuations?
· What would be the regional and sectoral consequences of the recent drop in international prices of oil and other natural resources?
· What would be the best strategy to compensate for volatile world prices for commodities?
· What would be the effect on employment and welfare of alternative policies such as budget rules (e.g. sovereign fund) to compensate for volatile public revenue from natural resources?