World Development Report 1987 Barriers to Adjustment and Growth in the World Economy 10596 Industrialization and Foreign Trade World Development Indicators World Development Report 1987 Published for The World Bank Oxford University Press Oxford University Press NEW YORK OXFORD LONDON GLASGOW TORONTO MELBOURNE WELLINGTON HONG KONG TOKYO KUALA LUMPUR SINGAPORE JAKARTA DELHI BOMBAY CALCUTFA MADRAS KARACHI NAIROBI DAR ES SALAAM CAPE TOWN © 1987 by the International Bank for Reconstruction and Development / The World Bank l8l8HStreet, NW, Washington, D.C. 20433 U.S.A. First printing June 1987 All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior permission of Oxford University Press. Manufactured in the United States of America. The denominations, the classifications, the boundaries, and the colors used in maps in World Development Report do not imply on the part of The World Bank and its affiliates any judgment on the legal or other status of any territory, or any endorsement or acceptance of any boundary. ISBN 0-19-520562-6 clothbound ISBN 0-19-520563-4 paperback ISSN 0163-5085 The Library of Congress has cataloged this serial publication as follows: World development report. 1978- (New York] Oxford University Press. v. 27 cm. annual. Published for The World Bank. 1. Underdeveloped areasPeriodicals. 2. Economic development Periodicals I. International Bank for Reconstruction and Development. HC59. 7. W659 330.91724 78-6 7086 This book is printed on paper that adheres to the American National Standard for Permanence of Paper for Printed Library Materials, Z39.48-1984. Foreword This Report is the tenth in the annual series assess- strenuous efforts to stabilize their economies, deal ing development issues. Part I reviews recent with a heavy debt burden, and cope with declining trends in the world economy and their implica- commodity prices and lower inflows of private ca- tions for the future prospects of developing coun- pital. They have no alternative but to persevere in tries. It also examines the role of foreign trade in these efforts. Where governments are making gen- the industrialization of developing countriesthe uine efforts at reformfrequently in the face of theme of Part II of the Report. Like its predeces- opposition from entrenched interests and in spite sors, the Report includes an annex, the World De- of adjustment coststhe international community velopment Indicators, which provides selected so- has a responsibility to provide increased assis- cial and economic data for more than 100 tance. The Report argues for increases in official countries. and private capital flows and, where appropriate, The world economy continues to expand, but for debt restructuring on terms that permit a resto- the expansion is modest and uneven. Many devel- ration of long-term growth. oping countries are still laboring under a large bur- Practically all societies at early stages of their de- den of debt and are unable to restore their growth velopment have viewed industrialization as the momentum. In some cases, their living standards main vehicle for improving living standards. It is are lower today than a decade ago. Part I of the not surprising, therefore, that governments have Report stresses that better economic performance played an active role in promoting industrializa- is possible in both industrial and developing coun- tion. Part II of the Report reviews and evaluates tries, provided the commitment to economic policy the varied experience with government policies in reforms is maintained and reinforced. support of industrialization. Emphasis is placed on More vigorous growth in industrial countries is policies which affect both the efficiency and sus- necessary to spur the growth of exports and out- tainability of industrial transformation, especially put in the developing world and thereby alleviate in the sphere of foreign trade. debt servicing problems and reduce poverty. The The Report finds that developing countries large external payments imbalances among indus- which followed policies that promoted the integra- trial countries are a source of instability and tion of their industrial sector into the international threaten to interrupt progress in reducing inflation economy through trade have fared better than and lowering interest rates. The Report argues for those which insulated themselves from interna- strengthened cooperation among industrial coun- tional competition. Successful countries have typi- tries in the sphere of macroeconomic policy to pro- cally followed policies on trade, exchange rates, mote smooth adjustment to these imbalances and and related matters that did not bias industrial pro- to lay the groundwork for other reforms that duction toward the domestic market. Protection would raise productivity and growth in the longer has been relatively modest and its impact on ex- term. ports offset through other incentives. Many developing countries have been making Better integration into the international economy U' presupposes the willingness of trading partners to ment on Tariffs and Trade (GATT) offers a promise provide access to their markets. The economic ex- to reverse protectionist pressures worldwide. A pansion in the industrial countries since World strong commitment by all governments to an open War II was supported, and in turn made easier, by multilateral system under the leadership of the significant liberalization of trade in manufactures. major trading countries of the world is necessary Outward-oriented developing countries benefited to translate this promise into a reality over the next significantly from this liberalization. Beginning in decade. the 1970s, however, the shifting pattern of compar- Like all previous World Development Reports, ative advantage and the increased competition, this is a study by the staff of the World Bank, and especially from developing countries, posed a the judgments in it do not necessarily reflect the serious challenge to traditional industrial sectors in views of the Board of Directors or the governments the developed world. This gave rise to the "new they represent. protectionism"a series of actions by industrial countries aimed at controlling access to their mar- kets, mainly through nontariff barriers. These actions undermine productivity and growth in the industrial countries and frustrate the efforts of de- veloping countries to increase their exports at a C3. C6a& time when such increases are critical to restoration Barber B. Conable of their economic growth. President The launching of the Uruguay Round of multilat- The World Bank eral trade negotiations under the General Agree- June 1, 1987 This Report has been prepared by a team led by Sarath Rajapatirana and comprising Yaw Ansu, Thorkild Juncker, Alasdair MacBean, Chong-Hyun Nam, Vikram Nehru, and Geoffrey Shepherd. The team was assisted by Josephine Bassinette, M. Shahbaz Khan, Fayez S. Omar, Subramanian S. Sriram, Silvia Tones Mendoza, John Wayem, and Deborah L. Wetzel. The Economic Analysis and Projections Department prepared the main projections and statistical materials presented in the Re- port. Thanks go to the production staff for the Report, including Bill Fraser, Pensri Kimpitak, and Victoria Lee, and especially to the support staff, headed by Rhoda Blade-Charest and including Trinidad Angeles, Banjonglak Duangrat, Carlina Jones, and Patricia Smith. Anne 0. Krueger played a principal role in the initial stages of the Report's preparation. The work was carried out under the general direction of Benjamin B. King and Constantine Michalopoulos, with Clive Crook as the principal editor. iv Contents Acronyms and initials x Definitions and data notes xi 1 Industrialization and foreign trade: an overview From recovery and adjustment to long-term growth 2 Industrialization: trends and transformations 5 The role of government 7 Trade policy and industrialization 8 Trade policy reform 8 Complementary policies for industrial development 9 The threat of protectionism 10 Toward a more open trading system 10 Part I Barriers to Adjustment and Growth in the World Economy 2 From recovery and adjustment to long-term growth 14 The weakening recovery and international payments imbalances 15 Policies for the short term 21 Policies for medium- and long-term growth 24 The long-term adjustment issues 27 Conclusion 35 Part II Industrialization and Foreign Trade 3 Industrialization: trends and transformations 38 Global industrialization in historical perspective 38 Global industrialization after World War II 43 Industrialization and structural change 48 Lessons from industrialization experiences before World War II 54 Conclusion 57 4 The role of government 58 Governments and industrialization 58 The direct role of government: public goods and public services 60 The indirect role of government: intervening in markets 68 Government policies and the high costs of doing business 72 The priorities for government 76 V 5 Trade policy and industrialization 78 Alternative trade strategies 78 Why outward orientation works 88 Trade strategy in perspective 92 6 Trade policy reform 95 The diversity of country experience 98 The transition to more outward-oriented policies 106 The design of trade policy reform 109 The lessons of trade liberalization 112 7 Complementary policies for industrial development 113 The policy choices 113 Factor prices 124 The competitive environment 127 Economic policy and technological development 129 Conclusion 131 8 The threat of protectionism 133 The rise and fall of trade liberalization 134 The increase in protectionist measures 139 Explanations for the growth of protectionism 140 Has protectionism retarded trade? 147 Net costs to developing countries of industrial countries' protection 148 Net costs to industrial countries of their own protection 150 Conclusion 153 9 Toward a more open trading system 154 Problems with the trading system 155 The attraction of nontariff barriers 157 Targets for reform 157 The stake of the developing countries in the Uruguay Round 166 10 Industrialization and the world economy: a policy agenda 168 A policy agenda for industrial countries 168 A policy agenda for developing countries 169 The international environment for trade and finance 169 Statistical appendix 171 Bibliographical note 179 World Development Indicators 195 Boxes 1.1 The World Bank's support for industrialization 2 1.2 John Stuart Mill on the gains from trade 3 2.1 Recent developments in debt restructuring 20 2.2 Debt-equity swaps 22 2.3 Indonesia: adjusting to low oil prices 24 2.4 Restructuring of the steel industrya continuing story 30 2.5 Labor market flexibility and employment: the view of European employees and employers 32 2.6 The role of the World Bank in support of structural adjustment 34 3.1 Industrialization and trade in nonmarket economies 44 3.2 Technical change and comparative advantage: the case of textiles and clothing 48 3.3 Statistical studies of economic growth and industrialization 52 vi 3.4 Technology acquisition and adaptation: the experiences of Japan and the United States 56 4.1 Industrialization and poverty 59 4.2 The historical evolution of economic rights in England and Spain 61 4.3 State-owned enterprises and divestiture 68 4.4 Industrial targeting: the great debate 71 4.5 Battling the bureaucracy in Brazil 73 4.6 Informality in Peru 74 4.7 Rent seeking and directly unproductive profit seeking 76 5.1 Measuring neutrality in trade regimes: nominal and effective rates of protection 79 5.2 Protection and the taxation of exports 80 5.3 Trade orientation and the structure of protection 88 5.4 Measuring the costs of protection 90 5.5 Productive inefficiency under import protection: an example at the plant level 92 5.6 Alternative outward-oriented policies 93 6.1 Studying the process of trade liberalization 96 6.2 Trade liberalization and economic stabilization 98 6.3 The real exchange rate 101 6.4 Sri Lanka: the 1977 trade liberalization 104 6.5 Trade policy reform in Sub-Saharan Africa 106 6.6 Can governments ease the trade reform process? 111 7.1 Removing price controls: lessons from Ghana 114 7.2 Capacity licensing in India 116 7.3 The "iron law of interest rate restrictions" 118 7.4 The risks of financial liberalization: lessons from Chile 120 7.5 Performance of state-owned enterprises and wage and employment policies in Egypt 125 7.6 Peru's factor market distortions 126 7.7 Exit barriers and industrial adjustment in Portugal 128 7.8 Is small always beautiful? 130 8.1 Trade options for the developing countries: trade with centrally planned economies 134 8.2 Trade options for the developing countries: intradeveloping country trade 135 8.3 The history of the Arrangement Regarding International Trade in Textiles, or the Multifibre Arrangement 136 8.4 "Beggar thy neighbor" policies in the 1930s 139 8.5 The "Poitiers effect" 141 8.6 Reciprocity and fair trade 145 9.1 Origins and objectives of the GATT 156 9.2 The Lomé Convention 158 9.3 Reform of the emergency safeguard code: GATT Article XIX 158 9.4 The Multifibre Arrangement and a new exporter: Bangladesh 160 9.5 Antidumping and countervailing duties and subsidies in the GAIT 162 9.6 Antidumping actions: the golf cart case 164 9,7 Barriers to trade in services 164 Text figures 1.1 Long-term trends in GDP and employment by sector, selected years, 1890-1984 6 2.1 Real GDP growth, 1973-86 15 2.2 Inflation, 1973-86 16 2.3 Real non-oil commodity prices, 1950-86 17 2.4 Interest rates, 1980-86 19 2.5 The dollar exchange rate, 1979-86 24 3.1 Global manufacturing: the component network for the Ford Escort (Europe) 39 3.2 Historical trends in the growth of real GDP and exports in selected countries, 1720-1985 40 3.3 Postwar growth in world output and exports 43 vii 3.4 Share of offshore assembly products in total manufactured imports by the United States from selected developing economies, 1973-85 45 3.5 Indicators of industrial performance of developing economies 49 3.6 Historical relationship between GDP per capita and the share of industry in GDP in selected industrial countries, 1870-1984 50 3.7 Relationship between GDP per capita and the share of manufacturing value added in GDP in selected economies, 1984 51 4.1 Educational profile of the labor force in selected developing countries 63 4.2 Economic development and industrial infrastructure 65 4.3 Economic development and government expenditure on transport and communications 66 4.4 Public ownership of selected industrial sectors, 1984 67 5.1 Classification of forty-one developing economies by trade orientation, 1963-73 and 1973-85 83 5.2 Macroeconomic performance of forty-one developing economies grouped by trade orientation 84 5.3 Economic and industrial performance by trade orientation 86 6.1 Major economic liberalization policies in the Republic of Korea, 1959-83 99 6.2 Evolution of trade incentives in Korea, 1958-84 100 6.3 Major economic liberalization policies in Chile, 1972-86 102 6.4 Real exchange rate, imports, and exports in Chile, 1960-86 103 7.1 The stock of foreign direct investment in developing economies 117 7.2 Financial savings and the real deposit rate in selected developing countries 119 7.3 The share of the public sector in total employment in selected developing countries 124 8.1 The incidence of export restraint arrangements on manufactures, 1984-86 140 8.2 Share of manufactures imported by the OECD from Japan and NICs, 1965-85 143 8.3 World exports of manufactures, 1963 and 1985 147 8.4 The cost to consumers of preserving a job in selected industries, 1983 152 Text tables 2.1 Growth of real GDP, 1965-86 16 2.2 Current account balance, 1980-86 17 2.3 Public and private lending to developing countries, 1975 and 1980-86 18 2.4 Debt indicators for developing countries, 1980-86 18 2.5 Economic performance of developing and industrial countries, 1965-95 26 2.6 Growth of GDP per capita, 1965-95 26 2.7 Change in the volume of trade in developing countries, 1965-95 26 2.8 Current account balance and its financing in developing countries, 1986 and 1995 28 2.9 External financing, by type of flow, 1973-95 33 3.1 Shares of production and exports of manufactures by country group, 1965, 1973, and 1985 47 3.2 Growth in production and exports of manufactures by country group, 1965-73, 1973-85, and 1965-85 47 3.3 Structure of manufactured exports from developing countries, 1970-84 47 4.1 Economic rates of return in education 64 5.1 Characteristics of industrialization for forty-one developing economies grouped by trade orientation 87 5.2 Growth of GDP, inputs, and total factor productivity 93 7.1 Real interest rates and selected growth indicators, 1971-85 118 7.2 Real interest rates and inflation 120 7.3 Pre- and postreform nominal deposit rates 120 7.4 Policy effects on labor and capital costs in selected developing economies 126 7.5 Sources of potential increases in labor coefficients of production 127 7.6 The relative cost of capital in large and small firms 129 8.1 Tariff averages before and after the implementation of the Tokyo Round and percentage changes in tariffs in the major industrial countries 136 vu, 8.2 Pre- and post-Tokyo Round tariffs for twelve processing chains 138 8.3 Industrial country imports subject to "hard-core" NTBs, 1981 and 1986 142 8.4 Import coverage ratios of a subgroup of NTBs applied by selected industrial marketeconomies, 1981 and 1986 142 8.5 Import coverage index of a subgroup of NTBs applied by selected industrial market economies, 1981-86 143 8.6 Ratio of labor content of manufactured imports to labor content of manufactured exports for selected OECD countries, 1980 143 8.7 Value and destination of exports of manufactures by developing and industrial countries, 1963, 1973, 1979, and 1980-85 146 8.8 Shares of domestic consumption: North Atlantic industrial countries combined 146 8.9 U.S. textile and clothing imports, 1980 and 1985 148 8.10 Estimates of rent income to Hong Kong from voluntary export restraints on clothing, 1981-83 149 8.11 Some estimates of the costs to consumers of protection in selected sectors 150 8.12 Some estimates of the welfare costs of protection in selected sectors 151 9.1 Frequency of use of tariffs and quotas under Article XIX 161 Statistical appendix tables A.1 Population growth, 1965-85 and projected to 2000 171 A.2 Population and GNP per capita, 1980, and growth rates, 1965-86 171 A.3 GDP, 1980, and growth rates, 1965-86 172 A.4 Population and composition of GDP, selected years, 1965-86 172 A.5 GDP structure of production, selected years, 1965-86 173 A.6 Sector growth rates, 1965-85 173 A .7 Consumption, savings, and investment indicators, selected years, 1965-86 174 A .8 Growth of exports, 1965-86 175 A.9 Change in export prices and in terms of trade, 1965-86 176 A. 10 Growth of long-term debt of developing countries, 1970-86 176 A.11 Savings, investment, and the current account balance, 1965-85 177 A. 12 Composition of debt outstanding, 1970-85 178 ix Acronyms and initials ACP African, Caribbean, and Pacific MFN Most favored nation CPE Centrally planned economy MIT! Ministry of International Trade and CVD Countervailing duty Industry DUP Directly unproductive profit seeking MNC Multinational corporation EC The European Community comprises MTN Multilateral trade negotiations Belgium, Denmark, France, Federal Republic of MYRA Multiyear restructuring agreement Germany, Greece, Ireland, Italy, Luxembourg, NAIC North Atlantic industrial country Netherlands, Portugal, Spain, and United NIC Newly industrializing country Kingdom NTB Nontariff barrier EFTA European Free Trade Association ODA Official development assistance EPZ Export processing zone QECD The Organisation for Economic Co-oper- GATT General Agreement on Tariffs and Trade ation and Development members are Australia, GDP Gross domestic product Austria, Belgium, Canada, Denmark, Finland, GNP Gross national product France, Federal Republic of Germany, Greece, GSP Generalized System of Preferences Iceland, Ireland, Italy, Japan, Luxembourg, GSTP Global System of Trade Preferences Netherlands, New Zealand, Norway, Portugal, IDA International Development Association Spain, Sweden, Switzerland, Turkey, United IFC International Finance Corporation Kingdom, and United States ILO International Labour Organisation SITC Standard International Trade Classification IMF International Monetary Fund SOE State-owned enterprise iTO International Trade Organization UNCTAD United Nations Conference on Trade LIBOR London interbank offered rate and Development LTA Long Term Arrangement Regarding VCR Videocassette recorder International Trade in Cotton Textiles VER Voluntary export restraint MFA Multifibre Arrangement VIE Voluntary import expansion x Definitions and data notes The principal country groups used in the text of mies with exports of manufactures (defined for this Report and in the World Development Indica- this purpose as SITC 5, 6, 7, and 8, less 651, 652, tors are defined below. The overall classification 654, 655, 667, 68) accounting for more than 30 per- uses GNP per capita as the main criterion. cent of exports of goods and services: Brazil, Developing countries are divided into: low- China, Hong Kong, Hungary, India, Israel, Po- income economies, with 1985 GNP per person of land, Portugal, Republic of Korea, Romania, $400 or less; and middle-income economies, with 1985 Singapore, and Yugoslavia. GNP per person of $401 or more. Highly indebted countries are seventeen coun- High-income oil exporters comprise Bahrain, tries deemed to have encountered severe debt Brunei, Kuwait, Libya, Qatar, Saudi Arabia, and servicing difficulties: Argentina, Bolivia, Brazil, the United Arab Emirates. Chile, Colombia, Costa Rica, Côte d'Ivoire, Ecua- Industrial market economies are the members of dor, Jamaica, Mexico, Morocco, Nigeria, Peru, the Organisation for Economic Co-operation and Philippines, Uruguay, Venezuela, and Yugoslavia. Development, apart from Greece, Portugal, and Sub-Saharan Africa is made up of all countries Turkey, which are included among the middle- south of the Sahara excluding South Africa. income developing countries. This group is com- Middle East and North Africa comprise Afghani- monly referred to in the text as industrial economies stan, Algeria, Arab Republic of Egypt, Iraq, Islamic or industrial countries. Republic of Iran, Israel, Jordan, Kuwait, Lebanon, Non reporting nonmember economies are Albania, Libya, Morocco, Oman, People's Democratic Re- Angola, Bulgaria, Cuba, Czechoslovakia, German public of Yemen, Saudi Arabia, Syrian Arab Re- Democratic Republic, Democratic People's Repub- public, Tunisia, Turkey, United Arab Emirates, and lic of Korea, Mongolia, and the U.S.S.R. Yemen Arab Republic. For analytical purposes, a number of other over- East Asia comprises all low- and middle- lapping classifications based predominantly on ex- income economies of East and Southeast Asia and ports or external debt are used in addition to geo- the Pacific, east of and including China, Mongolia, graphic country groupings: and Thailand. Oil exporters are middle-income developing South Asia comprises Bangladesh, Bhutan, countries with exports of petroleum and gas, in- Burma, India, Nepal, Pakistan, and Sri Lanka. cluding reexports, accounting for 30 percent of Latin America and the Caribbean comprise all merchandise exports: Algeria, Arab Republic of American and Caribbean countries south of the Egypt, Cameroon, Ecuador, Gabon, Indonesia, United States. Iraq, Islamic Republic of Iran, Mexico, Nigeria, Economic and demographic terms are defined in the Oman, People's Republic of the Congo, Syrian technical notes to the World Development Indica- Arab Republic, Trinidad and Tobago, and Vene- tors. The Indicators use the country groupings zuela. given above but include only countries with a pop- Exporters of manufactures are developing econo- ulation of 1 million or more. xi Billion is 1,000 million. The symbol .. in tables means "not available." Trillion is 1,000 billion. The symbol - in tables means "not applicable." Tons are metric tons, equal to 1,000 kilograms, or 2,204.6 pounds. Data from secondary sources are not always Growth rates are in real terms unless otherwise available through 1985. The numbers in this World stated. Growth rates for spans of years in tables Development Report shown for historical data may cover the period from the beginning of the base differ from those shown in previous Reports be- year to the end of the last year given. cause of continuous updating as better data be- Dollars are current U.S. dollars unless otherwise come available and because of recompilation of specified. certain data for a ninety-country sample. The re- compilation was necessary to permit greater flexi- All tables and figures are based on World Bank bility in regrouping countries for the purpose of data unless otherwise