## IMF Survey : New Products, More Value Can Advance Economic Take-Off

_IMF News, March 4, 2013_

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## Bibliographic details
- Published: March 4, 2013

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### Overview
- Conference: “Diversification and Structural Transformation for Growth and Stability in Low-Income Countries,” jointly organized by the IMF and the UK’s Department for International Development, held on February 21.
- Publication: IMF Survey by Nikola Spatafora, IMF Institute for Capacity Development, March 4, 2013.
- Central message: To reach the next level of development, low-income countries should transform their economic structures by diversifying into new sectors and producing new, higher value-added products.

### Diversification and structural transformation
- Sustainable development requires:
  - Diversifying into new sectors.
  - Upgrading the quality of existing products.
  - Reallocating resources toward more productive firms.
- Key questions raised:
  - What are the obstacles to diversification and product quality improvement?
  - Do low- and middle-income countries face different challenges?
  - What new opportunities and risks does globalization present?
  - What is the appropriate role for government policy?

### Capabilities approach to development (Ricardo Hausmann)
- Development and diversification viewed in terms of “capabilities” — the key inputs needed to produce goods (for instance, specific skills or public goods).
- Advanced economies have more capabilities and can produce a wider range of more complex products.
- Capabilities develop incrementally by moving into new products similar to the existing product base.
- Radical capability changes require coordination of many economic actors and are likely to fail.
- Indicators of both the range of existing capabilities and the ease of acquiring new ones are strong predictors of growth at the country level.
- Institutions, human capital, and financial development matter because they facilitate accumulation of capabilities, not as substitutes for capabilities.

### Diverse country experiences and measurement issues (William Maloney)
- The implications for growth of producing any given good are hard to measure because of varied country experiences.
- Natural resources have sometimes been associated with fast growth, and sometimes with stagnation.
- A given product will be produced by a wide range of countries at different income levels and sell for a wide range of prices.
- Policy implication: Focus on resolving market failures related to innovation, risk-taking, and other barriers to the emergence of new goods and improvement of existing ones.

### Product quality and growth (Christian Henn; Fidel Perez-Sebastian)
- New, extensive dataset confirms significant cross-country differences in product quality.
- Overall, quality in sub-Saharan Africa and South Asia is lower, and has been growing more slowly, than in East Asia.
- Scope for quality upgrading is greatest in manufactures, but is also present in agriculture.
- Better institutions and greater skills help increase the pace of quality upgrading, leading to faster growth in GDP per capita.

### Impact of globalization (Kei-Mu Yi; Romain Wacziarg)
- Rising trade openness leads to a reallocation of labor by sector and speeds up structural change.
- Debate: China’s emergence may complicate other economies’ attempts to expand manufacturing.
- Pattern from new data on the European Union, the United States, China, and India:
  - Early stages of development: countries diversify into an expanded range of activities; new sectors localize in specific geographic regions and regional production structures diverge.
  - Later stages of development: countries tend to specialize in a few sectors; specialized activities are increasingly carried out in all regions, and different regions become increasingly similar.

### Low agricultural productivity and underlying distortions
- The world’s poorest countries are particularly unproductive in agriculture, though agriculture employs most of their labor force.
- Measurement adjustments (hours worked, human capital per worker, household income and expenditure surveys) reduce but do not eliminate low relative agricultural productivity.
- Policy-induced distortions contribute to low agricultural productivity:
  - Example: farms are on average 34 times smaller in poor countries.
  - Causes cited include land reforms that impose a ceiling on farm size and progressive land taxes.
  - Since labor productivity is much lower in small farms, these policies significantly impact agricultural and aggregate productivity.

### Policy recommendations and implications
- Observed pattern: In many low-income countries—particularly in sub-Saharan Africa—growth over the past 15 years has been relatively rapid, but manufacturing has expanded slowly, agricultural productivity remains low, and service sectors are largely informal.
- Consensus on policy approach:
  - Sector-specific policies can deliver rapid growth for a period.
  - Broader “horizontal” policies, cutting across sectors, are required to sustain growth over time.
- Broad recommendations for low-income countries:
  - Public inputs—including infrastructure—are critical, as is continuous consultation between governments and businesses.
  - Healthy economies constantly reinvent themselves; policies should aim at increasing productivity more broadly rather than emphasizing any particular product.
  - Create an environment where firms can improve their capabilities and technology; structural reforms and improvements in the business climate are crucial.

*IMF Survey : New Products, More Value Can Advance Economic Take-Off — Nikola Spatafora, IMF Institute for Capacity Development, March 4, 2013.*

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## References

- [https://www.imf.org/en/News/country-focus](https://www.imf.org/en/News/country-focus)
- [PRESS CENTER](http://presscenter.imf.org/)
- [Policy](https://www.imf.org/en/news/search)
- [Conference website](http://www.imf.org/external/np/seminars/eng/2013/SPR/index.htm)
- [Watch video](http://www.imf.org/external/mmedia/view.aspx?vid=2193403916001)
- [IMF and low-income countries](http://www.imf.org/external/np/exr/key/lic.htm)
- [https://www.imf.org/en/home](https://www.imf.org/en/home)

_Source: https://www.imf.org/en/news/articles/2015/09/28/04/53/sopol030413a_