Growth & Trade Policy: Concepts & Implications For Nigeria

Guest Lecturer Robert Z Lawrence
Albert L Williams Professor of International Trade and Investment Harvard Kennedy School & Senior Fellow Peterson Institute for International Economics

Punuka Annual Lecture 2016
Lagos Nigeria

Introduction: A New Global Environment

• Challenges:
  
  
  • Slow growth in advanced economies.
  • Brics (besides India) all face growth problems.
  • Commodity markets are depressed.
• Opportunities:
  
  
  • Wages rising in China: supply chains are moving.
  • Middle Classes in China and India are growing.

Outline

• Kinds of Growth.
• Three policies:
  
  
  • Tariffs on inputs.
  • Infant Industry Protection.
  • Competitive exchange rates.
• Implications for Nigeria.

Where does growth come from?

• Sustainable Growth comes from convergence with the productivity levels (the "technology") that prevail in the rich countries
  
  
  • "Technology" is the name for the stock of ideas and knowledge that is available for developing countries to absorb (and disseminate throughout their economies)
• This stock does not disappear or dissipate when rich countries grow more slowly or when world trade is less buoyant.
  
  
  • As long as developing nations follow the appropriate strategies

Wages reflect Productivity!

Where does growth come from?

There is "bad" growth (1)

1. Foreign borrowing-led growth
   
   
   • Examples: countries in the periphery of EU in 1990s, Latin America in 1970s, Iceland, Ireland and Greece in 2000s.
   • Good to the extent that it eases the financing constraint of firms
   • Inevitably comes to an end when capital flows dry up
   • This pattern of growth is associated with current account deficits and the overvaluation of the currency
   • and the booming of the "wrong" kinds of economic activities, which do not promote long-term growth
     
     
     • non-tradables such as construction and real estate

There is "bad" growth (2)

2. Commodity boom-led growth
   
   
   • Examples: 19th century, many African (and Latin American) countries in the last decade
   • Not sustainable in the longer term, because of both cyclicality and long-term downwards trend in the commodity terms of trade
   • Also associated with the booming of the "wrong" kinds of economic activities
   • And produces bad politics on top
     
     
     • Resource rents and the rentier state
     • Chile a rare example of a country that has (so far) managed resource rents well

... and then there is "good" growth (3)

3. Structural transformation-led growth
   
   
   • From low-productivity traditional products
     
     
     • traditional agriculture and informality
   • to modern, non-traditional activities
     
     
     • manufacturing, non-traditional export crops, and tradable services
     • Examples: Japan, S. Korea, China, India
   • Based not on (static) comparative advantage, but on producing what countries richer than you produce
     
     
     • Associated with "productivist" policies
     • policies that explicitly promote structural change, through removal of constraints on investments in modern activities
     • And through industrial policies, undervalued currencies, financial controls
     • Underpinned by sound macro/fiscal policies
   • This is the only model that generates reliably sustained convergence with income levels in the advanced countries

Example: Manufacturing Share Rises and then Falls

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