Structural change and growth: chasing a moving target Stockholm, March 9, 2018 Ari Kokko Copenhagen Business School and School of Business, Economics, and Law, Gothenburg University
Introduction Many fields of research have studied structural change and transformation My entry points: development economics and international economics Others have chosen other entry points: economic geography, macroeconomics, growth theory, innovation, technology policy, labor etc etc Multiple objectives: to understand processes in order to identify impacts and to influence patterns of development Today s talk: how has my understanding of structural transformation and its policy space changed over time?
Starting point Development economics Development is structural change. Need to support transformation from primary to secondary and tertiary sectors with higher value added and better growth prospects International economics International trade and FDI change economic structure. Specialization according to comparative advantages transforms economies
Illustration: The Lewis Turning Point
Illustration: International Trade
Illustration: Impact of FDI Akamatsu s Flying Geese Model
Consequences and policies Trade and FDI beneficial for all parties involved in the game Although some will benefit more than others Simple policy prescriptions Investment, urbanization, and trade policy to promote development (with mix of import substitution and export orientation depending on preferences) Trade policy and classical industrial policy to influence patterns of export competitiveness Openness to FDI, both inward and outward
However, global value chains change the game. Industries may stay even if activities move.
Industries stay but activities move Main industries New Version Structural Transformation in Japan Time Japan 1950s Japan 1960s Japan 1970s Japan 1980s Japan 1990s
When value chains are deconstructed Continuous reconfiguration of activities within enterprises and industries Specialization and servicification Outsourcing and offshoring Shift in focus from individual industry or product category to value chains, clusters, and development blocks Standard indicators of economic structure may miss out on change processes Example: Swedish MNCs
Illustration: Changes in the population of plants owned by Swedish MNCs 1986-1994 Fors & Kokko (2000)
Shift in focus from industry to activity What activities are kept at home? Where do we really have our current comparative advantages? Look at skills, capabilities, competencies Why does it matter? Quality of current jobs, but also the quality of what we will get tomorrow Relatedness Regional differences within national economies: skills, capabilities, and competencies are not evenly distributed What is the scope of policy (and policy assessment)? Focus on skills, capabilities, competencies Regional dimensions Coordination and complementarities
Illustration: Development of local labor markets in Sweden 1985-2014 (employment) Henning et al. (2016)
Employment growth across skill categories, Sweden 2008-2013 Grundskola Kort eftergymnasial Medellång eftergymnasial Lång eftergymnasial Henning et al. (2016)
Risk and resilience: The impact of automation on labor market groups Chefsyrken Fördjupad högskoleutb Högskolekompetens Admin/ kundtjänst Service, omsorg, försäljning Lantbruk, skogsbruk, fiske Byggverksamhet Tillverkning, transport Kortare utbildning, introduktion Henning et al. (2016)
Links between resilience and employment growth, local labor markets in Sweden, 2001-2013 Henning et al. (2016)
Relatedness Where we are today matters for where we can go / what we can do in the future Ricardo Hausmann, Cesar Hidalgo et al (Harvard, MIT) Product Space. Products are connected if they use the same broad set of assets and are co-exported. Countries move from one set of products to the next in a predictable manner. Martin Henning et al (U of Gothenburg) Skill-relatedness. Industries are related if they use similar skills and capabilities. Skill-relatedness facilitates diversification and expansion into related industries/activities
The Product Space C. A. Hidalgo et al. Science 2007;317:482-487
Industry space, Sverige, 2008-2011 Henning (2014)
Units of analysis changing over time Time Clusters, Value Chains, Development Blocks Individuals Firms Industries Sectors Skills, Capabilities National / Regional Champions Strategic / Dynamic Industries Agriculture to Industry
Policy instruments changing over time Time Education policy, regional policy, incentives ++ S&T policy, education, regional policy, policy coordination institutions Individuals Firms Industries Sectors S&T policy, trade & FDI policy, competition policy, procurement, subsidies Trade policy, classical Industrial policy Trade policy, urbanization, education, institutions
Thought experiment What if the main drivers of change in the coming decade are Big Data Artificial Intelligence Digitalization / Automation / Robotization? What is needed for successful adjustment? At what level should interventions be made? Change in industry structure? Increased production of hardware (computers, robots)? Investment in physical capital? More computing power)? Investment in human capital / skills? To develop technologies / solutions To apply technologies
Policy assessment Focus on individuals may simplify policy assessment Performance of education institutions Higher education Life-long learning Formal qualifications of the labor force Employment development Income But policy making may become more difficult Regional dimension challenges national policy Substantial time lags between policy intervention and outcomes Analytical capability / foresight more important Hard to see quick fixes
Selected references M. Henning, J. Boström Elias, J. Jakobsson och F. Lavén (2017), Kompetenslandskapets omvandling mot industri 4.0 - Långsiktiga perspektiv på kompetensbehovet inom industri och industrinära tjänster i Västra Götaland, CRA Working Paper Nr 2017:1, Handelshögskolan, Göteborgs Universitet. M. Henning, (2014), Branschöverskridande kompetensknippen Nya perspektiv på Västsveriges näringslivsstruktur, Västra Götalandsregionen och Region Halland. M. Henning, J. Borggren, J.Boström Elias, K. Enflo, F. Lavén (2016), Strukturomvandling och automatisering Konsekvenser på regionala arbetsmarknader, Västra Götalandsregionen och Region Skåne.