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Developing Productive Capacities

Developing Productive Capacities. Rolf Traeger UNCTAD, Division for Africa Least Developed Countries and Special Programmes UNCTAD Virtual Institute Study Tour (University of Dar-es-Salaam), 22 February 2010. This presentation. What are productive capacities?

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Developing Productive Capacities

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  1. Developing Productive Capacities Rolf Traeger UNCTAD, Division for Africa Least Developed Countries and Special Programmes UNCTAD Virtual Institute Study Tour (University of Dar-es-Salaam), 22 February 2010

  2. This presentation • What are productive capacities? • How do productive capacities develop? • Why focus on productive capacities? • What prevents productive capacities from developing? • Need of paradigm shift in development policy

  3. What are productive capacities? (1) Productive capacities are « the productive resources, entrepreneurial capabilities and production linkages which together determine the capacity of a country to produce goods and services an enable it to grow and develop ». (The Least Developed Countries Report 2006, p.61)

  4. What are productive capacities? (2) The 3 elements are complementary to each other.

  5. What are productive capacities? (3) • What are perceived as supply-side constraints cannot be divorced from the demand side. • The existence of productive capacities simply represents a potential for production and growth; whether or not this potential will be realized depends on the utilization of existing capacities, that is on aggregate demand.

  6. How do productive capacities develop? (1)

  7. How do productive capacities develop? (2) • In LDCs these processes are taking place only to a limited extent • Capital accumulation increased, but still relies largely (40% of gross K formation) on external finance • Structural change is rather slow (especially in African LDCs) and many economies experienced de-industrialization • Technological progress is too often limited to enclaves, with the bulk of SMEs operating at a very small scale or even in the informal sector 

  8. Why focus on productive capacities? (1) An alternative view of development • Focus on supply-side and demand-side factors • Productive capacities: generic activity-specific enterprise-specific • Growth not steady-state with full utilization of productive resources and full employment • Path dependency • Form of global integration matters

  9. Why focus on productive capacities? (2) The virtuous circle of development

  10. What prevents productive capacities from developing? (1) Obstacles to the development of productive capacities in LDCs • The infrastructure divide • Institutional weaknesses • The demand constraint

  11. What prevents productive capacities from developing? (2) • The infrastructure divide • LDCs have the worst infrastructure in the world

  12. What prevents productive capacities from developing? (3) 2. Institutional weaknesses a. The financial system is often not conducive to private investment

  13. What prevents productive capacities from developing? (4) 2. Institutional weaknesses • b. Knowledge systems are frequently disarticulated (dualism modern vs. traditional knowledge) • c. Enterprise sector • - The missing middle • Weak development of formal sector SMEs: • informal sector formal sector • small firms large firms • Investment climate reforms are not enough in a context of radical firm heterogeneity

  14. What prevents productive capacities from developing? (5) Low labour productivity + widespread underemployment persistent mass poverty in most LDCs national markets offer limited opportunities for efficient mass production weak capabilities, infrastructure and institutions difficult to succeed in export markets exports poverty reduction productive resources and capabilities are currently underutilized in the LDCs owing to lack of effective demand 3. The demand constraint

  15. Need of paradigm shift in development policy (1) • LDCs historical record has shown the need to move beyond the Washington Consensus, to face more effectively the challenges of: • generalized poverty • urban transition • globalization • external fragility

  16. Need of paradigm shift in development policy (2) • FROM • Integration / exchange • Macroeconomic stabilization • Static allocation / Allocative efficiency • Liberalization • FDI • Tradables • Supply-side • Good governance • TO • Production • Growth and productive capacities development • Dynamic processes / Expand prod.cap. and employment • Strategic integration • Domestic investment + FDI • Tradables and non-tradables • Demand + Supply • Developmental governance

  17. Thank you !

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