Employment and income distribution experiences of minerals exporters and of countries achieving growth acceleration

OUTPUT TYPE: Research report- other
PUBLICATION YEAR: 2006
TITLE AUTHOR(S): A.Berry
KEYWORDS: EMPLOYMENT, GROWTH MONITORING PROGRAMME, MINING AND MINERALS INDUSTRY
DEPARTMENT: Economic Perfomance and Development (EPD)
Intranet: HSRC Library: shelf number 4636

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Abstract

Many but not all minerals-dependent countries have performed badly in spite of the apparent advantage such an endowment gives them. Various institutional weaknesses have been identified in cross-country analyses as contributors to this outcome. Indonesia and Chile have been able to avoid such negative impacts on growth. Indonesia, which invested much oil revenue in smallholder agriculture and later used devaluation and other instruments to become an important exporter of light manufactures, was also able to achieve good employment growth and maintain reasonable equality. Chile, a higher income country, shifted towards non-mineral primary exports at first but then moved increasingly into a higher category of manufactured exports than Indonesia. At the end of the process inequality was higher, although causation is unclear. Venezuela grew successfully for half a century on the basis of oil; although the employment share of agriculture shrank, those of manufacturing and construction rose along with services. But the oil price hikes in the 1970s eventually led to excessive channelling of funds borrowed abroad to capitalintensive public enterprises and to slow growth, during which informal employment increased rapidly and inequality may have risen significantly as well. Nigerian incomes grew rapidly as oil prices rose in the 1970s but per capita income has suffered a net decline since then, with both agriculture and manufacturing suffering Dutch disease effects and with investment going to education (which does not appear to have paid off thus far) and to excessively capital-intensive activities, including large farms. Income distribution appears to have worsened significantly and poverty to have increased. While Venezuela has not been able to leave oil-dependency behind, it has clearly benefited from its oil on balance. Nigeria appears to have lost on balance. In all these countries the share of new jobs arising in the tertiary sector is high, about 60% to 90% for the most recent periods. Much of the shift towards services appears to be efficient (as in Chile during its rapid growth period and in Indonesia), whereas in Nigeria and Venezuela since the late 1970s it mainly reflects lack of job opportunities elsewhere. In general, policy in such countries should aim to foster activities that have the capacity to contribute to growth, whether tradable or non-tradable, services or goods producing. An analysis of countries which have achieved significant growth acceleration highlights the fact that they have all raised their investment rates, usually by a large amount, and their savings rates as well. The marginal output/capital ratio usually rises significantly during the take-off. Most accelerations are based on or helped by export booms, and a competitive exchange rate is the near universal instrument involved. Reasonable fiscal balance is desirable to achieve macroeconomic stability, although the rate of inflation has not systematically been low around the time of acceleration. Takeoffs tend to increase employment, with wage increases usually following after a few years? lag. Inequality typically does not rise, with the rapid employment creation likely the main reason. Most countries achieving successful accelerations have employed some sort of coherent industrial strategy. The employment and income distributional accompaniments of acceleration depend, among other things, on the sectors driving the growth (smallholder agriculture in Indonesia is better than capital-intensive manufacturing in post-1970s Venezuela and Nigeria), on the participation of lower income families in savings and investment, and on the performance of the SME sector. The fact that real-world take-offs tend not to worsen inequality suggests that countries where the pattern of growth is too skewed against employment simply do not take off at all.