L. Alan Winters Chief Economist Department for International Development 27 th January 2011 Achieving Growth to Reduce Poverty

Page 2 January Shares in Long-run Poverty Reduction (Kraay cross-section)

Page 3 Growth is …. A private sector phenomenon Governments facilitate, don’t do Long run Is due to improvements in productivity (allocation is static, even if important) which requires innovation Freedom for private sector to respond to signals which requires appropriate governance

Page 4 Growth Statistics (B) Classified by GNI per capita 1962 Low1100 (23) L. Middle1774 (37) U. Middle862 (18) High192 (4) Income Classification No. observations/ countries Mean Growth % Std. Dev. Absolute First df. Min % Max % Source: L Alan Winters, Wonhyuk Lim, Lucia Hanmer, Sidney Augustin (2010)

Page 5 Accelerations, Collapses and Stagnation Growth AccelerationsGrowth Collapses & Stagnation  Decreases in Exports  Economic flexibility  Institutions  Economic Reform  + Political Change  + Terms of Trade Shock  Financial Liberalisation

Page 6 Sustained Long Run Growth Five Common Characteristics of Successful Growth 1.Exploitation of world economy 2.Macroeconomic stability 3.High rates of saving and investment 4.Markets allocating resources 5.Committed, credible, capable government “no recipes, just ingredients” Michael Spence, 2010

Page 7 Escaping from Growth Collapses and Achieving Sustained Growth Trade & Openness Macroeconomic Stability Infrastructure Financial Sector Development Human Development Skills Investment is the Common Theme Governance is the Common Requirement

Page 8 Implementing Reforms Vision Priorities and focus But remember possible interactions Consult and Communicate Private sector, population, even public sector Identify needs/wishes, constraints Identify pressure points Clear messages, consistent policy Ongoing – reform fatigue, adjust to shocks

Page 9 Implementation – Credible Packages Short run and long run? Both but not necessarily at the same time Fair distribution → politically sustainable Successful reform outlives governments Ensure that ‘poverty’ argument is addressed sensibly and not captured by interests Flexibility within agreed principles Shocks happen Markets offer flexibility – but explain this

Page 10 India Deregulation and Labour Markets Industries Act 1951 → control of all De-licensing – one-third of industries in 1985, most or rest 1991 Industrial Disputes Act 1947 Amended extensively by states – some ‘pro- labour’, some ‘pro-employer’ Both reforms boost firm numbers and real output But biggest gains from combination of de- licensing and ‘pro-employer’ reforms Aghion, Burgess, Redding, Zilibotti (2009)

Page 11 Chile – trade and labour markets Dramatic trade liberalisation 1973 – averages and dispersion (uniformity as bulwark against lobbying) Crisis in 1982 → maintained principles of the reform time-bound increases Wide consultation of interests Linked to labour market and exchange rate depreciation; a few specific concessions Edwards and Lederman (1999)

Page 12 Chile – outcomes

Page 13 Uganda – trade, taxes, expenditure, macro Starting point in 1986 dire Tax rationalisation and clarity Tariff reductions and harmonisation Favouritism dramatically reduced; regulations Export taxes removed Explicit poverty polices, PETS

Page 14 Uganda – average tariff take increases!

Page 15 Colombia Reforms in 1990s: Reduced dismissal costs by 60-80% Elimination of interest rate caps, better financial regulation Eliminate exchange controls Freed inward FDI Deep tariff cuts Eslava, Haltiwanger, Kugler and Kugler (2004, 2010)

Page 16 Colombia Total Factor Productivity

Page 17 Thank you for listening

Page 18 Factors behind pro-poor growth (Kraay) regression of components of poverty reduction on policy variables; long spells only