1. 25 April 2016 Alain de Serres Head of Division Economics Department Beijing, China Going for Growth 2016 Policies for higher productivity and more inclusive growth

2. Going for Growth exercise: Objective and principles Framework and areas covered by performance and policy indicators Going for Growth 2016: Main challenges and reform progress Common areas with the G20 work programme on structural reforms. Roadmap

3.  Benchmarking exercise to help reflect on structural reforms o Five policy priorities for each country to improve living standards through higher productivity and employment o Two-year cycle with priorities identified every second year  Broad range of policy areas covered: o Product and labour market regulations o Taxation (subsidies) and social protection o Education and training (activation) policies o Trade and investment rules o Innovation policies 3 Going for Growth: Purpose and objectives

4.  Principle o Deviation from best-practice in a policy area considered as a candidate for priority only if a weak performance is also identified in the area affected by the policy (on the basis of proven empirical link). o Indicator-based evidence is combined with judgment and local expertise for the 5 priorities, which ensures a large degree of comparability with recommendations contained in country reviews  Motivation o Avoids one-size-fits-all and perception of ideologically-driven policy recommendation o Helps to minimise problem of potentially misleading indicators o Similar performance outcomes may be achieved with different policy packages 4 Going for Growth: Rules of the game

5. Going for Growth exercise: Objective and principles Framework and areas covered by performance and policy indicators Going for Growth 2016: Main challenges and reform progress Common areas with the G20 work programme on structural reforms. Roadmap

6. Determinants of GDP per capita and productivity decomposed into sub-areas of performance Basic growth framework anchored in production function approach has allowed for multiple policy channels to be explored and identified

7. Policy areas can be distinguished according to their systemic importance 7 Channel-specific policies Knowledge-based capital (R&D tax credit or grants, industry-university links) Openness to foreign trade and investment (barriers, trade support measures) Human capital and skills development (education and employment policies) Framework conditions => Market competition, resource allocation Product and labour market regulation (barriers to entry and labour mobility) Competition Law and Policy Efficiency of bankruptcy legislation Wage bargaining mechanism Legal infrastructure and basic institutions Rule of law, contract enforcement and efficiency of judicial systems Intellectual property rights Public sector efficiency

8. Examples of matching: product and financial market  Performance  Share of ICT in investment  MFP (level and growth)  Business turnover  Business Enterprise Expenditure on R&D  Trade and FDI intensity  Policy  Product market regulation Economy-wide index Sub-component Sectoral indicators  Barriers to entry and exit  Administrative burden on start-ups  bankruptcy legislation  Financial support for R&D  Trade and FDI restrictions

9. One example of a performance-policy matching: Competition and knowledge-based capital 9 Investment in KBC is negatively correlated with the size of regulatory barriers to competition

10. o Matching of specific performance area and related policy settings. o OECD average set as benchmark o When countries are found to lie below OECD average in both a specific performance and the related policy area (lower left quadrant), the latter becomes a candidate for priority. 10 Going for Growth: basic principle for the identification of policy priorities

11.  Measuring progress on priorities o Responsiveness rate: measure the extent to which countries have followed up on Going for Growth recommendations o Only legislated changes as opposed to announced changes are considered o Reform intensity not captured (but later reflected in the priority model) 11 Going for Growth: Tracking of reform actions

12. Going for Growth exercise: Objective and principles Framework and areas covered by performance and policy indicators Going for Growth 2016: Main challenges and reform progress Common areas with the G20 work programme on structural reforms. Roadmap

13. Productivity growth has allowed for strong catching up… Average annual productivity growth over the period 2004-14 GDP per hour worked …especially compared to other EMEs. Can it be sustained?

14. 14 Average annual growth rate of GDP per hour worked Productivity has been decelerating in a vast majority of countries With the slowdown going back to the early 2000s in advanced economies => weak trade, KBC and business creation

15. Differences in GDP per capita entirely reflected in productivity gap Considering the magnitude of the gap, good diffusion of technology and knowledge remains vital Percentage differences compared with the upper half of OECD countries, 2014

16. Global connectedness: –Trade intensity and participation in GVCs Innovation and knowledge-based capital: –Combining technological advances, organizational changes and human skills to harness the power of digitalization Efficiency of resource allocation: –The rapid scaling-up of most innovative firms requires that resources be able flow from low- to high-productivity firms. Factors shaping the diffusion of know-how and technology

17. 17 Index of GVC participation and the share of domestic service value-added in manufacturing exports, %, 2011 China is well integrated into GVCs but the share of value added by services is small Value added generated could be raised by a stronger involvement in knowledge-based and skill-intensive service activities

18. Trade openness is not sufficient to move up the value chain R&D spending as a percentage of GDP, 2013 Complementary investments in R&D, skills, organisational know-how (managerial quality) and other forms of KBC are key to absorb, adapt and reap the benefits of technologies

19. There is more to innovation than R&D ICT readiness and usage among population, businesses and governments is lagging Index scale from 1 (lowest) to 7 (highest), 2015 The capacity of countries to leverage ICT is also fundamental => Points to the importance of ICT infrastructure and related regulatory framework. Mobile broadband penetration is low Subscriptions per 100 inhabitants, 2013

20. 20 Examples of GfG priorities for the group of countries which includes China “R” stands for recommendation and “A” for action taken in 2015. A thick mark indicates an area of priority for the country while a dot signals recent reform action in the corresponding area.

21. 21 The slowing pace of reforms is a concern The share of Going for Growth recommendations implemented or in process of implementation A slower pace is observed even taking into account the measures in process of implementation

22. 22 More actions taken in the areas of education and labour force participation of women The share of implemented Going for Growth recommendations Relatively few actions taken in the areas of innovation, public sector efficiency and labour market regulation

23. Going for Growth exercise: Objective and principles Framework and areas covered by performance and policy indicators Going for Growth 2016: Main challenges and reform progress Common areas with the G20 work programme on structural reforms. Roadmap

24. Drivers and priorities for G20 SSBG objectiveIntermediate driversG-20 Structural Reform Priorities Stronger growth Productivity (multi-factor) Promoting Trade and Investment Openness Encouraging Innovation Promoting Competition Investment (capital deepening) Improving Infrastructure Strengthening Financial Markets and Legal Infrastructure EmploymentAdvancing Labour Market Reform More sustainable growth Fiscal sustainabilityStrengthening Fiscal Sustainability Environmental sustainabilityEnhancing Environmental Sustainability More balanced growth InclusivenessPromoting Inclusive Growth Note: Red indicates G-20 priorities from Brisbane Growth Strategies.

25. 25 In practice: Snapshot of priority for G20 countries Group 1: France, Italy, Spain Group 2: Germany, Japan, Korea Group 3: Australia, Canada, UK, US Group 4: Argentina Brazil, China, Mexico, Russia Group 5: India, Indonesia, Turkey, South Africa Promoting trade and investment openness Encouraging innovation Promoting competition Improving infrastructure Strengthening financial markets and legal infrastructure Advancing labour market reform Ensuring fiscal efficiency and sustainability Enhancing environmental sustainability

26. 26 Relatively high degree of common areas with priorities in G20 growth strategy Brisbane Growth Strategies OECD Going for Growth Note: Share by number of measures and priority recommendations respectively. Trade and competition shown together due to the close links between these policy areas. Source: OECD calculations based on 2014 G-20 Growth Strategies; and OECD Going for Growth 2015. G-20 reform priority areas