specified. making projections. xii Industrialization and foreign trade: an overview This Report examines the role of foreign trade in This Report stresses efficient industrialization be- industrialization. The pace and character of indus- cause there is evidence of inefficiencies in indus- trial development are not simply the result of trade tries in both industrial and developing countries. policies. Many other factors matter. A country's These industries may not show financial losses be- size, its natural resources, the skifis of its people, cause protection allows domestic firms to sell the stability of its government and institutions and above international prices. Overvalued exchange their ability to promote change, the fiscal, mone- rates may allow them to buy machinery and inter- tary, and exchange rate policies that the govern- mediate goods from abroad at prices below their ment pursuesall these and still more factors in- true cost to the economy. Such overvaluation of fluence a country's ability to industrialize outputs and undervaluation of inputs will exagger- The role of foreign trade in industrialization is an ate both the industries' profits and the contribu- important issue for several reasons. First, although tion that their output makes to the national prod- the relationship between trade policy and indus- uct. At the same time, undervaluation of exports trial development has concerned policymakers and and agricultural products will disguise their poten- economists for a long time, empirical studies over tial contribution to growth. The net effect is to the past thirty years now make it possible for use- magnify industry's part in domestic output and ful lessons to be drawn concerning the advantages growth. Simple statistics on the share of industry and disadvantages of different trade policies. Sec- or manufacturing in gross domestic product (GDP) ond, many fear that slow world growth and rising are suspect in many countries. protection in industrial countries may cloud the The term "efficient" begs many questions. It has prospects for developing countries' exports. Third, meaning only in relation to specific objectives: effi- continuing debt problems increase the developing ciency is measured by the costs of attaining these countries' need to raise their net earnings of for- objectives. Industrialization contributes to eco- eign exchange to service debt and maintain ade- nomic development. So the question is, What are quate growth. the ultimate objectives of economic development? This does not mean that other factors can be ig- Different governments may have different objec- nored. If, for example, a country reduces its trade tives in mind and will certainly disagree about the barriers but fails to make appropriate changes in its weight to be attached to them. Generally, how- fiscal, monetary, and exchange rate policies, the ever, they will include faster growth of national benefits it hoped for may not materialize Domes- income, alleviation of poverty, and reduction of tic inflation and an overvalued exchange rate could income inequalities. How is industrialization ex- discourage the investment flows needed to re- pected to contribute to these goals? spond to the new price incentives. Analysts look- Much of the early literature treated industrializa- ing at the past and governments setting policies for tion as the key element in economic development. the future have to bear in mind the complexity of The experience of the industrial economies the relationships among policies. showed a close association between development 1 Box 1.1 The World Bank's support for industrialization "Excessive emphasis on industry for industry's sake, contributing to economic development, has helped above all heavy industry, may leave an undeveloped build skills, transport, communications, and power country with the symbol of development rather than all vital inputs to modern industry. the substance. There are of course a number of in- More recently, however, the Bank's support for in- stances where heavy industry may be justified . But, dustrial development has added a new dimension to its in general, capital should be applied where it brings emphasis on projects. It now includes support for im- the greatest return" (World Bank memorandum to the proved policies and strengthened institutions. This United Nations Economic and Employment Commis- was in response to the structural adjustment problems sion, May 14, 1949). This 1949 quote is as relevant to- faced by developing countries following the interna- day as it was then. The Bank has always viewed indus- tional recession and to a growing awareness of the in- trialization not as an end in itself, but as a means to fluence of policies and institutions on industrial devel- raise productivity and incomes. And it is this view that opment. The Bank, jointly with its member countries, has shaped and guided the Bank's support for industri- devises a lending program that supports policy reforms alization in its member countries. and structural change across the whole economy, as The Bank has supported the efforts of its member well as at the level of the individual enterprise or insti- countries in building new industrial capacity, improv- tution. In recent years the Bank has made several struc- ing the efficiency of existing capacity, and providing tural adjustment and sector adjustment loans to devel- training and technical assistance to accelerate the ac- oping countries in support of changes in their macroec- quisition and mastery of new skills and new technol- onomic, trade, and industrial policies. ogy. Until the late 1970s, it did this by financing indus- The Bank's lending to industry will continue to trial subsector studies, project feasibility studies, evolve in response to the needs of its borrowers. Sup- project design and engineering, technical assistance, port for industrialization will continue to emphasize and industrial investments. It also financed industry policies at both the economy and the project level. The indirectly by lending to industrial development banks; Bank will need to meet the challenge of providing an these loans served the additional purpose of deepening integrated package of lending, technical assistance, financial markets in developing countries. To comple- economic analysis, and policy advice that addresses ment these efforts, the International Finance Corpora- the needs of individual countries and matches their tion (IFC), an affiliate of the World Bank, supports the capacity for reform. At the same time, recognizing the projects of private investors through loans as well as importance of skill and infrastructural development to equity participation. Last, but not least, the Bank's industry, the Bank will continue with project lending in lending for education and physical infrastructure, in certain areas. and industrial expansion. But industry was also development the highest returns may come from thought to provide certain spilovers which would the production of particular types of manufac- benefit other activities: enhancement of skills, tures, agricultural products, or services. How best training of managers, dispersion of technology, to use resources at any time depends on market and so on. Moreover, pessimism about the pros- prospects and costs. So the interesting question is pects for exports of food and raw materials made not how fast a country can be industrialized, but the substitution of domestic for imported manufac- how incentives and policies can be designed so hires seem the most promising route to develop- that new industries make the maximum contribu- ment. tion to the country's development (see Box 1.1). Subsequent experience showed most of these Foreign trade preceded industrialization by ideas to be too simple, or even misleading. Many thousands of years. Early industry relied largely countries have achieved high standards of living on trade within nations. Yet, as Adam Smith based mainly on the production and export of noted, the development of industry is likely to be food and raw materials: Australia, Canada, Côte severely handicapped if it is deprived of the ability d'Ivoire, Denmark, Kenya, Malaysia, New to trade widely. The division of labor is limited by Zealand, Sweden, and the oil-exporting countries, the size of the market, and the division of labor is to name but a few. Industrialization has certainly the key to increased productivity. been associated with growth, but it is not the only For small countriesand most developing coun- cause of growth. At certain stages in a country's tries are small in terms of their domestic market for 2 industrial goodsthis means that progress de- learning stages of development These arguments pends upon the ability to trade relatively freely depend largely on market failures of one sort or with the rest of the world. For large economies another or the existence of external benefits such domestic trade may provide scope for adequate as the spread of ideas and skills throughout the specialization, economies of scale, and enough economy. But history is also full of examples of competition to keep managers alert. But even large countries that have given their industries too much economies, if cut off from international trade, protection for too long. Many countries are now would lack stimuli for efficient industrial develop- struggling to reduce protection in order to improve ment. Competition from abroad forces firms to cut efficiency and switch resources to more profitable costs, improve quality, and seek new ways of pro- activities. ducing and selling their goods. Contacts through Much of the bias against trade in developing trade ease the flow of capital and speed the acquisi- countries has been unintended. Errors in macro- tion of new technology (see Box 1.2). economic policy or unexpected changes in the This is not to deny that throughout history many terms of trade have caused balance of payments countries have developed industries behind pro- deficits and shortages of foreign exchange. Domes- tective barriers. There are respectable arguments tic inflation, combined with exchange controls, has to be made for assisting firms through the difficult led to overvalued exchange rates. These damaged Box 1.2 John Stuart Mill on the gains from trade In his Principles of Political Economy (1848), John Stuart fited; the dealer, in the end, is sure to get his profit, Mill discusses the gains that result from "foreign com- whether the buyer obtains much or little for his merce." Although more than a century has passed, his money" (p. 98). observations are as relevant today as they were in 1848. Mill also discusses the indirect gains from trade. He In referring to David Ricardo, one of the first to analyze states: "But there are, besides, indirect effects, which formally the benefits of trade, he notes: "From this must be counted as benefits of a high order. One is, the exposition we perceive in what consists the benefit of tendency of every extension of the market to improve international exchange, or in other words, foreign com- the processes of production. A country which pro- merce. Setting aside its enabling countries to obtain duces for a larger market than its own, can introduce a commodities which they could not produce themselves more extended division of labor, can make greater use at all; its advantage consists in a more efficient employ- of machinery, and is more likely to make inventions ment of the productive forces of the world. If two coun- and improvements in the processes of production. tries which trade together attempted, as far as was Whatever causes a greater quantity of anything to be physically possible, to produce for themselves what produced in the same place tends to the general in- they now import from one another, the labor and capi- crease of the productive powers of the world. There is tal of the two countries would not be so productive, the another consideration, principally applicable to an two together would not obtain from their industry so early stage of industrial advancement. A people may great a quantity of commodities, as when each employs be in the quiescent, indolent, uncultivated state, with itself in producing, both for itself and for the other, the all their tastes either fully satisfied or entirely undevel- things in which its labor is relatively most efficient. The oped, and they may fail to put forth the whole of their addition thus made to the produce of the two com- productive energies for want of any sufficient object of bined, constitutes the advantage of trade" (p. 96). desire. The opening of a foreign trade, by making them Mill goes on to say: "There is much misconception in acquainted with new objects, or tempting them by the the common notion of what commerce does for a coun- easier acquisition of things which they had not previ- try. When commerce is spoken of as a source of na- ously thought attainable, sometimes works a sort of tional wealth, the imagination fixes itself upon the industrial revolution in a country whose resources large fortunes acquired by merchants, rather than were previously undeveloped for want of energy and upon the saving of price to consumers. But the gains of ambition in the people: inducing those who were satis- merchants, when they enjoy no exclusive privilege, are fied with scanty comforts and little work to work no greater than the profits obtained by the employ- harder for the gratification of their new tastes, and ment of capital in the country itself . . Commerce is . even to save and accumulate capital, for the still more virtually a mode of cheapening production and in all complete satisfaction of those tastes at a future time" such cases the consumer is the person ultimately bene- (p. 99). 3 exports and fueled a vicious circle of foreign cur- tractable, partly because a sluggish world economy rency shortages, controls, and overvalued ex- will also mean reduced net capital flows to the de- change rates. The resulting protection of domestic veloping countries. All this will make adjustment industries was quite inadvertent. And the levels of much more difficult. protection were often far in excess of any that even How should governments respond in the short the most fervent advocate of infant industry pro- term to avert these risks? The industrial market tection could support. economies need a reduction in the U.S. current For some countries the results of protection have account deficit and in the corresponding surpluses been industries whose contribution to national in- of the major trading partners of the United States. come was negligible or even negative. Supporting For that to happen there must be both a decline in them has burdened other sectors of the economy, the U.S. budget deficit and an increase in U.S. in particular the rural community, which contains exports. But this poses a risk of its own. Expansion most of the poorest citizens of the developing in the United States was instrumental in earlier countries. The same can be said for many of the periods of economic growth, and reducing de- industries of the centrally planned economies mand in the United States in order to cut its exter- (CPE5). Lack of exposure to competition from nal deficit will slow world growth unless the other abroad has fostered goods that are expensive and industrial countries take steps to offset the decline of low quality. The industrialization of the CPEs in global demand. So the policies of the industrial was impressively rapid, but less efficient than it nations need to be carefully coordinated. The task might have been. Recognizing this, many develop- goes beyond replacing the fiscal deficit of one ing countries and some CPEs are undertaking sig- country with a fiscal deficit elsewhere. It requires nificant reforms and are trying to reduce their the careful use of fiscal and monetary policy to trade barriers, switch more of their efforts into ex- smooth the process of adjustment. This adjust- ports, and compete more vigorously in world mar- ment should not be delayed. If the present im- kets. balances persist, they will threaten the stability of the world economy and encourage "beggar thy From recovery and adjustment neighbor" protection. to long-term growth (Chapter 2) In the longer term, the industrial market econo- Although countries ultimately rise by their own mies need to improve their economic flexibility by efforts, the world economy conditions their suc- lowering their trade barriers and tackling rigidities cess. The economic recovery that began in 1983 is in their markets for labor and goods. Such rigidi- weakening. For the industrial countries as a group, ties, in effect, resist the changes in comparative output growth reached 4.6 percent in 1984, but advantage, technology, and demography that then dropped to 2.8 percent in 1985 and to an esti- economies must heed if they are to grow and pros- mated 2.5 percent in 1986. Payments imbalances per. Reforms such as these may not be feasible among the major trading nations persist, as do the unless governments first address the pressing debt problems of many developing countries. Real problems of short-term economic adjustment. interest rates remain high compared with historical The fundamental goals of long-term structural levels, and low commodity prices add to the diffi- adjustment in developing countries are to enhance culties of many developing countries. New funds efficiency, achieve equity, and expand the stock of to support the adjustment efforts of the develop- physical and human capital. The problems of the ing countries have been severely limited. highly indebted countries and Sub-Saharan Africa Against this background two positive features are particularly urgent, and their task would be stand out. First, inflation is low in most industrial easier if world growth were to revive. These and countries and declining in many developing coun- many other developing countries would benefit tries. Second, some industrial countries have from policy reforms in three areas, although the made steady progress in reducing their fiscal defi- precise form of appropriate measures will differ cits, which leaves more room to expand demand from case to case: and stimulate growth. Trade reform. Countries should move toward Despite these positive signs, there is the danger the adoption of an outward-oriented trade strat- that growth may slow further and that payments egy. Such a strategy means removing the bias imbalances will fail to subside. The threat of pro- against exports, replacing quantitative restrictions tectionism might then turn into actual protection with tariffs, and adopting more realistic exchange on a large scale. Debt difficulties could become in- rates. 4 Macroeconomic policy. Many governments need around the middle of the eighteenth century in to reduce their budget deficits and to provide in- Great Britain. New methods of spinning and centives for greater savings. Ensuring positive real weaving cotton, together with increasing speciali- interest rates, competitive exchange rates, and low zation, sharply increased productivity. These were inflation will not only increase the supply of do- followed by innovations in iron smelting and by mestic financial resources, but also help to support the invention of the steam engine. Continuing in- trade reforms. novations led to the production of steel and rail- Domestic competitive environment. In addition to ways, steamships, and other transport. These reforming trade and macroeconomic policies, gov- boosted trade and spread industrialization, first to ernments need to improve the supply response of the major European nations and then to the United the economy, especially by removing price con- States and Japan. trols, rationalizing investment regulations, and re- A second industrial revolution began between forming labor market regulations. These policies 1870 and 1913. During this phase technological ad- will complement trade reforms and promote the vance came to depend on scientific progress. The adoption of cost-minimizing technology. demands of the new technologies linked industrial But reforms alone will not restore growth in growth to supplies from Africa, Asia, and the Ca- most cases. Complementary increases in capital ribbean. After World War II a period of unprece- flows are needed. dented expansion in output and trade began. The All told, then, industrial and developing coun- postwar growth in manufacturing was fueled tries alike face formidable tasks of adjustment. by the widespread use of such prewar innovations Should their policy efforts succeed, the world as assembly line production, electricity, the auto- economy can return to a high-growth path. The mobile, and consumer durables. Entirely new alternative is stagnation, even greater instability, technologies also emerged: synthetic materials, increased protection, and a missed opportunity to petrochemicals, nuclear energy, jet aircraft, telé- raise the living standards of the world's poor. communications, microelectronics, and robotics. Chapter 2 of this Report tries to be a little more Many observers believe that the world is now on precise about the difference between success and the threshold of a third industrial revolution. failure. It presents two alternative growth paths. From the outset, then, industrialization has in- These are not projections but the ranges of out- volved the interaction of technology, specializa- comes possible under alternative assumptions of tion, and trade. This interaction provokes struc- policy change. Under the High case, it is assumed tural change within economies. For example, early that the industrial countries are successful in their industrialization is usually associated with an in- adjustment efforts. On this assumption, they grow crease in the share of industry in GDP (see Figure at a rate of just over 4 percent over the next dec- 1.1). Higher agricultural productivity is needed to ade. The prospects for developing countries would accommodate that shift. Of course, there are ex- also improve. Their growth could reach 6 percent a ceptions to the pattern. Some economies have re- year if their adjustment efforts are combined with mained agricultural and still achieved high per a favorable world environment. But if govern- capita incomeAustralia and New Zealand, for ex- ments in the industrial and developing countries ample. Others have become industrialized without do not take up the challenge of adjustment, the increases in agricultural productivity but through result will be slow growth, increasing protection, exports of labor-intensive manufacturesHong and greater instability in the world economy. So, Kong, the Republic of Korea, and Singapore, for in the Low case, the developing countries grow at example. around 4 percent, a rate too slow to enable them to Within these broad sectoral shifts, early industri- tackle their debt problems. Countries which at- alization moved through another series of tempted reforms would do better than those that changes. First it centered on textiles, then iron, did not, but in any event the Low case represents a steel, and engineering products based on steel. missed opportunity which would have drastic ef- Later the focus shifted to electronics and micro- fects on the vast majority of the world's poor. electronics. But today's developing countries need not follow the same sequence. Now that technol- Industrialization: trends and ogy is so portable, they can create an engineering transformations (Chapter 3) industry without producing iron and steel or leap Industrialization is a part of the open-ended to microelectronics without building large indus- process of economic development that began trial complexes. 5 Figure 1.1 Long-term trends in GDP and employment by sector, selected years, 1890-1984 (percent) GDP France Germany Japan United United States Brazil Kenya Republic Kingdom of Korea 100 80 60 i 40 20 0 Employment France Germany Japan United United States Brazil Kenya Republic Kingdom of Korea 100 80 60 40 20 0 S Industry 0 Services 0 Agriculture Note: The years are approximate time periods only. Industry includes manufacturing, mining, and construction (the data for Kenya also include electricity, gas, and water). The services category includes all output and employment not counted as part of industry and agriculture. a. Data from 1950 onward refer to the Federal Republic of Germany. Source: Kuznets 1957, appendix tables 2 and 4; International Labour Organisation 1970, 1980, 1985; and OECD and World Bank data. The lessons of history, therefore, need to be in- Policy seems to matter more. All countries have terpreted with care. There is no unique path to protected industry at one time or another, but the industrialization. That said, some common themes successful early industrializers benefited from pe- emerge from past experience and point the way for riods of free trade, and their levels of protection countries that are embarking on industrialization were for the most part low compared with those today. For example, countries with large domestic found today in many developing countries. markets are in a better position to establish indus- Thus far, all of the countries that have industrial- trial plants and take advantage of economies of ized began the process with relatively skilled labor scale. A rich endowment of natural resources pro- forces. And all except Britain acquired technolo- vides financial means to support industrialization gies from abroad. The two factors are linked, be- efforts. But neither size nor natural resources guar- cause technical skills are necessary to make intelli- antee that a country can industrialize successfully. gent choices of technologies, and the gains are Indeed, they can lull cOuntries into complacency. much greater when those choices are efficiently 6 adapted to each country's special circumstances. Most governments provide economic informa- Governments have played a key role in thisand tion and regulation of standards (weights, mea- in the provision of physical infrastructure. Ad- sures, safety at work). But there is a limit to the vances in transport and communications ex- information they can make available in time to be panded markets, increased specialization, and useful, and regulations can often be ineffective or brought about an integrated industrial world. Ex- counterproductive. cept in the United Kingdom, most of the early Governments in the industrial economies pro- transport networks were publicly funded. Another mote scientific and technological research. For de- key role for government has been the provision of veloping countries, where it usually makes sense stable yet flexible social and economic institutions: to acquire foreign technology, the arguments for a this includes everything from microeconomic large government role in industrial research and "rules of the game" (property rights and so forth) development are less compelling. But public sup- to noninflationary macroeconomic policy. port may be justified in some cases. State-owned enterprises were established to The role of government (Chapter 4) carry out some of these tasks. Some have per- formed well, but many have disappointed. Efforts Markets and governments have complementary are under way to reform them. Such reforms are roles in industrialization. Markets are adept at high on the agenda for structural adjustment in dealing with the growing economic complexity developing countries. that comes with industrialization, but they are In addition to these forms of direct participation, rarely perfect. Government must sometimes inter- governments intervene somewhat less directly in vene to achieve an efficient outcome. the running of their economies. Trade policy, fiscal First, governments have to set the rules of the incentives, price controls, investment regulations, game, which define the use, ownership, and con- and financial and macroeconomic policies are their ditions of transfer of physical, financial, and intel- instruments. Capital market failures and external- lectual assets. Irrespective of the type of ities are the most cited justifications for direct inter- economywhether it favors private enterprise or vention. Both concepts have been used, for exam- is a command economythese rules impinge on ple, to defend policies toward infant industries. economic activity. The more they are certain, well Suppose a potentially profitable young firm is defined, and well understood, the more smoothly unable to find the funds to tide it over the period the economy can work. In many developing coun- before it becomes financially viable and can recoup tries these rules are often unclear, interpreted in its costs. Without government support such firms unpredictable ways, and managed by a cumber- would not be able to start production. Or suppose some bureaucracy. This tends to raise the costs of that the firm could generate economic benefits to doing business and therefore discourages the the rest of the economyfor example, in the form transactions that are essential for industrial spe- of trained workers who leave and take their skills cialization. elsewhere. Again some form of government sup- Governments must continue to be the main pro- port is warranted. Import protection is never the viders of certain services that have facilitated in- best form of intervention in principle, but some- dustrialization in the past: times there may be no practical alternative. All governments play a major role in educa- Different forms of intervention will have differ- tion, especially in providing the basic skills of liter- ent effects on the economy. Indeed, the important acy and numeracy that are vital in a modern indus- question often is not whether to intervene, but trial labor force. Lack of education, rather than how. Quantitative restrictions on imports may be physical assets, is the main bottleneck in industri- used to protect infant industries, for instance. But alization. they will raise social costs more than a tariff will, Most governments provide the physical infra- because they encourage unproductive activities structure of industry: transport, communications, such as the efforts of producers to avoid or exploit and power systems. Although some parts of such the controls. Tariffs, however, raise prices to con- systems can be, and are, profitably operated in the sumers. Subsidies to the industry could give the private sector in many countries, government pro- same assistance without raising pricesalthough vision of large systems in most developing coun- not without raising public spending and, possibly, tries is usually the only feasible option. budget deficits. 7 Trade poiicy and industrialization trial incentives are administered by an elaborate (Chapter 5) and expensive bureaucracy. This Report presents a study of forty-one econ- Economists and policymakers in developing coun- omies which shows that outward-oriented econo- tries broadly agree that governments need to pro- mies tend to perform better than inward-oriented vide infrastructure, promote market efficiency, and economies. Their overall output grew faster. They foster a stable macroeconomic environment. Trade industrialized more smoothly, even though their policy is a much more contentious issue. explicit interventions in support of that goal were Trade policies can be characterized as outward far fewer. For the economies that followed more oriented or inward oriented. An outward-oriented mixed strategies, however, differences in average strategy provides incentives which are neutral be- performance were small; since many factors apart tween production for the domestic market and ex- from trade policy influence economic success, this ports. Because international trade is not positively is scarcely surprising. The important lesson is that discouraged, this approach is often, although the strongly inward-oriented economies did badly. somewhat misleadingly, referred to as export pro- motion. In truth, the essence of an outward- Trade policy reform (Chapter 6) oriented strategy is neither discrimination in favor of exports nor bias against import substitution. By Like most policy changes, the shift toward out- contrast, in an inward-oriented strategy trade and ward orientation inevitably involves transitional industrial incentives are biased in favor of domes- costs. Major shifts in resources accompany trade tic production and against foreign trade. This liberalization, as some activities contract and oth- approach is often referred to as an import substitu- ers expand in response to the changes in prices tion strategy. In some countries the bias against that the reforms must entail. If the economy is trade has been extreme. highly distorted to begin with, larger changes are An inward-oriented strategy usually means more likely to be necessary. One visible cost is un- overt protection. What is less obvious is that shel- employment, although recent research on trade re- tering domestic industries puts exports at a great form shows that it has caused less unemployment disadvantage because it raises the costs of the for- than is generally supposed. eign inputs used in their production. Moreover, an More often than not, trade liberalization comes increase in the relative costs of domestic inputs in the wake of economic crises that are associated may also occur through inflationor because of an with budget and balance of payments deficits and appreciation of the exchange rateas the import inflation. Such crises may create the political will restrictions are introduced. for changean important ingredient in undertak- In practice, trade policy contains elements of ing trade liberalization. A government's long-term both approaches. Differences arise as much from commitment to reform needs to be credible if eco- the choice of instruments as from the absence or nomic agents are to respond to the incentives the presence of intervention. Outward-oriented poli- reform creates. Trade liberalization may therefore cies favor tariffs over quantitative restrictions. be more likely to succeed when the initial shifts in These tariffs are usually counterbalanced by other policy are substantial: this adds to the credibility of measures, including production subsidies and the reform. Moreover, a strong initial shift in policy provision of inputs at "free trade" prices. Govern- can quickly boost exports enough to create vested ments aim to keep the exchange rate at a level that interests in support of further liberalization. provides equal incentives to produce exports and Stable macroeconomic policiesaimed at reduc- import substitutes. Overall protection is lower un- ing inflation and preventing the currency from der an outward-oriented strategy than under in- appreciatingare also crucial for the success of ward orientation; equally important, the spread trade reforms. Many trade liberalization efforts between the highest and lowest rates of protection have foundered owing to poor macroeconomic is narrower. policies rather than poor trade policies. Once the Inward-oriented strategies typically prefer quan- reforms are undertaken, their fate often rests titative restrictions to tariffs, and they involve a mainly with the balance of paymentsand this is higher overall level of protection, together with the outcome of macroeconomic policy. greater variation across activities. Exchange rates Experience suggests that export performance is are generally overvalued because of high protec- closely related to the level and stability of the ex- tion and the use of quantitative restrictions. Indus- change rate. Conversely, using the exchange rate 8 to stabilize domestic prices is inconsistent with common, attempt to influence the pattern of pri- trade reform. In the countries of the Southern vate investment in line with government priorities. Cone of Latin America, capital inflows led to the Investments by foreigners are often subject to appreciation of exchange rates, which offset the more stringent regulations than those of nationals. incentives for increasing the production of exports The result is a distorted pattern of prices and in- and import substitutes. Large capital inflows were centives. For example, investments in capital- in some cases the result of liberalization of the fi- intensive technology are in many cases the result nancial markets in which domestic interest rates of the low price of capital and overvalued ex- rose very sharply. This provoked heavy borrowing change rates. High domestic protection encour- from abroad. ages "tariff jumping" by foreign investors, which A review of the recent history of trade policy in turn leads to investments in activities with low reforms suggests that three elements seem to mat- or negative social returns. ter most in their design. The first is the move from Financial policies are another important influ- quantitative restrictions to tariffs. This links do- ence on the pattern of industrialization, through mestic prices to foreign prices. The second is the their effects on savings and the cost of capital. In- reduction of the variation in rates of protection terest rate controls are common in developing alongside reductions in its overall level. Other- countries. They encourage investment at low rates wise, protection accorded to value added in some of return and excessively capital-intensive technol- sectors may increase, because as a result of re- ogy. They also discourage financial savings. But duced tariffs and quotas the prices of inputs may dismantling these controls must be done carefully: fall faster than the prices of outputs. The third ele- macroeconomic stability, low public sector deficits, ment is the direct promotion of exports to offset and proper exchange rate management may have the bias arising from import tariffs. Specific mea- to precede attempts to liberalize financial policies. sures to promote exports risk acquiring a perma- Because medium- and long-term finance is often nent status, however, and often lead to the post- found inadequate for industrial investments, gov- ponement of more fundamental changes relating ernments in developing countries have established to the exchange rate. They may also contravene medium- and long-term financial institutions such the General Agreement on Tariffs and Trade as development banks. They have also tried to pro- (GATT), create lobbies that will oppose their re- mote bond and equity markets. In many cases moval, and risk countervailing duty actions from these institutions have depended heavily on public importers. resources and have been unsuccessful in mobiliz- ing resources for themselves. Complementary policies for industrial Labor market policies involving highly regulated development (Chapter 7) wages, payroll taxes, and rules governing job secu- rity are common in developing countries. Mini- Trade policy is only one of the many instruments mum wage regulations are particularly prevalent, used by governments to influence the pattern of but they carry certain risks. If minimum wages are industrialization. The others fall into four broad set too high, they deter employment by favoring categories: the use of capital over labor, they increase inequali- Price controls are used to achieve income distri- ties between the formal and informal sectors, and bution goals, to protect consumers from monop- they reduce returns to education and training by oly, to promote industry through their influence narrowing differentials between skilled and un- on input prices, and to control inflation. They are skilled labor. The other popular forms of pervasive in many developing countries. Although interventionsuch as payroll taxes, wage policies they can have some short-run beneficial effects by for the public sector, and rules on job securityall lowering price expectations in periods of high in- risk, to some extent, distorting the labor market in flation, their usual long-run effects harm rather ways that reduce employment and overall living than promote efficiency. They restrict supply, en- standards. courage the emergence of dual markets, distort cost relationships, entail high administrative costs, The combined effect of trade and domestic policies and create vested interests in their permanence. Programs targeted to support the poor directly are Trade and domestic policies jointly influence prices a better way to attack poverty. of capital and labor. For example, exchange rate Regulations, of which licensing is the most overvaluation increases the demand for capital in 9 relation to the demand for labor. Import licensing goods, steel, and shipbuilding use standard tech- systems, which often give priority to capital im- nology and, in many instances, labor-intensive ports, reinforce this bias. Interest rate controls methods. This has made them vulnerable to com- work in the same direction. petition from the newly industrializing countries Another aspect of the interaction between trade (NICsdefined here as the economies of Brazil, and domestic policies is their influence on the com- Hong Kong, Mexico, the Republic of Korea, and petitive environment. On the one hand, barriers to Singapore) in recent years. As new entrants, the entry brought about by import restrictions can cre- NICs were able to absorb the existing technology ate monopolies. On the other hand, stringent laws and combine it with labor that was much cheaper to limit the size of firms make it harder to achieve and highly productive. Labor in the NICs not only economies of scale. Rigid job security regulations, was willing to operate at lower wages than in the laws against mergers and acquisitions, and the ab- industrial countries, and with fewer safeguards for sence of bankruptcy laws can make it difficult for health and safety at work, but also was exempt firms to leave an industry. Exit barriers maintain from the overmanning, job demarcation, and re- inefficiency and inhibit structural change. And strictive working practices which were common in many studies indicate that trade, industrial, and the industrial countries. financial policies discriminate against small firms. Management and labor in the industrial coun- tries' traditional industries have a common interest Technological developnient and industrialization in gaining protectionmanagement to maintain profits, and workers to retain jobs and incomes. Technological development involves the acquisi- Labor unions have the additional motive of retain- tion and adaptation of technology. Prices strongly ing members who would be lost to the union if influence the process. Governments have at- they became unemployed or switched to other in- tempted to provide public support for technologi- dustries. Overvalued exchange rates (in some cal development in many waysfor example, cases) and world recession added to the pressures through systems of patents to protect proprietary and led to increased demands for protection. rights in technological advances and through sub- These spread beyond the parties directly involved sidized research Greater contact with producers to others who, in a climate of rapidly rising levels would increase the impact of the public research of unemployment, saw protection as a general so- institutes. There is little hard evidence on which lution. Yet protection has not, as a rule, saved jobs. approaches work best, but a combination of undis- An alternative response to changes in the struc- torted market signals with targeted public support ture of trade is to ease the movement of resources seems most promising. out of the industries which have lost competitive- ness, while providing compensation to workers The threat of protectionism (Chapter 8) who need to retrain, move to new forms of work, or opt for early retirement. Protection is justified Since World War II, tariffs in industrial countries only if it is necessary to slow the speed of adjust- on most manufactures have fallen so far that they ment, and then only if subsidies are not available are no longer significant barriers to trade. But re- for the purpose. Even so, the protection could be cent years have seen a resurgence of protection in damaging if it is not designed to be temporary and the form of nontariff barriers. The proportion of degressive. Otherwise it will not promote adjust- North American and European Community im- ment, but simply delay the shift of resources from ports affected by various nontariff restrictions has dying industries to more productive uses. risen by more than 20 percent from 1981 to 1986. Such restrictions cover large volumes of imports Toward a more open trading system (Chapter 9) and affect developing countries' exports in particu- lar. Nontariff barriers in clothing and footwear A big danger is that industrial countries will act in have proved porous, so developing countries have a negative and defensive way toward increased been able to go on increasing their exports to the imports of manufactures from developing coun- industrial economies, but at a cost, and with in- tries. This would mean raising trade barriers of the creasing difficulty as leaks in the nontariff barriers more discriminatory typethat is, more nontariff are plugged. barriers more effectively administered. This would Nontariff protection is concentrated on a few in- further undermine the integrity of the GAIT sys- dustries. Textiles, clothing, footwear, leather tem and would restrict the growth of developing 10 countries' exports. Many developing countries are outward orientation, even though the benefits already heavily in debt, so a reduction in their ex- would be reduced in a more protectionist indus- port earnings would aggravate the problems of trial world. But politically it would then be very world debt. difficult for them to follow an outward-oriented Developing countrieswith limited foreign ex- strategy, even if it were objectively their best bet. change and facing unusually low commodity In other words, there is a serious risk that in- pricesmay soon face even higher barriers against creased protection by the industrial nations will set the manufactures which have traditionally been back economic development for many years and their first industrial exports. Should that happen, inflict unnecessary suffering on some of the poor- there could be widespread disillusion with the est people in the world. In any case, the industrial outward-oriented trade strategies which have nations themselves stand to gain from open trade. proved so successful for the NICs in recent years. The risks make it crucial that all countries strive If countries such as the United States or the United for a successful outcome from the Uruguay Round Kingdom increase their protection, it would hardly of multilateral trade negotiations (MTN). For some be surprising if many developing countries fol- developing countries that may mean offering to lowed suit. Unfortunately, increased protection reduce, or at least bind, some of their trade barriers will still mean poor economic performance in all in order to encourage the industrial nations to countries. open markets to them. Most of the ways to achieve If industrial countries become more protection- greater and more secure access are on the agenda ist, this would force developing countries to ex- for the MTN. Implementation of the "standstill plore a range of second-best options. These would and rollback" provision of the MTN would imme- include trying to expand trade with the centrally diately help developing countries. A reduction in planned economies, and with other developing tariff escalation would also aid their exports of countries, on a discriminatory basis. But the pros- manufactures. A more effective safeguard proce- pects of greatly improved trade in either of these dure in a reformed Article XIX would contribute to directions are not good. Neither could replace increased security of market access, as would a trade with the industrial market economies. more liberal Multifibre Arrangement and im- The best option for most developing countries is proved procedures for settling disputes. 11 Part Barriers to Adjustment and Growth in the World Economy From recovery and adjustment to long-term growth When the world economy is performing well, with from the expansion in world trade. Most of the rapid growth and low inflation, structural eco- others benefited from rising demand for raw mate- nomic change is less difficult. Growth provides a rials and foods. So, in one way or another, the steady increase in the demand for goods and ser- developing countries that participated in the ex- vices. This encourages a more liberal trading envi- pansion of world trade experienced high output ronment, because it allows countries to adjust growth. more smoothly to the shifts in comparative advan- Thanks to this period of growth, some of the tage that follow changes in technology, resources, elements of a well-functioning world economy and tastes. Growth also stimulates investment and have been present since the early 1950s. Yet over eases the absorption of new technology. Low infla- the past ten years the system often has not run tion makes for orderly financial markets, greater smoothly, and the developing countries have faced exchange rate stability, and improved incentives to great strain. Output in industrial countries has save. High inflation increases uncertainty, discour- fluctuated more than in earlier years, causing vari- ages investment and technological change, distorts ations ifl demand for the products of developing relative prices, and stands in the way of sustain- countries. Certain sectors in industrial countries, able growth. especially agriculture, have been protected against In the two decades between the early 1950s and the exports of developing countries; restrictions on the early 1970s, the world economy achieved both imports of textiles and clothing have been growing high growth and low inflation. The developing since the 1960s. The price of oil went sharply up in countries shared in that success. They grew at the 1970s and sharply down in the 1980s. In the more than 5 percent a year, probably the best past few years exporters of primary products have record for any group of countries over such a pe- suffered a significant deterioration in their terms of riod. trade. Foreign capital has not always been avail- Without the reduction in trade barriers that was able in the right quantity or on the appropriate achieved after World War II, economic growth terms. Overborrowing by some developing coun- could have been a good deal slower. Only in a tries resulted in debt difficulties that were com- liberal trading environment can countries exploit pounded by the 1980-82 recession in industrial to the full the opportunities provided by change. countries. All the while, concessional financial re- Successive GATT negotiations kept up the pres- sources have been too small for the tasks at hand. sure on countries to liberalize trade and to inte- Will the developing countries fare better during grate their economies with the world economy. the next decade? This chapter tries to answer that Trade grew at 8 percent a year between the early question. The first part of the chapter reviews the 1950s and the early 1970ssigniuicantly faster than current state of the world economy. The second world output. Some developing countries liberal- discusses the response to the immediate problems ized their trade regimes in the mid-1960s, became of sluggish growth and international payments im- exporters of manufactures, and gained directly balances. The third part takes a longer-term per- 14 spective; it presents alternative paths for global output growth and for capital and trade flows over e 2.1 Real GDP growth, 1973-86 the next decade. These paths are not forecasts or predictions. Their purpose is to illustrate the out- Annual percentage change comes that would be consistent with different sets 8 of policies. They do not allow for new shocks to the world economy. The High case shows what is Developing countries achievable rather than what is likely to be 6 achieved; the Low case shows what may happen if governments fail to act. The differences between growth rates in the High and Low cases are large. This emphasizes the need for policy changes. The low-growth path would mean economic and social conditions for the developing countries that they and the world must regard as unacceptable. But the rewards for Industrial countries correcting the present imbalances are correspond- 2 ingly great. 1973 1976 1979 1982 1986 To achieve high growth, governments must change their policies. Concerted action will make adjustment easier for all. Countries need to agree to improve the working of international markets for goods, services, and capital and to improve the efficiency of their own domestic markets. The cen- dustrial countries and has been declining in many tral theme of this chapter is that such steps, to- developing countries. Governments have demon- gether with adequate financing for investment in strated their commitment to restrain monetary the developing countries, would pay off hand- growth and keep inflation down. In addition, the somely in higher levels of output, employment, governments of many industrial countries have cut and welfare in industrial and developing countries their fiscal deficits and thus increased their room alike. for maneuver in the future. The weakening recovery and The weakening recovery international payments imbalances The strong expansion in the United States since The world economic recovery that started in the 1982 paved the way for a moderate world recovery United States in 1983 is slowing down. Mean- (see Figure 2.1). Real output in the United States while, the international current account im- fell by 2.5 percent in 1982, then rose by 6.6 percent balances of the past few years persist. The under- in 1984. The decline in public sector savings con- lying fiscal imbalances have improved only tributed to the high level of the real interest rate slightly. So far, the bulk of the adjustment to these the price of scarce savings. This compounded the imbalances has been left to the foreign exchange effect of tight U.S. monetary policy. High nominal markets, and the dollar has depreciated sharply interest rates led to strong demand for dollar- against the major currencies. In spite of this, the denominated assets and a sharp appreciation of current account deficit of the United States has the dollar. After about two years of rapid output been slow to respond. At the same time, progress growth in the United States and moderate growth toward the alleviation of debt problems has also in other industrial countries, the pace of recovery been slow. Real interest rates remain high in rela- slackened in 1985. Real output growth in the in- tion to historical levels, and external financing is dustrial countries peaked in 1984 at 4.6 percent, proving inadequate for the restoration of strong then slowed to 2.8 percent in 1985 and an esti- and sustained economic growth in the highly in- mated 2.5 percent in 1986 (see Table 2.1). debted countries. Low commodity prices continue Growth slowed in the developing countries too. to add to the difficulties facing many developing Their output grew at 4.2 percent in 1986, compared countries. with 4.8 percent in 1985 and an average of 6 per- On the positive side, inflation is low in most in- cent a year in the two decades prior to 1980 (Table 15 Table 2.1 Growth of real GDP, 1965-86 (annual percentage change) 1965-73 1973-80 Country group average average 1981 1982 1983 1984 1985 1986 Developing countries 6.5 5.4 3.4 2.1 2.1 5.1 4.8 4.2 Low-income countries 5.5 4.6 4.8 5.6 7.7 8.9 9.1 6.5 Middle-income countries 7.0 5.7 2.8 0.8 0.0 3.6 2.8 3.2 Oil exporters 6.9 6.0 4.1 0.4 -1.9 2.3 2.2 -1.1 Exporters of manufactures 7.4 6.0 3.3 4.2 4.9 7.8 7.8 7.0 Highly indebted countries 6.9 5.4 0.9 -0.5 -3.2 2.0 3.1 2.5 Sub-Saharan Africa 6.4 3.2 -1.0 -0.2 -1.5 -1.7 2.2 0.5 High-income oil exporters 8.3 7.9 1.4 -0.5 -6.9 1.2 -3.8 8.2 Industrial market economies 4.7 2.8 1.9 -0.5 2.2 4.6 2.8 2.5 Note: Data for developing countries are based on a sample of ninety countries. Data for 1986 are estimates. 2.1). Output per capita in the developing countries increased by 7.0 percent in 1986. Some of the more rose by only 2.2 percent in 1986. The slowdown in advanced exporters of manufactures experienced 1985-86 was largely due to the oil-exporting group, very high rates of growth: the Republic of Korea's whose output fell by 1.1 percent in 1986. Oil im- output, for example, increased by about 11 per- porters gained from the drop in oil prices, but cent. China and India also achieved strong growth weak prices of their non-oil commodity exports and raised the average growth rate for the low- offset this. Non-oil commodity prices rose by only income countries. Although growth rates rose in 0.8 percent in dollar terms in 1986. Sub-Saharan Africa (excluding the oil producers), Cheaper commodities improved the terms of high population growth meant that per capita in- trade of developing countries which export manu- comes continued to stagnate. factures. The output of exporters of manufactures LOWER INFLATION. Average inflation in the in- dustrial countries, as measured by the change in the GDP deflator, declined from 9.3 percent in 1980 to 3.4 percent in 1986. Inflation rates in the devel- oping countries have also fallen since 1980 (see Fig- Figure 2.2 Inflation, 1973-86 ure 2.2). The trend was due partly to the drop in oil prices in 1986 and partly to falling commodity prices. Unfortunately, such once-and-for-all Annual percentage change 21 changes do not guarantee continued price stability. Governments will therefore need to be cautious. 18 They can afford to permit only brief and minor deviations from a path of monetary growth consis- Developing countries tent with low inflation. After a delay, excessive 14 monetary growth tends to produce higher infla- tion. 10 REDUCTION OF FISCAL DEFICITS. The governments of the major industrial countries have reduced 6 their budget deficits. The overall deficit has fallen Industrial countries as a percentage of gross national product (GNP) in 2 the seven major industrial countries-from 5.4 per- 1973 1976 1979 1982 1986 cent in 1983 to 4.6 percent in 1986. Allowing for the effects of the economic cycle on revenue and Note: Inflation is calculated as the change in the GDP deflator. spending, deficits have fallen even further. In the For developing countries, the data points indicate median val- United States the federal budget deficit reached ues; for industrial countries, average values. $221 billion, or 5.0 percent of GNP, in 1986. The Gramm-Rudman-Hollings Act may lead to a sig- 16 nificant reduction in the future. For 1987 the target deficit is $151 billion. Figure 2.3 Ke4 non-oil commodity prices, 1950-86 The international payments imbalances The recovery was accompanied by large im- Index (1979-80 = 100) 280 balances in international payments (see Table 2.2). By the end of 1986 the U.S. current account deficit 240 reached $126.7 billion, equivalent to about 34 per- Nonfood agricultural commodities cent of the country's total exports of goods and 200 services, or 3 percent of GNP-despite the sharp depreciation of the dollar since early in 1985. This 160 widening external deficit was mirrored by the sur- 120 pluses of other industrial countries, especially Ja- pan ($87.5 billion in 1986) and the Federal Republic 80 Foods of Germany ($44.3 billion). The current account deficit of the developing countries dropped from 40 $37.4 billion in 1985 to $35.5 billion in 1986. This 1950 1955 1960 1965 1970 1975 1980 1986 can be attributed to the improved current account position of the exporters of manufactures. These current account imbalances, together with continued high unemployment in industrial coun- tries, have increased the calls for protection, above commodities fall to record lows (see Figure 2.3). In all in the United States. The Multifibre Arrange- 1985 the World Bank's index of thirty-three non- ment was tightened in the summer of 1986, and fuel primary commodity prices, in current dollar the coverage of voluntary export restraints in steel terms, fell to its lowest level in nine years: a 4.8 has been extended. One positive sign is that the percent decline from the recession low of 1982 and launching of the Uruguay Round of multilateral an 11.1 percent fall from the postrecession high trade negotiations in the fall of 1986 produced a reached in the first half of 1984. For the first time in commitment to a standstill in protection. It is too recent history, practically all commodity groups early to tell whether this will be honored. experienced price declines in 1984-86. Between the fourth quarter of 1983 and the second quarter of LOWER COMMODITY PRICES. The period between 1986, the current dollar index for agricultural com- 1984 and 1986 saw real prices for nonfuel primary modities declined by 13 percent, led by fats and Table 2.2 Current account balance, 1980-86 (billions of dollars) Country group 1980 1981 1982 1983 1984 1985 1986 Developing countries -69.1 -106.7 -103.0 -57.2 -32.1 -37.4 -35.5 Low-income countries -17.0 -13.9 -8.9 -6.7 -8.1 -25.9 -22.0 Middle-income countries -52.1 -92.8 -94.1 -50.5 -24.0 -11.5 -13.5 Oil exporters 1.4 -22.7 -30.0 -7.8 1.4 -2.2 -19.0 Exporters of manufactures -33.9 -27.5 -23.3 -8.4 1.7 -8.8 6.0 Highly indebted countries -27.9 -50.4 -52.9 -14.7 -0.7 -0.4 -12.0 Sub-Saharan Africa -4.9 -17.8 -17.9 -12.8 -5.1 -4.0 -8.9 High-income oil exporters 88.5 74.0 26.0 1.2 1.5 12.1 -9.4 Industrial countries -38.2 2.4 1.4 -2.9 -35.1 -24.7 21.6 United States 8.4 12.8 -1.4 -38.2 -95.8 -104.4 -126.7 Other industrial countries -46.6 -10.4 2.8 35.3 60.7 79.7 148.3 Total' -18.8 -30.3 -75.6 -58.9 -65.7 -50.0 -23.3 Note: Net official transfers are excluded. Data for developing countries are based on a sample of ninety countries. a. Reflects errors, omissions, and asymmetries in reported balance of payments statistics on current account, plus balance of listed groups with countries not included. 17 Table 2.3 Public and private lending to developing countries, 1975 and 1980-86 (billions of dollars) Country groupand item 1975 1980 1981 1982 1983 1984 1985 1986 Low-income countries Disbursements 6.2 11.3 10.4 11.0 10.3 10.5 11.4 19.8a Fromprivatecreditors 1.6 3.4 3.0 3.5 3.0 3.3 3.4 10.Oa Principal repayments 1.4 2.5 2.5 2.7 3.1 3.3 4.4 6.8 Netfiows 4.8 8.8 7.9 8.3 7.2 7.2 7.0 13.0 Middle-income countries Disbursements 38.6 90.2 111.6 105.6 87.6 77.0 67.6 66.4 From private creditors 28.2 71.0 88.8 82.3 63.2 52.6 46.7 43.4 Principal repayments 13.5 40.7 43.8 45.0 40.4 43.4 49.0 53.8 Net flows 25.1 49.5 67.8 60.6 47.2 33.6 18.6 12.6 All developing countries Disbursements 44.8 101.5 122.0 116.6 97.9 87.5 79.0 86.2 From private creditors 29.8 74.4 91.8 85.8 66.1 55.9 50.1 53.5 Principal repayments 14.9 43.2 46.3 47.7 43.5 46.7 53.4 60.6 Net flows 29.9 58.3 75.7 68.9 54.4 40.8 25.6 25.6 Note: Data for 1985 and 1986 are provisional estimates of amounts paid, not amounts due. Private nonguaranteed debt has been estimated where not reported by a country. Official grants are excluded. Data are based on a sample of ninety developing countries. a. Largely reflects increased lending to China. oils, nonfood agricultural commodities, and cere- ricultural policies of the industrial countries. Do- als. The index for metals and minerals declined by mestic price support programs have caused large 16 percent over the same period; practically all surpluses, which have frequently led to the selling metals and minerals contributed to this decline. of exports at a fraction of domestic prices. Finally, Beverages and timber were the only commodity changes in tastes, increased use of synthetic sub- groups whose prices rose over the period. stitutes, and the adoption of production processes The reasons for the depressed state of the com- that are less intensive in raw materials have all modity markets are complex. First, the demand for depressed demand. commodities in the industrial countries has been weak, especially for agricultural raw materials and LENDING FOR DEVELOPING COUNTRIES. In 1986, metals. Second, the high prices of the mid-1970s net lending flows to developing countries re- led to overexpansion of supply in several impor- mained at about one-third of their level in 1981, tant raw materials, especially oil and metals. But, just before the outbreak of the debt crisis- at the same time, those high prices encouraged although the year did see the first modest increase economy in the use of such materials and the de- in net inflows for low-income developing countries velopment of alternatives. Third, the markets of since the debt crisis began (see Table 2.3). Borrow- some commodities have been disrupted by the ag- ing by the highly indebted countries from private Table 2.4 Debt indicators for developing countries, 1980-86 (percent, unless otherwise noted) indicator 1980 1981 1982 1983 1984 1985 1986 Ratio of debt to GNP 20.6 22.4 26.3 31.4 33.0 35.8 35.4 Ratio of debt to exports 90.0 98.0 117.6 134.8 121.2 143.7 144.5 Debt service ratio 16.0 17.5 20.6 19.4 19.5 21.4 22.3 Ratio of debt service to GNP 3.7 4.0 4.6 4.5 4.9 5.3 5.5 Ratio of interest service to exports 6.9 8.3 10.4 10.1 10.3 10.8 10.7 Total debt outstanding and disbursed (billions of dollars) 428.6 490.8 551.1 631.5 673.2 727.7 753.4 Private debt as a percentage of total debt 63.1 64.5 65.0 65.8 65.7 63.9 63.5 Note: Data are based on a sample of ninety developing countries. Data for 1986 are estimates. 18 sources amounted to $6.8 billion, or about a quar- ter of the 1980 level. Most of it was "concerted" Figure 2.4 Interest rates, 1980-86 lending as part of debt restructuring. The broad debt indicators showed little improve- ment during 1986 (see Table 2.4). Despite a slight Percent 22 decline in the ratio of debt to GNP, debt service as a proportion of exports of goods and services in- 16 creased. This largely reflected reduced export earn- ings. For some of the major oil exporters, the drop in oil prices implied a sharp deterioration of their creditworthiness. That made debt restructuring necessary for Mexico, Nigeria, and other countries (see Box 2.1). Developing countries' real interest rate' Nominal interest rates continued to decline in 1986. But the deterioration in the export prices of the debtor countries limited the improvement in -8 the "real" terms of their borrowing. The real inter- 1980 1981 1982 1983 1984 1985 1986 est rate for developing countries (the nominal LIBOR deflated by the export price index for devel- London interbank offered rate. oping countries) decreased from 12.1 percent in London interbank offered rate deflated by the change in the export price index for developing countries. 1985 to 8.1 percent in 1986 (see Figure 2.4). The central issue for the highly indebted middle- income countries is their need to finance new in- vestment. The commercial banks have agreed to some debt restructuring packages, but there have economic activity and was an important source of been difficulties and delays. As the banks have income growth through 1986. The achievement of strengthened their financial position, they have some of the indebted countries in generating trade seemed increasingly reluctant to provide new fi- surpluses to service debt has been remarkable. But nancing. Still, new approaches are emerging. In the counterpart of that has been lower domestic 1986, schemes for converting debt to equity began consumption and investment, with adverse effects to be adopted (see Box 2.2). Chile and Mexico have on long-run productivity improvements. employed this approach, and others, such as Nige- Adjustment is needed and must be sustained. ria and Argentina, are considering similar plans. Recent difficulties in maintaining the momentum For Sub-Saharan Africa, there were welcome in- in some countries show the dangers of compla- creases in concessional flows in 1986. But the debt cency. Continued improvement requires new in- servicing problems of countries in Africa continue vestment in the competitive sectors of the econ- to be severe. Although recent progress with long- omy so as to generate growth and increase the term restructuring of official debt iS promising, supply of tradables. Trade policy has an important greater and continued coordination of new aid and role here. Chapter 5 of this report shows that the long-term restructuring of debt is still needed to countries which provided equal incentives for ex- improve the efficiency of assistance. ports and import substitution have been less af- fected by external shocks. The adjustment of the highly indebted developing countries The adjustment of Sub-Saha ran Africa For several of the highly indebted countries, low For Sub-Saharan Africa as a whole, GDP grew by commodity prices, high real interest rates, slug- less than 1 percent in 1986. This reflects, however, gish growth in the industrial countries, and in the economic decline in the oil-exporting coun- some cases their own macroeconomic and trade tries, especially Nigeria; 1986 was a much better policies mean that present levels of debt cannot be year than 1984 or 1985 for most other countries. reconciled with present levels of growth. This situ- Weather again proved favorable in 1986, and agri- ation is often referred to as the "debt overhang." cultural production continued to expand, rising by Many debtor countries expanded their exports almost 4 percent. during 1983-84; this helped to stimulate domestic Some twenty-five countries in the region, which 19 Box 2.1 Recent developments in debt restructuring In 1986, twenty-four countries renegotiated their debts may contain one or more of these components. During with official creditors or commercial banks in multilat- 1986, eight counfries negotiated debt relief agreements eral forums. The total debt so restructured is estimated with commercial bank consortia: Brazil, People's Re- at $71.1 billion, of which $43.7 billion came from recast- public of the Congo, Côte d'Ivoire, Mexico, Nigeria, ing the terms of the 1984 multiyear bank agreement Poland, Uruguay, and Zaire. The most sweeping with Mexico (see Box table 2.1). Aside from this, the agreement was with Mexico. In addition to restruc- volume of debt restructuring with commercial banks turing previously rescheduled debt of $43.7 billion, it was about the same in 1986 as in 1985. committed new long-term loans of $6.0 billion, pro- Commercial bank consortia continued to improve the vided contingency arrangements for additional long- terms of relief by offering lower margins and some- term loans of $1.7 billion, and reduced the spreads on what longer maturities. Four multiyear restructuring existing bank debt to 13/16 percent. The agreement agreements (MYRAs) were concluded. The other with Brazil rescheduled long-term debt falling due in agreements restructured only those debts falling due in 1985 and deferred payments on 1986 maturities pend- the coming year. Official creditors continued to resche- ing further negotiations. Nigeria reached an agreement dule debts in a series of short-term agreements, mostly in principle with the commercial bank steering commit- through the Paris Club, at terms and conditions that tee on long-term debt falling due in 1986-87 and ar- did not change significantly in 1986. ranged for new long-term money. Those negotiations were completed following approval of Nigeria's eco- Commercial bank agreements nomic adjustment program by the International Mone- Commercial bank debt relief covers (a) restructuring of tary Fund (IMF) and the World Bank. Poland had ear- principal payments falling due during an agreed con- lier rescheduled all principal due to banks from March solidation period; (b) the related extension of new 21, 1981, through December 31, 1987. In June 1986, long-term loans; and (c) understandings to maintain or however, Poland found it necessary to reschedule prin- extend short-term credit lines. Debt relief agreements cipal due during 1986 and 1987 under these earlier Box table 2.1 Amount of debt relief, 1983-86 (billions of dollars) Item 1983 1984 1985 1986 Debt restructuring' Banks 33.8 100.5 13.1 574b Official creditors 8.4 3.9 16.3' 13.7 Total 42.2 104.4 29.4 71.1 New money disbursed' 13.0 10.4 5.3 2.6' Short-term credit facilities' 27.9 36.7 35.0 35.0 Note: Data for 1986 are provisional. Debt restructuring with commercial banks is recorded in the year of agreement in principle; debt restructuring with official creditors is recorded in the year in which the agreement is signed. Includes changed terms of Mexico's 1984 agreement ($43.7 billion). Includes $10.3 billion relief for Poland, covering 1982-84 maturities. Arranged in conjunction with debt restructuring. Does not include $3.5 billion for Mexico scheduled to be disbursed in early 1987, other than $0.8 billion from bridging loans. Agreements to maintain or expand existing trade credit lines or to provide other short-term credits. Source: International Monetary Fund and World Bank data. account for a large proportion of Africa's popula- efforts have been under way for several years; in tion and output, are implementing major pro- others the adjustment process has barely begun. grams of structural reforms or are about to do so. But resistance to further reform is hardening in the These include policies to keep real effective ex- face of stagnating or declining per capita consump- change rates competitive, increase agricultural in- tion. The fragile political consensus which pro- centives, maintain budgetary and monetary re- vided the initial momentum must be strengthened straint, reform public enterprises, and improve the and supported, especially with increased flows of allocation of public funds. In some countries such assistance. 20 beginning of the 1980s. Adjustment with growth starts with setting the macroeconomic conditions straight. In industrial countries the fiscal im- balances underlying the current account imbal- agreements. In addition to these reschedulings, Zaire arranged to defer principal due in 1986 on previously ances must be corrected. In developing countries rescheduled debt. the macroeconomic environment must provide a The agreements with Congo, Côte d'Ivoire, and Uru- stable platform for medium-term adjustment with guay were MYRAs. Brazil is currently negotiating for growth. one. The global volume of debt restructured by MYRAs in 1986, however, was far below the level for earlier International payments imbalances years, excluding the September revision of Mexico's earlier agreement. An encouraging feature in 1986 was the ability of a The U.S. fiscal expansion that began in 1981 pro- few countries, previously dependent on new money vided a strong stimulus for growth. But it was an arrangements under rescheduling, to obtain new com- unsustainable one. Unless the United States mercial loans: a short-term revolving credit arrange- makes progress in reducing its fiscal deficit, inter- ment in the case of Ecuador and long-term loans nego- national payments imbalances will be harder to re- tiated under cofinancing agreements with the World duce. Increased protectionism and new fears of in- Bank in the case of Côte d'Ivoire and Uruguay. In gene- flation might then prevent the world economy ral, however, the failure of commercial bank lending to from returning to a path of long-term growth. revive for other countries after the introduction of MYRAs, as had been anticipated, remains a matter of The U.S. current account deficit has been slow to concern. adjust. There are several reasons for this. First, although the dollar fell sharply after the beginning Agreements with official creditors of 1985, its trade-weighted value by December In 1986, eighteen countries renegotiated debt with off i- 1986 was still only 6.4 percent lower than its aver- cial creditors, mainly through the Paris Club, as com- age level in 1982. Over that slightly longer period, pared with twenty-one in 1985. Thirteen of these were Sub-Saharan African countries (Congo, Côte d'Ivoire, therefore, the dollar's fall has done little to change The Gambia, Guinea, Madagascar, Mauritania, Niger, the relative price of U.S. goods. Second, exporters Nigeria, Senegal, Sierra Leone, Tanzania, Zaire, and to the United States have not yet raised their dollar Zambia); two were European (Poland and Yugoslavia); prices by the full amount of the depreciation. They and three were Latin American (Bolivia, Cuba, and accepted lower profits to maintain their share of Mexico). the market, and their goods remain attractive to The conditions and terms of relief extended in 1986 buyers in the United States. Third, the ratio of the were little changed from earlier years. Most agree- ments rescheduled 95 to 100 percent of eligible maturi- prices of nontraded goods to traded goods in the ties (principal and interest on loans from governments United States is still rising. This provides little in- and on guaranteed export credits). However, the Côte centive for resources to switch to the export and d'Ivoire, Niger, and Yugoslavia agreements excluded import-competing sectors of the economy (see Fig- interest; the Mexico agreement covered only 60 percent ure 2.5). Fourth, import and export volumes re- of interest due for a portion of the consolidation pe- spond only slowly to any change in relative prices riod. The Côte d'Ivoire MYRA, like the Ecuador MYRA caused by an exchange rate adjustment. Finally, of 1985, rescheduled a declining proportion of future principal payments due: 80 percent in 1986, 70 percent and most important, there remains the underlying in 1987, and 60 percent in 1988. fiscal imbalance in the United States. Until that is corrected, or until expenditure falls relative to in- come for some other reason, the current account deficits will persist. If the United States does reduce its fiscal deficit, growth in the world economy may slow unless Policies for the short term other countries offset the loss of demand. This means that countries which have relied on export The combination of international payments im- demand for output growth may have to shift the balances, sluggish growth, increasing protection- emphasis to domestic demand, perhaps through a ism, and the debt problems of many developing fiscal expansion. Policies that tackle structural eco- countries is an unpromising base for sustain- nomic rigidities in labor markets and in the mar- able growth in the world economy. The more so kets for goods and services need to accompany because policy options have narrowed since the these shifts in demand. Such policies not only ease 21 Box 2.2 Debt-equity swaps The existing exposure of commercial banks to develop- who intend to invest in fixed assets (equity) in Chile. ing countries is a key constraint to new spontaneous The first step is to locate and buy at the going discount lending. Recently, a secondary market trading devel- a Chilean debt instrument denominated in foreign cur- oping countries' debt instruments at a discount has rency. Next, with the intermediation of a Chilean bank, emerged. The volume of transactions was initially quite the foreign investor must obtain the consent of the lo- limited, and price quotations on the discounted debt cal debtor to exchange the original debt instrument for have been regarded as rather artificial in view of the one denominated in local currency and the permission thinness of the market. The market is becoming better of the central bank to withdraw the debt. Finally, the organized, participation has widened, and the variety foreign investor can sell the new debt instrument in the of transactions has increased. In 1986 the volume of local financial market and acquire the fixed assets or trading in such instruments was about $7 billion, or equity with the cash proceeds of the sale. less than 1 percent of the external debt of developing The main difference between the debt-equity swap countries. New interpretations of accounting and and the straight debt conversion is that the debt con- banking regulations in the United States have contrib- version is available to resident or nonresident investors uted to this development. A bank taking a loss on a with foreign currency holdings abroad. Also, once the sale or swap of a loan to a developing country would conversion has taken place, the investor faces no re- not be required to reduce the book value of other loans striction on the use of the local currency proceeds. to that country, provided the bank considers the re- The debt conversion scheme allows the debtor coun- maining loans collectible. try first to reduce the stock or the rate of growth of A few of the debtor countries whose liabilities are external debt. Second, it is a means to attract flight being traded at a discount have utilized the existence of capital as well as foreign direct investment. Third, the discount market to encourage a flow of private in- debt-equity swaps imply a switch from the outflow of vestments and to gain other advantages. The popular interest and principal on debt obligations to the de- term for the conversion of discounted debt into local ferred and less certain outflows associated with private currency assets is a "debt-equity swap." "Debt con- direct investment. version" would be a more appropriate term, since For the commercial banks the swaps provide an exit conversion of external debt instruments into domestic instrument or a means to adjust the risk composition of obligations can take place not only for foreign direct their portfolio. For banks that wish to continue to be investment purposes, but also for more general pur- active internationally, losses on the outstanding portfo- poses by residents or nonresidents of the debtor coun- lio can he realized at a time and on a scale of the bank's try. In essence, a foreign investor wishing to buy assets own choosing and by utilizing a market mechanism. in a debtor country can, through a debt-equity swap, The emergence of an active market in debt instru- obtain local currency at a discount. The foreign inves- ments of developing countries offers opportunities to tor, in effect, obtains a rebate on the purchase of the both debtors and lenders. There are, however, obsta- currency equivalent to the discount on the loan less the cles to its development. Debtor countries must ensure transactions costs of the debt-equity swap. that transactions take place at an undistorted exchange Chile has a well-developed legal framework for the rate, otherwise the discounts on the debt may be out- conversion of external debt into domestic assets. There weighed by exchange rate considerations. In addition, is a similar procedure for the conversion of debt using long-term financial instruments in the domestic mar- foreign currency holdings by domestic investors. kets are needed to ensure that the conversion into do- Box figure 2.2 explains the detailed steps involved in mestic monetary assets does not increase monetary the debt conversion. Although they seem complicated, growth above established targets. The incentives f or the central steps are conceptually simple. foreign investors will be nullified if the broader domes- Debt-equity swaps are open only to nonresidents tic policy environment is not conducive to inflows of the short-run adjustment, they also improve the flows that adjustment will require. prospects for long-run growth. For the United States to become a net capital International coordination of macroeconomic exporter again, interest payments on the debt policies is important too. This is not a matter of accumulated during the years of large current ac- altruism. It reflects a shared responsibility for count deficits will have to be more than offset by global adjustment. The industrial countries need substantial surpluses on trade in merchandise and to assess how their policies will affect world de- services. Although such an adjustment will not mand in the light of the substantial shifts in trade take place abruptly, it still amounts to a profound 22 foreign investment. Finally, a minimum regulatory the transactions. Overregulation, particularly in the framework is required. Documentation for debt re- form of administrative procedures for investment ap- structuring must be adjusted to allow for prepayment proval, would be a deterrence. for debt conversion purposes. Clear rules will facilitate Box figure 2.2 Debt capitalization Foreign investor Foreign banker Lender bank tUants to flVtSt For .i fee, nit5 U f dollars in Accepts U.. US $ locates debt dollars Chile instrument Mandates bank in Buys dollar- In exchange $ note Chile to exchange S note denominated for Chilean note debt note debt note at I- debt note discount K. -1 Acquires equity in Chilean company 1 1 Domestic bank I Central bank Debtor -5 Obtains debtors Gr,ints .igreeflient to n\eptx authorization redenom,nate debt the dollar- note into local K denominated currency and the note Domestic central banks financial author,,atnc,n to rnvest the proceeds in Chile market In exchange Buys peso Issues a new debt for note iistru mint issuance p note (discount) deni'niinated in in local Domestic local currency currency J company Uses proceeds In buy In equity in Chitean Accepts exchange iinlpafly for foreign pesos for pesos K j Delivers equitY shares equity exchange K to foreign investor K® K for equity I change in recent patterns of international trade not sufficient steps to create the basis for sustained one that cannot easily come about without multi- adjustment with growth in developing countries. lateral trade liberalization. Progress in two other areas is essential: macroeco- nomic stabilization and additional external capital. Sustained stabilization in developing countries (For an example of a multifaceted stabilization and adjustment program, see Box 2.3 on Indonesia's Reduced fiscal imbalances and a more open inter- recent experience.) national trading environment are necessary but A stable macroeconomic environment is a pre- 23 Figure 2.5 The dollar exchange rate, 1979-86 Box 2.3 Indonesia: adjusting to low oil prices Index (1980 = 100) Appropriate and well-timed stabilization and adjust- ment policies can help to soften sudden external 150 Effective exchange rate' shocks, such as rapid declines in the terms of trade. The experience of Indonesia during the recent turbu- lent period in the international oil market is a case in 130 Nominal exchange rate1' point (see Box figure 2.3A). Despite steadily declining oil revenues since 1982 and a sudden collapse in inter- national oil prices in 1986, Indonesia has managed to maintain macroeconomic stability. How did it do this? 110 The answer lies in its stern adherence to a multifaceted adjustment program that has sought to constrain do- Ratio of services prices to goods prices' mestic demand in line with resource availability and 90 that at the same time has attempted to stimulate 1979 1980 1981 1983 1984 1985 1986 growth through improvements in efficiency. 1982 Oil and, more recently, liquefied natural gas have played a central role in the Indonesian economy. In The trade-weighted exchange rate as calculated by the IMF; period average. 1980-81 these two commodities accounted for almost a The SDR-dollar exchange rate; period average. quarter of the country's economic output, more than The ratio of the U.S. price index of services to the price index three-quarters of its export earnings, and more than of manufactures and commodities, excluding fuel; end of period two-thirds of its government revenues (see Box figure index. Source: For exchange rates, IMF; for the ratio of prices, U.S. Department of Labor. Box figure 2.3A Indonesia's GDP growth and current account balance, 1974-86 requisite for a successful transition to sustainable economic growth. Maintaining macroeconomic stability typically requires keeping the fiscal deficit Percent to a low fraction of GNI', guarding against rapid 10 monetary expansion, and maintaining a realistic Real GDP growth exchange rate. All three elements of this policy mix are necessary for economic growth. Mere reliance on monetary policy in the presence of large budget deficits and overvalued exchange rates, for exam- ple, will raise interest rates and deter investment. Similarly, reliance on trade and exchange controls will distort prices. Public sector deficits can be cut -5 by reducing support to inefficient public enter- prises or by broadening the tax base. But reducing Current account balance'\ deficits by curtailing investment reduces the -10 growth on which creditworthiness depends, and 1974 1976 1978 1980 1982 1984 1986 an unduly tight rein on maintenance hampers ca- pital efficiency at a time when all efforts should be a. As a share of GNP. made to raise it. Reforms without financial support cannot go far in restoring growth. There are limits to how much consumption can be cut without endangering so- cial and political stability. In addition, adjustment requires new investment to shift resources to the Policies for medium- and long-term growth export and import-competing sectors. But, equally important, financial support should be an aid to Since the breakdown of the Bretton Woods system adjustmentpermitting short-term growth and al- of fixed exchange rates in 1971, the volatility of the lowing structural reforms to be brought in over world economy has revealed structural rigidities in timenot an alternative to it. both the industrial and the developing countries. 24 2.3B). So when the global oil market weakened steadily after 1981, the country's resource position eroded at an Box figure 2.3B Indonesia's export earnings, 1974-86 alarming rate. The current account deficit jumped up- ward sharply, and the government's budgetary posi- tion, already under strain from several large public in- Billions of dollars vestment projects, suddenly began to look untenable. 25 The government quickly took a range of measures aimed at curtailing demand and restoring financial sta- bility. It canceled or postponed several large public in- vestment projects in 1983 and saved about $10 billion of foreign exchange in the process; maintained an austere fiscal stance; devalued the rupiah by 28 percent; re- duced domestic subsidies on petroleum products; re- formed the financial sector to raise private domestic savings and increase investment efficiency; and re- formed the tax system to broaden the tax base and increase public savings. But no sooner had these measures restored macroec- onomic stabilityby 1985 the current account deficit '74 '75 '76 '77 '78 '79 '80 '81 '82 '83 '84 '85 '86 was down to 2.1 percent of GNI' and inflation was at only 4 percentthan the economy was hit yet again From oil and liquefied natural gas when in 1986 international oil prices collapsed from $28 fl From non-oil commodities a barrel in January to $10 a barrel by August. In the face of such a large external shock, and in the absence of any adjustment, the current account deficit was ex- pected to widen to an unsustainable level. from import duties. More important, the government Anticipating its payments difficulties, the govern- began to dismantle the cumbersome system of import ment once again responded quickly. It introduced a licensing restrictions and to move toward a system of wide range of measures to curb domestic demand fur- protection based only on tariffs. ther to stabilize the economy and addressed structural Finally, the government reformed significantly the issues to improve the efficiency of resource use. The regulatory environment for foreign investment. In par- main elements of this strategy are described below. ticular, the requirement for local participation was re- The government introduced an austere budget laxed, the duration of investment licenses was ex- that kept current expenditures flat in nominal terms tended to thirty years, and changes were introduced to and cut capital expenditures by almost 25 percent. In treat foreign investors more like local investors. doing so, the government gave priority to current The combination of demand restraint, devaluation, projects, the provision of counterpart funds for and trade reform is expected to contain the destabiliz- foreign-financed projects, the start-up of new projects ing effects of the dramatic deterioration in Indonesia's that focused on equity and employment, and the fund- terms of trade. In addition, the reformsparticularly ing of operations and maintenance expenditures. those of trade and industrial licensing policyare ex- The rupiah was devalued by 31 percent to compen- pected to provide a policy environment conducive to sate for the sudden decline in oil revenues and to pre- efficient industrial development and a rapid increase in empt speculative outflows of capital. manufactured exports. Finally, by husbanding govern- Trade policy was changed from its previous em- ment resources and stimulating private savings phasis on import substitution. For example, "pro- through the financial reform, Indonesia has succeeded ducer-exporters" were given the option of importing in maintaining its credit standing in the international their inputs free from licensing restrictions and exempt capital markets. Prospects for the medium term and beyond de- The High case pend on the willingness of governments to deal with these rigidities. In addition to discussing the The High case assumes that the industrial and de- reforms that might be necessary, this section sets veloping countries adopt a variety of medium- and out alternative paths of future growth (see Tables long-term adjustment policies. Specifically, it as- 2.5 to 2.9). sumes that fiscal and international payments im- 25 Table 2.5 Economic performance of developing and industrial countries, 1965-95 (average annual percentage change) 1986-95 Country group and indicator 1965-73 1973-80 1980-86 High Low Developing countries Real GDP 6.5 5.4 3.6 5.9 3.9 Low-income countries 5.5 4.6 7.4 6.7 4.6 Middle-income countries 7.0 5.7 2.0 5.4 3.6 Oil exporters 6.9 6.0 0.8 4.4 3.6 Exportersof manufactures 7.4 6.0 6.0 6.9 4.3 Highly indebted countries 6.9 5.4 0.6 5.4 3.5 Sub-Saharan Africa 6.4 3.2 -0.4 4.0 3.2 Merchandise export volumes 4.9 4.7 4.4 7.3 3.6 Manufactures 11.6 13.8 8.4 10.3 5.1 Primary goods 3.7 1.2 1.3 3.6 2.2 Merchandise import volumes 5.7 6.1 0.8 7.8 4.1 Industrial countries Real GDP 4.7 2.8 2.3 4.3 2.5 Inflation rateb 6.1 10.1 1.7 2.7 3.3 Realinterestratecd 2.3 1.3 5.9 2.5 4.6 Nominalinterestrate" 6.8 9.3 11.1 6.5 9.4 Note: All growth rates for developing countries are based on a sample of ninety countries. Excluding South Africa. Industrial countries' weighted GDP deflator expressed in dollars. Average six-month dollar-Eurocurrency rate deflated by the GDP deflator for the United States. Average annual rate. Table 2.6 Growth of GDP per capita, 1965-95 (average annual percentage change) 1986-95 Country group 1965-73 1973 -80 1980-86 High Low Developing countries 3.9 3.2 1.5 3.9 2.0 Low-income countries 2.9 2.5 5.4 4.8 2.8 Middle-income countries 4.4 3.3 -0.3 3.2 1.4 Oil exporters 4.3 3.2 -1.8 1.9 1.1 Exporters of manufactures 4.8 4.1 4.3 5.3 2.7 Highly indebted countries 4.2 2.9 -1.8 3.1 1.2 Sub-Saharan Africaa 3.6 0.3 -3.4 0.7 0.0 Industrial countries 3.7 2.1 1.6 3.9 2.0 Note: All growth rates for developing countries are based on a sample of ninety countries. a. Excluding South Africa. Table 2.7 Change in the volume of trade in developing countries, 1965-95 (average annual percentage change) Exports of goods Exports of manufactures 1986-95 1986-95 Country group 1965-73 1973-80 1980-86 High Low 1965-73 1973 -80 1980-86 High Low Developing countries 4.9 4.7 4.4 7.3 3.6 11.6 13.8 8.4 10.3 5.1 Low-income countries 2.0 4.7 5.4 7.5 3.9 2.4 8.2 8.4 11.3 6.0 Middle-income countries 5.3 4.8 4.2 7.2 3.6 14.9 14.8 8.4 10.2 4.9 Oil exporters 4.1 -0.9 0.2 4.8 2.3 10.1 3.4 20.9 13.4 7.3 Exporters of manufactures 8.4 9.8 8.1 8.7 4.4 11.6 14.0 9.0 10.3 5.1 Highly indebted countries 3.1 1.1 1.3 6.4 3.7 13.4 10.2 5.9 10.9 5.5 Sub-Saharan African 15.0 0.1 -1.9 3.9 2.0 7.5 5.6 4.0 9.6 4.4 Note: All growth rates for developing countries are based on a sample of ninety countries. a. Excluding South Africa. 26 balances are reduced in a way that maintains rate of about 7 percent a year, compared with 4.4 growth in the industrial countries. To do this, each percent during 1980-86. As a result, the debt ser- government will need to consider the scope for vice ratio of all developing countries taken to- stimulating demand as the pattern of trade shifts. gether would fall from 22.3 percent in 1986 to Second, it assumes that unemployment in the in- roughly 13 percent by 1995 (Table 2.8). Their im- dustrial countries is reduced substantially by 1995. ports could grow by 7 to 8 percent a year. In sum, a The European countries are assumed to reduce un- more favorable economic environment resulting employment by improving the flexibility of their from successful adjustment by the industrial coun- labor markets and by making further efforts to tries would facilitate policy reforms in the develop- bring the young and long-term unemployed back ing countries and thus lead to faster growth in the into the active labor force. Third, it assumes that world economy. governments halt the recent advance of protection- ism in the industrial countries and thereby in- The Low case crease international trade flows and improve the efficiency of their economies. (Improved efficiency The Low case, by contrast, assumes no major pol- in the steel industry is a case in point; see Box 2.4.) icy changes. The United States fails to cut its bud- Fourth, it assumes that the developing countries get deficit by much, and European unemployment themselves adopt adjustment programs to restruc- stays high. That would mean slow growth in the ture their economies and spur employment and industrial countries, a rising tide of protectionism, income growth. and no hope of further trade liberalization. The This combination of favorable macroeconomic Low case shows the developing countries growing and structural policies, labor force growth, and im- at an average of close to 4 percent a year. Although proved productivity owing to technological a little higher than during the early 1980s, that is progress implies that industrial countries can grow more than a percentage point lower than they at an average annual rate of just over 4 percent in achieved in 1973-80. And their growth could be the next decade-faster than in 1973-80 and 1980- considerably lower than this if they undertake no 86, but slower than in 1965-73. The smaller fiscal reforms at all, and if the international environment deficits implicit in this scenario would permit real deteriorates. interest rates to fall to an average of 2.5 percent during the period-close to their historic average The long-term adjustment issues and down from 4.1 percent in 1986. In such circumstances, the developing countries The first of the assumptions underlying the High would find it much easier to pursue their own re- case is that short-term macroeconomic policies are forms. (These are discussed further in Chapters 6 brought back into balance. This was dealt with in and 7.) In the High case their output would grow the previous section of this chapter. The rest of the on average by roughly 6 percent a year in 1986-95, chapter considers the other three assumptions, compared with 3.6 percent in 1980-86 and 6.5 per- which are all matters of longer-term economic cent in 1965-73. Exports would grow at an average policy. Exports of primary goods Imports of goods 1986-95 1986-95 1965-73 1973 -80 1980-86 High Low 1965-73 1973 -80 1980-86 High Low Country group 3.7 1.2 1.3 3.6 2.2 5.7 6.1 0.8 7.8 4.1 Developing countries 1.7 2.8 3.1 2.6 1.6 0.9 5.7 7.9 5.7 2.3 Low-income countries 3.9 1.1 1.1 3.7 2.3 6.7 6.1 -0.5 8.2 4.6 Middle-income countries 4.0 -1.0 -1.1 3.3 1.6 4.5 10.3 -6.3 5.8 3.2 Oil exporters 5.5 3.4 6.0 3.6 2.5 9.9 5.9 5.7 8.8 4.6 Exporters of manufactures 2.4 -0.4 0.0 4.4 3.0 6.7 5.5 -6.9 7.5 4.4 Highly indebted countries 15.3 -0.1 -2.2 3.3 1.8 3.8 7.6 -7.9 4.9 2.9 Sub-Saharan Africa' 27 Table 2.8 Current account balance and its financing in developing countries, 1986 and 1995 (billions of dollars) All developing countries Low-income countries Middle-income countries 1995 1995 1995 Item 1986 High Low 1986 High Low 1986 High Low Net exports of goods and nonf actor services 3.3 -61 -35 -23.9 -32 -26 27.3 -29 -9 Interest on long-term debt 55.7 60 69 4.1 11 10 51.5 48 59 Official 15.3 25 27 2.7 6 6 12.6 19 21 Private 40.4 35 42 1.4 5 4 38.9 29 38 Current account balanc&' -35.5 -74 -68 -22.0 -30 -25 -13.5 -44 -43 Net official transfers 15.2 27 25 4.6 10 9 10.6 17 16 Long-term loans, net 25.6 50 34 13.0 28 19 12.6 21 15 Official 12.3 39 34 5.9 15 14 6.4 24 20 Private 13.3 11 0 7.0 13 5 6.2 -3 -5 Debt outstanding and disbursed 753.4 997 958 108.6 273 241 644.7 723 717 As a percentage of GNP 34.4 24 24 17.9 23 21 42.4 24 25 As a percentage of exports 144.5 76 96 159.7 154 180 142.2 64 83 Debt service as a percentage of exports 22.3 13 18 16.2 15 19 23.2 13 18 Note: The table is based on a sample of ninety developing countries. Data for 1986 are estimated. Details may not add to totals because of rounding. Net exports plus interest do not equal the current account balance because of the omission of private transfers and investment income. The current account balance not financed by official transfers and loans is covered by foreign direct investment, other capital (including short- Structural barriers to growth in industrial countries to country. Each government needs to review its regulatory instruments and weigh the tradeoff be- Europe's unemployment is at least partly due to tween the protection of existing workers and the the lack of flexibility in its labor markets. This lack risk of stffling new employment. Too many rules of flexibility manifests itself in several ways. One protect the employed at the expense of the unem- of the most important is that real wage growth has ployed. sometimes exceeded productivity growth. This Education and training are keys to a more flexi- means that employers are unwilling to hire addi- ble work force. Because of their effect on occupa- tional workers because the cost would exceed the tional mobility, deficiencies here may be greater value of the increase in output. The gap between obstacles to curing unemployment than rigidities wages and productivity can arise, in turn, because in the labor markets. To meet the challenge of a of wage-setting practices whereby the wage level changing world, education should be a continu- of the most prosperous regions or sectors applies ing process that starts with broad training and is countrywide. Geographical or occupational immo- followed by retraining and updating of skills as bility prevents workers from closing the gap. High necessary. costs of firing and high nonwage costs also keep Another big obstacle to economic efficiency in the real wage (as perceived by employers) high. most industrial countries is agricultural policy. Another element of the explanation for persis- World Development Report 1986 discussed the issues tent unemployment in Europe focuses on the ef- in detail. It concluded that the policies reduce na- fects of long spells out of work. Employers may tional income; farmers use inputs inefficiently be- regard those who have been unemployed for long cause artificially high food prices mislead pro- periods as unemployable. The unemployed them- ducers into using too many resources. These selves may come to agree. As a result they stop policies also induce consumers to purchase less competing for jobs. Because they then cease to ap- food than they would otherwise. The economic ply any downward pressure on real wages, unem- losses are substantial. On top of this is the indirect ployment persists. cost of the distortions which high agricultural More flexible work arrangements are in the inter- prices cause in the long term-such as the diver- est of employers and employees alike (see Box 2.5). sion of fixed investment and research from indus- Rules and regulations differ greatly from country try to agriculture. 28 Exporters of Highly Oil exporters manufactures indebted countries' Sub-Saha ran Africafl 1995 1995 1995 1995 1986 High Lou, 1986 High Low 1986 High Low 1986 High Low -2.5 16 19 13.4 -54 -38 18.8 24 31 -3.0 -6 -4 16.7 12 17 17.8 29 30 31.9 27 37 3.9 4 4 3.3 5 6 4.7 8 9 5.6 8 9 1.9 3 3 13.4 7 11 13.1 21 21 26.3 19 28 2.0 1 1 -19.0 8 5 6.0 -59 -47 -12.0 7 3 -8.9 -10 -9 1.5 2 2 4.7 7 7 0.8 2 2 3.4 7 7 7.8 -10 -6 4.5 53 32 6.8 -7 -5 5.7 2 2 2.8 6 5 2.4 14 11 2.4 9 7 2.5 5 5 5.0 -16 -11 2.1 39 21 4.4 -16 -12 3.3 -3 -3 210.6 173 204 227.5 471 386 374.3 366 400 71.4 83 83 48.7 24 28 21.7 20 19 50.7 25 29 48.4 31 30 251.0 86 123 82.0 64 72 267.8 108 146 221.3 126 145 41.7 20 28 12.7 10 13 37.6 26 37 30.4 17 21 term credit and errors and omissions), and changes in reserves. Ratios are calculated using current price data. Excluding South Africa. Excludes official transfers. Trade reform countries is a crucial element of the High case. Similarly, the prospects for increased exports by Trade reform means policies that reduce protec- industrial countries depend on expanding markets tion. An open trading system is a powerful force in the developing countries. In the High case, im- for sustained growth and industrial expansion. ports by developing countries could reach $1.3 tril- With trade, enterprises are not bound by narrow lion by 1995. The Low case shows a much slower domestic markets, but can expand to sell their rise, to less than $1.0 trillion by 1995. goods and services in the international market. Greater flexibility in the international trading The economic efficiency gains from trade liberal- system is desirable on other grounds as well. The ization in industrial countries are essential if out- increasing internationalization of production, de- put is to grow as in the High case. scribed in Chapter 3, gives rise to patterns of trade Chapter 8 of this Report describes the increase in and investment that do not always fit traditional protectionism since 1974. International trade has notions. Cheaper and better international commu- become progressively more discriminatory and nications and transportation have transformed the managed. The principal tool of this recent protec- economics of intrafirm trade in intermediate tion has been the nontariff barrier, which breaks goods. Increasingly, international trade is in pro- the link between domestic and foreign prices in cesses or components, not in finished products. In several major sectors. Fortunately, protection has addition, the automation of manufacturing has re- increased much less than demands for protection. duced the proportion of low-skilled workers. Many trade barriers have proved surmountable These developments have widened the scope for and therefore less costly to exporters in developing specialization among countries and heightened the countries than they might have been. But existing need for an international trading environment that levels of protection still cause higher prices for grants access and flexibility. consumers, inefficient resource allocation, and a structure of industry and trade which changes in Adjustment in developing countries comparative advantage are gradually rendering obsolete. Three sorts of policies are needed to achieve faster Improved access for the manufactured exports of growth. First, outward-oriented trade policies. developing countries to the markets of industrial Second, policies to foster macroeconomic stability. 29 Box 2.4 Restructuring of the steel industrya continuing story In the 1960s, world steel production increased almost country comparison should be exercised with caution. without interruption. Expecting continued increases in First, the steel products of the countries in question are steel demand, the steel industry planned projects to not necessarily homogeneous. Second, the data for the expand capacity through the late 1960s and the early operating costs are estimated on the basis of cost infor- 1970s. But by the time these projects came on stream in mation from an average of 65 percent of each country's the late 1970s, the growth of world steel demand had steel producers. For Brazil, India, and Spain, data are ceased almost completely; in fact it had declined sub- available for between 13 and 30 percent of the firms. stantially in some years. In the latter half of the late These caveats notwithstanding, the bold line in the 1970s, steel companies canceled or postponed indefi- graph is an approximate long-term cost curve for the nitely many of their investment plans and closed some world steel industry. of the existing capacity. What little expansion has been The box figure shows among other things that Brazil initiated since the 1970s has taken place mostly in de- and the Republic of Korea, both small, high-cost pro- veloping countries and has been primarily in the cate- ducers in 1973, have increased their market share and gory of scrap- or direct-reduction-based small-scale improved their competitive position substantially. mills. Although the net increase in steel-making capac- Also, steel production in the United States declined ity has been minimal, the problem of excess capacity from 1973 to 1984, but operating costs there increased has persisted because of the lack of growth in demand. more than in the rest of the world, and the country's Faced with a problem of growing excess capacity, competitive position was further eroded. most of the industrial countries took measures to ra- The adjustment of the steel industry has met many tionalize their steel industries, starting with the closure barriers in both industrial and developing countries. of inefficient mills. The European Community (EC) has Preventing a further downward adjustment in capacity reduced its annual steel production capacity by about and a continued shift in the international division of 20 million tons since 1977, and a further reduction of steel production is costly to individual countries and to 10-15 million tons is planned for the next five years. the world economy. Calls for protection and overall Around 15 million tons of capacity, or close to 10 per- resistance to adjustment have been the dominant fea- cent of capacity, have been eliminated in the United tures of this industry despite the progress reported States during the past three to four years, and a further above. If governments prevent markets from determin- 10 percent reduction can be expected during the next ing the future international structure of the steel indus- five years. Apart from the closing of obsolete plants, try, costs will rise across the board. Governments recent activity in the Japanese steel industry has been should thus strive to reduce tariff and nontariff protec- in investment directed at increasing continuous cast- tion of their domestic steel industry. Steel remains an ing, implementing energy-saving measures, as well as important generic input to much industry and con- refurbishing existing older facilities. struction. Few countries can afford to subsidize local, Labor productivity also improved over the past five inefficient industry simply to prolong an eventually in- years. The European industrial countries, Japan, and evitable shift in the structure of production. Being able the United States employed a total of 1.8 million work- to compete in the international market for steel remains ers in their iron and steel industries in 1974; in 1984 the the best test of the viability of a country's steel indus- total had fallen by 44 percent to close to I million. try. In the past ten years the European Community and Box figure 2.4 illustrates the change in the steel in- the United States adopted measures to protect their dustry since 1973. It shows the volume of steel produc- domestic products from lower-priced imports, while tion (plotted cumulatively on the horizontal axis) and they restructured domestic production. These mea- the average operating costs per ton (on the vertical sures are already costly to domestic consumers and axis) of the sixteen leading producers. These two vari- represent a substantial barrier to the exports from de- ables allow comparison of a country's competitive posi- veloping countries with competitive steel industries. tion and market share in 1973 and in 1984. Cross- 30 Box figure 2.4 Costs in the world steel industry, 1973 and 1984 1973 Dollars a ton Republic 'Spain 500 Australia Belgium Italy of Korea Federal Repubi c Luxembourg United Kingdom of Germany India Brazil South Africa France Austria 400 I Canada United States Japan 300 I Others 200 100 0 I 0 100 200 300 400 500 Millions of tons 519 1984 Dollars a ton - Luxembourg Brazil India 500 - Republic Unted Kingdom Australia of Korea South Africa France Austria Canada Federal Republic United States Belgium of Germany Japan 400 - Spain Italy 300 200 Others ) 100 0 0 100 200 300 400 496 Millions of tons Labor cost LI Material cost LI Interest and depreciation cost Note: The horizontal axis shows the total output of the world steel industry, with producers ranked in ascending order of unit costs. The bold line therefore represents the long-run cost curve for the world steel industry. a. Other countries' steel production for which no cost data are available. Source: Paine Webber and World Bank data. 31 Box 2.5 Labor market flexibility and employment: the view of European employees and employers A recent survey of the employees and employers in the ploy more labor over the next twelve months, the in- European Community concluded that the interests of dustrial employers answered: shorter periods of notice firms and employees in achieving greater flexibility in and simpler legal procedures for redundancies and dis- the labor market are not necessarily in conflict. The missal, more fixed-term contracts, better-trained job survey asked employees and employers in industry seekers, wider wage differentials, greater emphasis on and retail and wholesale distribution about their opin- productivity in determining wages and salaries, lower ion of measures to increase the flexibility of labor rela- starting salaries, and more flexible working hours. For tions. In particular they were asked about measures employers in retail and wholesale distribution, the an- pertaining to work hours, dismissal and redundancy swers were: lower starting pay, shorter periods of no- procedures, flexibility of working time, wage differen- tice and simpler legal procedures for redundancies and tials, and temporary and part-time work. dismissal, wider wage differentials, and more flexible The survey found that most European workers are working hours. The employers said that if the most much more innovative and performance-minded than important institutional changes happened they would is commonly supposed. More than half of the employ- raise employment over the next twelve months by 2.7 ees surveyed said that they would accept a more flexi- percent in industry, 3.2 percent in retailing, and 2.5 ble organization of working hours, that they are inter- percent in wholesale distribution. The total employ- ested in payment by performance, that they are willing ment gain would be about 2.3 million jobs, equivalent to accept voluntary temporary wage cuts during hard to nearly 10 percent of the number of unemployed in times, and that, if given the choice, they would prefer the nine countries covered by the survey. The calcula- an increase in wages to a general reduction in working tion of this potential employment increase does not hours. take into account indirect effects attributable to in- When asked what institutional changes in the labor creased disposable income or long-term increases in market would be most likely to persuade them to em- potential output. Third, policies to improve the allocation of re- cal deficits have been allowed to explode in order sources. (The role of the World Bank in the support to finance poorly functioning public enterprises. of adjustment is discussed in Box 2.6.) Often there is scope for higher revenues through improved management of such enterprises or the TRADE POLICIES. Since a basic goal of adjustment substitution of tariffs for quantitative trade restric- is to increase international competitiveness, trade tions. Macroeconomic stability, achieved through policies are an important element in medium-term lower budget deficits, will also make it easier to adjustment. By maintaining realistic exchange reform the financial system. Market-determined rates and replacing quantitative restrictions with interest rates, along with a stable exchange rate, tariffs, governments can reduce the bias against will stem capital outflows and thus increase the exports which faces producers in many developing supply of finance for domestic investment. countries. Removing protection altogether is a de- sirable long-term goal. Carefully designed trade re- COMPLEMENTARY POLICIES TO IMPROVE RESOURCE forms allow countries to move toward an outward- ALLOCATION. Fewer price controls would allow oriented trade strategy which will not only prices to reflect the true costs of resources and improve their trade performance but also help would encourage the expansion of activities in line them achieve higher rates of economic growth. with changing incentives. Fewer investment regu- lations would help to reduce barriers to entry, MACROECONOMIC POLICIES. Lower fiscal deficits, encourage foreign direct investment, and ease achieved primarily through the reduction and re- technological progress. Fewer labor market regula- direction of public expenditures, are essential to tions, such as high minimum wages, would pro- increase savings and improve resource allocation. mote labor market flexibility and higher Fiscal deficits accommodated by monetary expan- employment. sions have provoked inflation, discouraged sav- ings, and distorted investments. In many cases fis- Even if the policy changes needed for the High 32 case materialize, some groups of developing coun- trial countries. Per capita incomes would therefore tries are likely to fare much better than others. be able to grow by more than 5 percent a year in Overall, Sub-Saharan Africa has relatively poor the group of exporters of manufactures. prospects compared with other developing coun- Oil exporters face a relatively hard time in the tries. Even in the High case, its output growth next decade-although they are likely to fare better would be about 4 percent a year, and its per capita than they did in the first half of the 1980s, when income in 1995 would still be below the 1980-86 their output growth fell to 0.8 percent a year. Their average. The region's export volumes, dominated pressing need, of course, is to reduce their depen- by primary commodities, would grow at roughly 4 dence on fuel exports. In the High case, their man- percent a year up to 1995 because of faster eco- ufactured exports increase by about 13 percent a nomic growth in the industrial countries. year during 1986-95, and this makes up for part of Exporters of manufactures have the best pros- their decreased earnings from fuel exports. pects. Their output growth in the High case is The scarcity of external finance for the highly slightly below 7 percent a year up to 1995. Growth indebted countries makes adjustment toward an in exports of manufactures would reach around 10 outward-oriented trade strategy and export percent a year, thanks to the more open trading growth particularly urgent-and difficult-for environment and to strong growth in the indus- them. Their principal source of growth in the High Table 2.9 External financing, by type of flow, 1973-95 (billions of dollars) Level Period average (mean value) 1995 1986-95 Country group and type of flow 1973 1980 1986 High Low 1973-80 1980-86 High Low All developing count Ties Deficit on goods, services, and private transfers 9.0 69.1 35.5 74 68 42.6 58.9 44 48 Official development assistance, net 8.7 22.8 21.7 45 42 15.7 21.4 35 36 Grants 4.7 11.5 14.1 27 25 8.0 12.7 21 21 Concessional loans 4.0 11.3 7.6 18 17 7.7 8.7 14 15 Direct private investment 4.9 10.0 12.4 22 20 7.2 11.4 17 17 Nonconcessional loans, net 11.6 47.0 18.1 32 17 34.0 39.7 12 8 Official 2.0 9.0 4.8 21 17 5.8 10.2 13 12 Private 9.6 38.0 13.3 11 0 28.2 29.5 -1 -4 Other capital -5.0 1.6 -0.7 3 -1 -3.7 11.3 4 2 Sub-Saha ran Africa Deficit on goods, services, and private transfers 1.7 4.9 8.9 10 9 5.0 10.2 7 7 Official development assistance, net 1.5 5.1 5.2 11 11 3.3 4.9 9 9 Grants 1.0 2.6 3.1 7 7 1.8 2.7 6 6 Concessional loans 0.5 2.5 2.1 4 4 1.5 2.2 3 3 Direct private investment 0.1 0.0 0.0 2 2 0.7 1.0 2 2 Nonconcessional loans, net 0.9 5.2 3.7 -2 -2 3.0 3.5 -2 -2 Official 0.2 1.2 0.4 1 1 0.7 1.0 1 1 Private 0.7 4.0 3.3 -3 -3 2.3 2.5 -3 -3 Other capital 0.9 -1.2 -2.2 0 0 -1.0 -0.7 0 0 Highly indebted countries Deficit on goods, services, and private transfers 2.4 27.9 12.0 -7 -3 18.2 21.8 1 5 Official development assistance, net 0.9 1.6 0.6 3 3 1.2 1.4 2 2 Grants 0.4 0.5 0.7 2 2 0.4 0.8 1 1 Concessional loans 0.5 1.1 -0.1 1 1 0.8 0.6 1 1 Direct private investment 2.7 4.6 3.2 7 7 3.4 4.6 6 6 Nonconcessional loans, net 6.3 27.5 6.9 -9 -6 20.0 20.1 -2 1 Official 1.0 3.6 2.5 7 6 2.2 4.2 5 4 Private 5.3 23.9 4.4 -16 -12 17.8 15.9 -7 -3 Other capital -1.3 0.5 -7.0 -2 -3 -0.2 -10.9 0 -1 Note: The table is based on a sample of ninety developing countries. Totals for Sub-Saharan Africa exclude South Africa. The deficit on goods, services, and private transfers not financed by ODA, direct investment, long-term loans, and other capital is covered by foreign exchange reserves. Period averages exclude the base year of the corresponding period. 33 Box 2.6 The role of the World Bank in support of structural adjustment The World Bank has often stressed the need to identify The main goals of the Bank's sector and structural investment priorities and to undertake only projects adjustment loans are to facilitate the adjustment re- with a high rate of return. But the Bank also stresses quired to achieve sustainable growth and to help mobi- the importance of the macroeconomic environment. It lize the external financing that can support the coun- is increasingly being recognized that it is virtually im- try's adjustment efforts. Although the final objective is possible to have a good project in a bad policy environ- to achieve sustainable growth compatible with avail- ment. To improve the policy environment the World able resources (including foreign financing), achieving Bank has supported efforts to adopt appropriate poli- this objective is a medium-term target. Thus, adjust- cies in a variety of areas. The Bank emphasizes: ment programs focus mostly on the policy framework Mobilizing domestic savings through fiscal and fi- needed to promote sustainable growth in the medium nancial sector policies. term. This has also meant that reforms need to be sup- Improving public sector efficiency by rationalizing ported with a series of Bank lending operations over a public investments and improving the efficiency of period of several years. In all cases, reform programs public enterprises. have required a firm commitment on the part of gov- Improving the efficiency of private sector invest- ernments to sustain the course of the reform effort over ments by reforming trade and domestic policies. time. But reform programs need to be flexible, and the Bank has supported modifications in policy packages Reforming institutional arrangements to support in the light of domestic and international develop- adjustment with growth. ments. Where policy reforms toward desirable struc- The World Bank's increasing emphasis on macroeco- tural change give rise to transitional costs that affect the nomic policies has been reflected in changes in its lend- poor, the Bank has worked with governments to de- ing program. Although project and sector investment velop programs that address this problem. activities have continued to absorb the largest portion The size of the World Bank's lending program de- of World Bank loans and credits, new instruments have pends primarily on the adoption and implementation been introducedsuch as the structural adjustment of appropriate adjustment programs. In recent years and the sector adjustment loans and creditswhich fo- more countries have embarked on serious policy re- cus directly on support of developing countries' pro- form, and lending for adjustment with growth will in- grams and policies of structural reform. Structural ad- crease. Discussions among shareholder governments justment loans focus on macroeconomic policies and on arrangements to increase the Bank's lending capac- institutional change at the country level_although ity through a general capital increase are continuing. they frequently emphasize reforms of importance to During the past year, negotiations were successfully particular sectors in which adjustment is most urgently concluded on the Eighth Replenishment of the Interna- needed. The purpose of sector adjustment loans is to tional Development Association (IDA8). Donor gov- promote the introduction and effective implementation ernments have agreed to provide $12 billion in new of sectoral policies necessary for sustained economic resources which will be committed by IDA during fiscal growth. 1988-.90. This amount represents, in real terms, about Most aspects of macroeconomic and sector policy in the same level of resources as that available to IDA medium-term adjustment are addressed in Bank non- during the past three years from IDA7 and the tempo- project lending. The exception is monetary and ex- rary Special Facility for Sub-Saharan Africa. About half change rate policy; here the Bank defers to the Interna- of the IDA8 funds will be used for operations in Sub- tional Monetary Fund and works along with it to Saharan Africa, and more than a fourth of the total will support individual programs that place emphasis on probably be used to support adjustment programs in different policy issues which reflect country priorities African and other IDA recipient countries, partly in con- and objectives. junction with the IMF's Structural Adjustment Facility. case is exports; long-term lending would be about The seventeen highly indebted middle-income the same in both the High and the Low case. The countries are in deep trouble if the Low case comes lower real interest rates of the High case would to pass. Higher real interest rates, increased pro- also help to reduce the debt service burden, All in tection, and stagnating exports would make it im- all, the highly indebted countries as a group could possible for them to reduce the debt overhang. achieve output growth of about 5 percent. In other Debt service would barely change from its current words, there will be no quick recovery of the out- level of 37.6 percent of exports by 1995. Several of put lost during the first half of the 1980s. these countries have made remarkable adjustment 34 efforts which have improved their chances of re- in the near future all the more important. The low- suming growth. But for this to continue, and for growth path presented in this chapter ifiustrates orderly servicing of debt to be maintained, the mo- the state of the world economy that would materi- mentum of reform must not slacken. The indus- alize if little or no action is taken. It is a picture of trial countries have a vital part to playand not stagnation, if not decline. Domestic policies to just as providers of external finance. The High case achieve economic efficiency and flexibility in the depends on their participation. Without many of medium and long term, combined with progress the elements of that scenario, the highly indebted during the Uruguay Round in liberalizing interna- countries may find it politically intolerable to main- tional trade, could yield a high return in output tain the servicing of their external debt. Significant and employment growth. interruptions in servicing could damage the finan- There is no viable alternative to adjustment. The cial system and make it harder for the debtor coun- longer governments wait to implement the re- tries to return to normal levels of borrowing from quired policy changes, the harder the task will be. the private capital market. Countries will certainly gain from their own policy Conclusion reforms, but concerted action would ease and ac- celerate the process. This does not mean that any Nineteen eighty-six was the second successive country can or should rely on the adjustment of year of sluggish growth in the world economy. others to improve its own prospects. It is essential There was little progress in reducing international that each country improve the conditions for its payments imbalances, and the debt problems of own interaction with the rest of the world in order the developing countries persisted. Another year to benefit from improved global economic condi- of limited progress has made decisive policy action tions. 35 Part Industrialization and Foreign Trade Industrialization: trends and transformations Trade and industrialization have reinforced each ences in the period before World War II. The chap- other. At the international level, trade has allowed ter serves as historical background for the analyses countries to specialize between industry and other of industrialization since World War II in later sectors, between different branches of industry, chapters. Although industry, broadly defined, in- and increasingly even between different stages in cludes mining, construction, electricity, gas, and production. Trade has provided access to critical water, in addition to manufacturing, this chapter industrial inputs, including technology, for coun- focuses more on manufacturingthe most dy- tries incapable of producing them. Expanded de- namic and usually the largest industrial subsector. mand for exports has spurred technological devel- opment and industrial production. In turn, the ad- Global industrialization in historical vent of new industrial technologies has shaped the perspective pattern of specialization and hence the pattern of trade. International specialization has evolved beyond At the national level, domestic trade has allowed the old pattern by which industrialized countries specialization between economic sectors and exported manufactures to the developing coun- within industry. Again, new technologies and in- tries in exchange for primary commodities. Today, dustrial progress have altered the internal pattern some of the world's most successful exporters of of specialization and trade. In the other direction, manufactures are developing countries; many of increased domestic trade has provided the de- their exports go to industrialized countries, from mand to stimulate the introduction of new technol- which they in turn import manufactures. Among ogies and further industrialization. industrialized countries, this two-way trade in The first two parts of this chapter trace some key manufacturesintraindustry trade as it is com- developments in technology, international special- monly calledhas reached the point where com- ization, and international trade. Together, these parisons of comparative advantage are meaningful have led to today's integrated system of global only at the level of finely disaggregated product trade and industrial production. This historical re- categories. Much of this intraindustry trade re- view highlights the influence of government poli- flects the specialization that has accompanied in- cies toward trade and ends by discussing the per- dustrialization. Production of a single good now formance of developing countries in this global commonly spans several countries, with each system since the 1960s. The third part of the chap- country in this "global factory" performing tasks ter discusses the changes in economic structure in which it has a cost advantage (see Figure 3.1). that have typically resulted from the interaction of Some of these changes in international speciali- technology, specialization, and trade over the zation and trade are no doubt responses to govern- course of industrialization. The fourth part dis- ment policy. But, on the whole, they reflect the cusses the factors that appear to have contributed natural economic processes that have shaped in- to the more successful industrialization experi- dustrialization from the start. 38 Figure 3.1 Global manufacturing: the component network for the Ford Escort (Europe) United Kingdom Federal ,/" Sweden"\ Republic of Germany Carburetor, rocker arm, clutch, ignition, exhaust, oil pump, Hose clamps, cylinder bolt, Locks, pistons, exhaust, ignition, distributor, cylinder bolt, cylinder switches, front disc, distributor, head, flywheel ring gear, heater, exhaust down pipes, pressings, weatherstrips, rocker arm, speedometer, battery, rear wheel speedometer, fuel tank, cylinder spindle, intake manifold, fuet hardware bolt, cylinder head gasket, front tank, switches, tamps, front disc, steering wheel, steering column, glass, wealherstrips, locks / Netherlands wheel knuckles, rear wheel spindle, transmission cases, clutch cases, clutch, steering column, battery, glass Tires, paints, France hardware Norway"\ Exhaust flanges, Alternator, cylinder head, master tires cylinder, brakes, underbody coating, weatherstrips, clutch release bearings, steering shaft and joints, seat pads and frames, Belgium transmission cases, clutch cases, tires, suspension bushes, Tires, ventilation units, heater, hose tubes, seat clamps, scalers, hardware pads, brakes, trim Denmark Fan bell Austria Tires, radiator and heater hoses United States EGR valves, wheel nuts, hydraulic tappet, glass Japan Italy Switzerland Starter, alternator, Spain Underbody cone and roller Cylinder head, coating, bearings, wind- Wiring harness, carburetor, glass, speedometer screen washer radiator and heater lamps, defroster gears pump hoses, fork clutch grills release, air filter, battery, mirrors Note: Final assembly takes place in Halewood (United Kingdom) and Saarlouis (Federal Republic of Germany). Source: Dicken 1986, figure 9.9, p. 304. The rise of modern industrialization: the middle of the eighteenth century. Innovations the mid-i 700s to 1820 in the spinning and weaving of cotton greatly boosted productivity; cotton output increased a Although historians differ on details, the consen- hundredfold from about 1760 to 1827, and cotton sus is that industrialization began in Britain around textiles overtook wool manufacturing to become 39 These innovations are now generally thought to Figure 3.2 Historical trends in the growth of have sparked the Industrial Revolution, but it is real GDP and exports in selected countries, unlikely that people at that time would have re- 1720-1985 garded them as revolutionary. Output in British agriculture and handicrafts had been expanding Percent for about 300 years. In contrast with continental 10 Europe, Britain had eliminated internal customs barriers as well as most guild and state monopoly o restrictions on production by the early 1700s. The Exports bill of exchange, deposit banking, and insurance 8 were well developed, and there had also been steady improvements in roads, rivers, and canals. 6 Rising agricultural productivity had increased in- comes and expanded the domestic market for other goods. The enclosure of common village lands had pushed labor from the farms and in- creased the number of people who depended on the market for food. 2 Throughout the period, domestic trade boomed, and an additional boost in demand came from in- creasing foreign trade. The expansion of demand FL1 gave impetus, within the relatively free enterprise 1720- 1820- 1870- 1913- 1950- 1973- 1979- environment that prevailed, to a series of innova- 1820 1870 1913 1950 1973 1979 1985 tions in production. An important pre-Industrial Revolution example was the putting-out system in textiles. Merchant-entrepreneurs supplied materi- Note: Accurate historical data for world exports and GDP are als to textile weavers in the villages, bought back difficult to obtain, so the chart shows average growth rates for six major industrial countries: France, Germany, Italy, Japan, the the finished cloth, and sold it to domestic con- United Kingdom, and the United States. For exports, the growth sumers or to export merchants. Ultimately, as the rate for 1720- 1820 includes only France and the United Kingdom; the average for 1820-70 includes France, Germany, the United growth of demand for manufactures exceeded the Kingdom, and the United States. The GDP growth rates have the growth of the labor force, the specialization and same coverage, except that the first period is 1700-1820 instead of 1720-1820, and the United States is excluded from both the first labor-saving inventions that are generally ac- and second periods. More comprehensive world data are pro- knowledged to have constituted the first industrial vided for the period since World War H in Figure 3.3. Source: For 1720-1979: Maddison 1982, tables 3.2 and 3.7. For revolution followed. 1979-85: for GDP, World Bank data; for exports, IMF, Interna- tional Financial Statistics. The transport revolutions, the spread of industrialization, and the emergence of a global market: 1820 to 1870 the leading manufacturing product. Most of this After the innovations in cotton textiles, iron smelt- growth may be attributed to specialization com- ing, and the steam engine, industrialization cen- bined with simple modifications to existing pro- tered on steel, railways, and steamships from cesses. Adam Smith, writing The Wealth of Nations about 1820 to 1870. Railways integrated national in the 1770s, emphasized specialization and the di- markets and stimulated demand for iron and steel. vision of labor, not the introduction of machines, With steel and steam power, bigger and more reli- as the basis for higher productivity. The innova- able ships could be built. Freight costs dropped, tion that allowed coal to be used in smelting iron which enabled such previously remote areas as the and James Watt's improvement of the Newcomen American Midwest to produce bulky agricultural steam engine between 1776 and 1781 were mile- products for distant markets in Europe. Belgium, stones in the development of industrial machinery. France, Germany, and the United States began to But it took several decades for these innovations to industrialize in this period. Europe, the United be incorporated into production on a wide scale States, Canada, Argentina, and Australia were and to make the factory the symbol of manufactur- linked by international trade in agricultural pro- ing industry. duce, raw materials, and manufactured products. 40 The spread of industrialization to the European Kingdom. This treaty liberated French industrial continent was facilitated by important institutional development from reliance on expensive domestic reforms and the removal of many of the restric- coal and iron. French industry and railways, which tions that had hindered domestic commerce. By now had access to cheaper and better coal, iron, 1820, Europe had emerged from the French Revo- and steelthe basic industrial raw materials of that lution and the Napoleonic wars that followed it. In erawere able to develop rapidly. In Germany, the France, tariffs and tolls on domestic trade, as well import duties levied by the Zoliverein in 1834 were as guild restrictions on the choice of occupation, much lower than those in other European coun- were abolished immediately after the Revolution. tries at the time. Duties on manufactured imports, These reforms were soon followed by a standard- for example, were about 10 percent in Germany. ized system of weights and measures (the metric But these were steadily increased in the 1840s. The system) and new legal codes protecting property Cobden-Chevalier treaty between France and the rights. The Napoleonic wars helped diffuse this United Kingdom and agitation by German free wave of liberalism and reform to other parts of traders prompted a series of tariff reductions in EuropeBelgium, the Netherlands, Switzerland, Germany in the 1860s. By 1873 all duties levied for Italy, and much of Germany. In Germany, after protective purposes had been removed in favor of years of effort, barriers to domestic trade were moderate duties levied for revenue purposes. greatly reduced in 1834 by the creation of the Economic liberalism between 1820 and 1870, to- Zoilverein, a customs union among the different gether with the transport revolutions wrought by German states. railways and steamships, boosted world output The United Kingdom, the United States, and and international trade (see Figure 3.2). Still, more many of the European countries also adopted than three quarters of the world's industrial pro- more liberal external trade policies between 1820 duction in 1870 was accounted for by four coun- and 1870. Initially, the United Kingdom, the leader tries: the United Kingdom (about 32 percent), the in industrial technology, prohibited exports of ma- United States (about 23 percent), Germany (about chinery and the emigration of skilled workers. But 13 percent), and France (about 10 percent). British entrepreneurs and craftsmen could be found in Belgium, France, and other European The second industrial revolution countries, often using smuggled machinery to pro- and the waning of liberalism: 1870 to 1913 duce textiles and engineering products. Realizing the futility of the prohibition, the United Kingdom The next forty-three years-1870 to 1913saw ma- removed the legal barriers against emigration of jor advances in science and technology. The inven- skilled workers (in 1825) and against exports of tion of the Gilchrist-Thomas process, which al- machinery (in 1842). Thereafter, British entrepre- lowed steel to be made from iron ore of high neurs, workers, and financiers helped to develop phosphorus content, propelled the industrial de- railways and coal mining in Europe and elsewhere. velopment of countries with extensive deposits of Subsequently, the United Kingdom abolished the phosphoric ores, such as Germany and Sweden. Navigation Acts, which had restricted interna- Other innovations in this periodelectricity, re- tional shipping; and with the repeal of the restric- frigeration, organic chemicals, the internal com- tions on grain imports (the Corn Laws) in 1846, it bustion engine, the transatlantic telegraph, and moved to free trade. Protective tariffs were re- the radioare commonly regarded as the basis of a placed with revenue tariffs, which were gradually "second industrial revolution." Some of them re- reduced to an average of 5.8 percent by 1880. inforced the trend toward greater physical integra- The United States began a series of tariff reduc- tion of world markets: refrigeration, for example, tions in 1840, and by 1857 most rates were at or made it possible to ship frozen meat from Australia below 24 percent. But an increasing need for gov- to London by the 1880s. ernment revenue, especially during the Civil War, This second revolution differed from the earlier led to several tariff increases. After the Civil War one in two important ways. Technological ad- ended in 1865, tariff increases continued for pro- vances became more dependent on scientific re- tection purposes. search that was systematically organized in firms France embarked on a policy of reducing tariffs and universities for commercial application. Ger- and eliminating import prohibitions around 1852, many, later joined by the United States, led the which culminated in the Cobden-Chevalier free way. Also, for the first time, industrial growth in trade treaty of 1860 between France and the United the industrialized countries became partly depen- 41 dent on supplies from elsewhere: raw materials was forced in the 1850s to open up to foreign trade. needed by the new technologies (for example, The country was compelled to sign a treaty that for bauxite, petroleum, and rubber) and ingredients years (1858-98) put a 5 percent ceiling on the tariffs for new alloys (for example, tungsten, nickel, and that it could levy on imports. Partly in reaction to chromium) now had to be supplemented with sup- this, the old Tokugawa Shogunate that had ruled plies from outside the group of industrialized Japan for centuries was overthrown, the Meiji Em- countries. As a result, many countries were ush- peror was restored in 1868 as head of a centralized ered into global industrialization as suppliers of state, and a series of reforms was begun. Guilds industrial raw materials. Since many of these were eliminated, feudalism was abolished, and products had no economic value until the new private property rights to land were established. technologies created demand for them, people in People were now free to choose their trade or occu- these areas were now presented with additional pation: they could produce any crop or commodity income opportunities. But along with these in- and could buy and sell land freely. Taxation was come opportunities came colonization for many of reformed and made uniform across the country. the new suppliers in Africa and Asia. This histori- Internal tolls on the movement of goods and re- cal link between participation in international strictions on the movement of people were abol- trade and colonization influenced the choice of in- ished; so too were prohibitions on the exports of dustrialization and trade strategies in many of the rice, wheat, copper, and raw silk. These reforms former colonies after World War II. are generally acknowledged to have been major Despite advances in technology, output in the catalysts in early Japanese industrialization. industrialized countries grew only slightly faster than it had between 1820 and 1870, and the growth The collapse of liberalism and of the global rate of exports fell (Figure 3.2). One reason for this market: 1913 to 1950 was the onset of protectionism in the late 1870s. The United States had increased tariffs to help fi- Economic liberalism, waxing from 1820 to around nance its Civil War. After the war the tariffs were 1870, and waning between 1870 and 1913, was maintained and even increased to protect both ag- practically moribund from 1913 to about 1950. Dur- riculture and industry. In Germany, where tariffs ing these years there were two world wars and on most imports had been abolished by 1877, agri- frequent trade wars, the severest economic depres- cultural producers complaining of "cheap" wheat sion in history occurred, the socialist approach to from America and iron and steel producers facing industrialization emerged, and several countries declining prices caused free trade to be abandoned that had previously served the world trading sys- in 1879. Protectionist forces in France quickly fol- tem as suppliers of primary products (Argentina lowed Germany's example, led again by farmers and Brazil to name just two) adopted an industrial- complaining about imports of cheap American ization strategy that emphasized import substitu- wheat. Other countries did the same, which led to tion behind high protective barriers. a series of tariff wars in Europe. Even within some of the major capitalist indus- A number of countries joined the "industrial trialized countries, the market lost ground. The league" between 1870 and 1913, including Russia cartelization of German industry, which had and Japan. The state played a more active role in started around the last quarter of the nineteenth the industrialization of these two countries, partic- century, greatly intensified in the years between ularly in the development of infrastructure, than it the two world wars. Industrial cartels started in did in the countries that had industrialized earlier. the United States at about the same time as in Ger- Nevertheless, the experience of Russia and Japan many, but unlike in Germany were promptly out- paralleled Western Europe's in some respects. lawed. Nevertheless, a wave of mergers resulted Both countries embarked on major reforms that in significant concentration in U.S. industry. Inter- removed restrictions on domestic markets and national trade also became restricted as the indus- helped spur domestic commerce. Serfdom was trialized countries adopted restrictive and preda- abolished in Russia in 1861, and judicial, adminis- tory commercial policies around the Great trative, tax, and monetary reforms followed in the Depression years of the 1930s. Tariff wars and late 1860s. In the mid-1880s the domestic market quantitative restrictions became common. The was integrated by the expansion of the railways. United States passed the Smoot-Hawley Tariff Act, Reforms in Japan were even more far-reaching. which created high protective tariffs. The United After more than 260 years in virtual autarky, Japan Kingdom and France retreated from multilateral 42 trade, each emphasizing trade within its colonial empire at the expense of outside countries. Ger- F;.gure 3.3 Postwar growth in world output many created an elaborate mechanism of bilater- and exports al payments and exchange controls for its trade with central and southern Europe and with South America. Growth rate by sector Although the period from 1913 to 1950 inherited Agriculture many technological innovations from the earlier Output period of industrialization and contributed many 1965-73 Exports of its own, their diffusion was delayed by the polit- ical and economic turmoil. The growth of output 1973-85 dropped, and there was an even greater fall in the growth of international trade (Figure 3.2). Manufacturing Global industrialization after World War II 1965-73 By the mid-1950s postwar reconstruction was vir- 1973-85 tually complete, and the world economy entered a period of unprecedented output and trade expan- sion (Figure 3.2). Manufacturing led the way in Mining both output and export growth (see Figure 3.3). As 1965-73 in the nineteenth century, exports grew faster than output. Postwar growth in manufacturing was fueled by 1973-85 an explosion of new products, new technologies, liberalization of international trade, and increasing 2 0 2 4 6 8 10 integration of the world economy. Assembly line Percent production, the internal combustion engine and Manufacturing output and exports the automobile, electricity and the consumer dura- Index (1950 = 100) bles that came with itall of them predating the 1,500 warwere given a push by the postwar release of postponed consumer spending. There were en- tirely new technological advances as well: syn- thetic materials, petrochemicals, nuclear energy, jet aircraft, and computers and electronic products (notably television). And great strides were made in telecommunications technologies, microelec- tronics, and robotics. The impact of microelec- tronics and robots on production processes is po- tentially so great that many observers believe the world is now on the threshold of a "third indus- trial revolution." As before, some of the new technologies assisted Source: GATT 1986b. the physical integration of world markets. The jet aircraft cut travel time. Telecommunications made it easier for multinational corporations to coordi- nate subsidiaries in different countries. The associ- Three other developments marked the pattern of ated electronic media helped shape a world market global industrialization in the postwar period. with increasingly similar consumer tastes. Trade First, the appearance of a nonmarket alternative to liberalization among industrialized market econo- industrialization in Eastern Europe and elsewhere mies under the General Agreement on Tariffs and (see Box 3.1); second, decolonization in Asia, Af- Trade (see Chapter 8) helped to create a global en- rica, and the Caribbean; and third, the rise of the vironment that was conducive to the development multinational corporation to prominence in world and diffusion of the new technologies. production and trade in manufactures. 43 Box 3.1 Industrialization and trade in nonmarket economies Industrialization in the Soviet Union and other non- cluding imports) so as to reduce costs. At the same market economies has evolved differently from the time, however, each firm is generally assured of a mar- other cases reviewed in this chapter. These countries ket regardless of quality, since other firms are required have suppressed market transactions domestically and by the plan to take its outputs and final consumers have engaged in relatively little foreign trade, even have no options. Hence, there is little incentive for among themselves. Spontaneous responses to eco- most firms, especially those producing nonmilitary nomic incentives have contributed little to either tech- products, to improve upon their products, to maintain nological change or specialization among economic the goodwill of customers, or to develop new markets units. The Central Plan prepared by the government (including export markets). has attempted to determine most economic activities. Some Western experts claim that total factor produc- State control of the means of production has been a key tivity growth (see explanation in Box 3.3) in the Soviet feature of this economic system. The Soviet Union pio- Union has been negative since the mid-1970s. Given neered it in 1928, and after World War lIthe socialist the difficulty of getting access to detailed and accurate countries of Eastern Europe and elsewhere adopted it. data on the Soviet economy, however, this assessment Statistics on these economies are difficult to obtain. of total productivity growth is not beyond dispute. In addition, because relative prices in these economies What is beyond dispute is the fact that by the mid- do not reflect relative scarcities, data on GDP, total in- 1970s many economists and policymakers within the vestment, domestic consumption, industrial output, Soviet Union and other nonmarket economies had and so forthall of which must rely on relative prices openly recognized the inefficiencies in their industrial for aggregationare difficult to interpret. Neverthe- sectors. Most of the countries then began opening up less, it is quite clear that the Soviet Union and some of more to foreign trade with the industrial market econo- the nonmarket economies have made tremendous mies, with technology acquisition the primary motive. progress in industrialization, especially since World Poland entered into a number of industrial cooperation War II. According to calculations by Western econo- agreements with Western firms (such as International mists, Soviet GNP grew at an average annual rate of Harvester). Other East European nonmarket econo- 6.7 percent from 1929 to the mid-1950s; 6.1 percent in mies, as well as China, entered into similar agree- 1953-65; 5.3 percent in 1966-70; 3.8 percent in 1971-75; ments, although in most cases more conservatively. 2.7 percent in 1976-80; and 2.4 percent in 1981-85. In The Soviet Union eventually also began increasing view of the statistical problems, these estimates are de- trade with the industrial market economies. Soviet im- batable. But, if they are reasonably accurate, they sug- ports from the industrial market economies expanded gest that in the two decades following World War II at about 17 percent a year in the first half of the 1970s. (1950 to 1970), only Japan and Germany, among the Some experts estimate that technological imports in the industrial market economies, grew faster. Growth in 1970s may have added about 0.5 percent a year to the the other nonmarket economies during this period was Soviet industrial growth rate. Recently (1987) the So- also rapid, although generally not so rapid as that in viet Union adopted a policy that allows joint ventures the Soviet Union and not sustained over such long with foreign firms inside the Soviet Union. periods. There are, however, potential problems with a policy Much of this growth occurred in industry. Govern- of opening up more to foreign trade while still main- ment control of the means of production allowed these taining a rigid system of central planning. Increased countries to channel large shares of output to invest- imports ultimately require more exports to pay for ment in industry. The large investment efforts involved them, and so domestic firms should have the flexibility meant that in many of the countries consumption per to seek and respond quickly to export opportunities. capita had to be constrained by the state for long pe- Lack of such flexibility and also of a price system that riods. Nevertheless, the heavy investments together reflects relative scarcity has already contributed to bal- with the large pools of labor available initially resulted ance of payments difficulties in some of the nonmarket in rapid industrial expansion. economies that have opened up their foreign trade, But the industrial sectors that appeared in these especially Poland. Several countries (for example, economies quickly lost dynamism, owing to the inher- Hungary and China) are now trying to relax some of ent rigidities in central planning. For instance, for most their restrictions on domestic market transactions in firms the Central Plan specifies what to produce, which order to promote efficiency and innovation. These re- inputs to use, where to obtain them, and where to send forms are complicated and delicate, but the potential the outputs. Hence, most firms have had little liberty economic gains appear to be considerable. or incentive to innovate or diversify input sources (in- 44 terms of trade against primary products were com- Figure 3.4 Share of offshore assembly mon, and many of the newly independent coun- products in total manufactured imports by tries thought it sensible to shift quickly to indus- the United States from selected developing tries. Second, many people in the new countries economies, 1973-85 associated specialization in primary commodities (percent) with their previous colonial status. To them, inde- pendence called for breaking away from the colo- nial economic system. Many also believed that protection granted through government restric- tions on imports had played a significant role in the early industrialization of Europe, North Amer- ica, and Japan. In addition, inspired by the Soviet Union's rapid industrialization, several of the newly independent countries combined import substitution with government ownership, plan- ning, and production. In these countries, govern- ments sought to restrict domestic trade, unlike in Europe and Japan where early industrialization had been assisted by the easing of restrictions on domestic trade. Countries pursuing the import substitution strat- egy typically started by producing final manufac- tures to replace imports. Many enjoyed initial bursts in the growth of manufacturing. But since production usually required imported intermedi- ate and capital goods, sustained industrial growth depended on the expansion of exports to provide Note: Data are averages for the period. Manufactured products the necessary foreign exchange. Countries that are defined here as Standard International Trade Classification made an early transition to export expansion, such (SITC) categories 5,6,7,8, and 9, less 68. Total value of the finished product. as the Republic of Korea, sustained their industrial Gross value minus the value of material components that growth. Many others did not make the transition. originated in the United States. Source: U.S. International Trade Commission and United They stayed in the protective import substitution Nations. phase and their industrial development was re- tarded. Multinationals Decolonization Multinational corporations in manufacturing date Many of the countries emerging from colonialism back as far as the nineteenth century (Singer, a in the postwar period chose an industrial develop- U.S. firm, established a factory in Glasgow in 1867 ment strategy that emphasized import substitution to manufacture sewing machines), and those in behind high government protectionsimilar to the primary commodities date back even farther. But it strategy adopted by Argentina, Brazil, Turkey, and is only since the 1960s that multinationals have other independent developing countries in the become major actors in shaping world industrial- 1930s. Several factors contributed to the appeal of ization. Today, between 25 and 30 percent of the this approach. First, during the turbulent years world's stock of foreign direct investmentthe spanning the world wars, countries that had spe- channel for multinationals' investmentsis in de- cialized as exporters of primary products found veloping countries; about 40 percent of this is in their access to export markets and to manufactured the manufacturing sector. Manufacturing multina- imports reduced. Their terms of trade fell drasti- tionals have been attracted to some of the large cally. This is what had prompted Argentina and developing countries, especially in Latin America, others to take the protective import substitution because of trade policies that restricted imports of course in the 1930s. In the first two decades after final manufactures. But in many other countries, World War II, predictions of a secular decline in the especially those in Southeast Asia, the attraction 45 has been the availability of semiskilled industrial specifications to producers in developing coun- labor at low cost. Some developing countries de- tries, purchase the finished products, then sell rive a significant part of their manufacturing ex- them at home and abroad. This is akin to the ports from local subsidiaries of multinationals. Al- putting-out system in textiles which was adopted though data for recent years are not available, in in preindustrial England. With modern transport the middle and late 1970s the share of multina- and communications, it probably is no more diffi- tionals in manufactured exports from Korea and cult for today's merchants to organize a putting- Mexico was around 30 percent. In Brazil the share out system between New York and Hong Kong, or was more than 40 percent, and in Singapore more between Tokyo and Seoul, than it was for the early than 90 percent. English merchants to organize their putting-out Multinationals have made it easier for some de- system between London and the surrounding vil- veloping countries to begin exporting manufac- lages. tures without going through an initial phase of im- port substitution. Some of these corporations have Postwar performance of developing countries located in developing countries with the principal As a group, the developing countries still have aim of producing in order to export to their home only a small share in world manufacturing output, and other markets. Typically, this has occurred but their output and exports of manufactures have when the production processes have become rou- nonetheless grown more rapidly than those of the tine and thus require large inputs of semiskilled industrial countries since the 1960s (see Tables 3.1 labor. Locating in developing countries then allows and 3.2). No developing economy figured among the multinational firms to reduce labor costs. the world's top thirty exporters of manufactured Beginning in the late 1960s several multina- products in 1965. Twenty years later Hong Kong tionals began rationalizing their global production. and the Republic of Korea were among the top Whereas before, most foreign subsidiaries had fifteen, with export shares close to those of Swe- produced finished products, often with technolog- den and Switzerland. Singapore and Brazil were ical and intermediate inputs from the parent com- among the top twenty, with export shares close to pany, now all the subsidiaries were increasingly those of Denmark and Finland. Although this per- linked into a unified production process. Each per- formance occurred during a period of unprece- formed only those aspects of the manufacturing dented real growth in world output and trade in process in which it had a comparative advantage. manufactured products, it is remarkable that de- New subsidiaries were in some cases set up in de- veloping countries sustained their progress even veloping countries to perform the labor-intensive when the world economy slowed after 1973. More- activities. This system is not always confined to over, manufactured exports from developing transactions among subsidiaries of the same countries have become more sophisticated (see Ta- multinational. Sometimes the arrangements are ble 3.3). Developing countries have diversified between locally owned companies and foreign- from traditional labor-intensive products (such as owned companies. The foreign-owned companies textiles) or those based on natural resources (such are not always multinationals, and sometimes they as crude petrochemicals, cork, and paper) to chem- may not even be based in the domestic economy. icals and engineering products. The arrangement is known as international sub- There are now fears that microelectronics and contracting. Sometimes the terms "offshore as- robotics will reduce the labor-cost advantage sembly" and "sourcing" are used. Figure 3.4 which the developing countries have exploited to shows the share of offshore assembly products in expand their role in world manufacturing. Similar total manufactured imports by the United States fears about the effects of machinery on employ- from four developing economies. Exemption from ment in earlier times proved unfounded. Increas- duties of the value of U.S. components in the off- ing mechanization displaced some workers, but it shore assembly imports has encouraged U.S. firms also introduced new opportunities that led in the to use this arrangement. Similar arrangements oc- long run to higher employment. The same could cur between manufacturing firms in other industri- be true of the long-run impact of microelectronics alized countries and producers in developing and robotics on industrialization in developing countries. countries. Box 3.2 discusses the effect of techno- An important form of subcontracting, especially logical change in textiles and clothingtwo indus- in textiles, is an arrangement whereby firms based tries that are of special importance to industrializa- in the industrialized countries provide design tion in developing countries. 46 Table 3.1 Shares of production and exports of manufactures by country group, 1965, 1973, and 1985 (percent) Share in production Share in exports Country group 1965 1973 1985 1965 1973 1985 Industrialmarketeconomies 85.4 83.9 81.6 92.5 90.0 82.3 Developing countries 14.5 16.0 18.1 7.3 9.9 17.4 Low-income 7.5 7.0 6.9 2.3 1.8 2.1 Middle-income 7.0 9.0 11.2 5.0 8.1 15.3 High-income oil exporters 0.1 0.1 0.3 0.2 0.1 0.3 Total 100.0 100.0 100.0 100.0 100.0 100.0 Table 3.2 Growth in production and exports of manufactures by country group, 1965-73, 1973-85, and 1965-85 (percent) Growth in production Growth in exports Country group 1965-73 1973 -85 1965-85 1965-73 1973-85 1965-85 Industrial market economies 5.3 3.0 3.8 10.6 4.4 6.8 Developing countries 9.0 6.0 7.2 11.6 12.3 12.2 Low-income 8.9 7.9 7.5 2.4 8.7 6.0 Middle-income 9.1 5.0 6.6 14.9 12.9 13.8 High-income oil exporters 10.6 75a 8.4 16.2 11.5 16.0 Total 5.8 3.5 4.5 10.7 5.3 7.4 a. End period is 1984 instead of 1985. Table 3.3 Structure of manufactured exports from developing countries, 1970-84 Share of developing Growth countries' exports rate' Description 1970 1984 1970-84 Traditional manufactured exports Labor-intensive Textiles and apparel (84 and 65) 31.3 24.8 11.8 Footwear (85) 1.8 2.9 18.2 Other labor-intensive (61 and 83) 2.9 2.3 11.6 Total 36.0 30.0 12.4 Resource-based Wood and cork (63) 3.6 1.5 6.9 Paper manufactures (64) 0.8 1.1 17.6 Other resource-based (52 and 56) 0.8 0.9 14.5 Total 5.2 3.5 12.2 Nontraditional manufactured exports Electrical machinery (72) 16.1 16.7 14.1 Chemicals (51) 8.3 9.9 15.3 Nonelectrical machinery (71) 4.2 8.7 20.1 Transport equipment (73) 2.6 5.2 20.0 Iron and steel (67) 6.2 6.5 14.2 Other nontraditional" 21.4 19.5 12.9 Total 58.8 66.5 15.1 Total 100.0 100.0 14.0 Note: Figures in parentheses are the SITC categories for the respective product group. Developing countries' exports of the listed product as a share of developing countries' total exports of manufactured products defined as SITC categories 5, 6, 7, and 8, less 68. The rate of growth of developing countries' exports of the listed product during 1970-84 in constant dollars. Total manufacturing exports less traditional manufactured exports. Rest of nontraditional exports. Source: Murray (background paper). 47 Box 3.2 Technical change and comparative advantage: the case of textiles and clothing Developing countries that have embarked on a path of economies and the developing economies remained so efficient industrialization have often done so partly large that a broad range of techniques could exist side through the export of simple, labor-intensive manufac- by side. tures, in particular clothing and textiles, to industrial The clothing industry was never able to make similar market economies. But rapid technical change in such strides in productivity because of the inherent obsta- industries has led to a new form of export pessimism. cles to automating the functions of a machinist manip- Surprisingly, perhaps, the textile industrynot nor- ulating a soft, limp fabric. But thanks to the promise of mally considered a leading industryhas consistently microelectronics, clothing industrialists are now begin- registered higher-than-average labor productivity ning to echo the textile industrialists of the 1960s. gains in the industrial market economies in recent dec- A recent study sought to assess the likely impact of ades. These gains have been brought about by a series microelectronics on developing countries' comparative of labor-saving innovations since World War II: the ra- advantage in clothing (Hoffman 1985). This study tionalization of production in more specialized factor- found signs of an increasing rate of innovations in ies, dramatically higher speeds in spinning, weaving, clothing machinery, most of them based on microelec- and knitting (helped in part by the growing use of syn- tronics. Recent innovations promised substantial sav- thetic fibers), and the introduction of radical, new tech- ings in material and labor costs, as well as other advan- niques (open-end spinning, shuttleless weaving, non- tages (such as time saving) in the preassembly phase of woven fabrics, tufted carpets, and so on). In the 1960s production (when fabrics are cut). In the assembly many textile industrialists predicted a sharp reversal of (or sewing) phasewhich accounts for a significantly comparative advantage in favor of the advanced indus- larger share of total costs than preassembly- trialized countries. productivity gains from microelectronics were also pos- These predictions turned out to be not entirely right, sible, but on a less dramatic scale. The productivity but not entirely wrong. By and large, innovations in gains in both stages required costly capital investment, textiles did succeed in halting the further loss of com- a minimum scale of efficient operation larger than that parative advantage in the high-wage industrialized of the normal size of firm in this industry, increasing countriesby means of a substantial reduction in labor managerial sophistication, andin some casesa loss content. The textile industries of Germany, Italy, and of flexibility. The study judged that, given the prob- the United States are, unlike their clothing industries, lems in adopting the new technology, its rate of diffu- broadly competitive (although they still cling to protec- sion would be slow in the coming decade, and the new tion). The reversal in comparative advantage was in- technologies might not reach their maximum impact complete for several reasons. Firmsespecially in until the first years of the next century. The study con- Europefound that the market would not allow them cluded that protection by the industrial countries to produce standardized textiles on the scale that would remain the more immediate threat to develop- would justify the most capital-intensive equipment. In ing countries' exports. addition, the wage gap between the industrial market / Not all of the developing countries have pro- have been common to most industrializations and gressed at the same rate, however. Some have tries to draw some lessons from the period before done far better than others. Figure 3.5 compares World War II. production and exports of manufactures for forty- three economies before and after 1973. Because of Industrialization and structural change differences in the degree of distortion in exchange rates and in relative sectorál prices, comparisons Typically, the share of manufacturing in GDP has based on the dollar value of manufactured produc- risen in the early phase of industrialization. After a tion mean little. Export shares are more revealing. time, however, it has tended to fall, while the By 1985, the forty-three economies accounted for basic underlying forces of industrialization two-thirds of manufactured exports from develop- technological change, specialization, and trade ing countries; the first fifteen alone accounted for have continued to propel output per capita up- about 60 percent. Chapters 4 through 7 attempt to ward. Thus, for most countries, the ratio of (a) the explain why recent performance has varied so share of manufacturing (or of industry) in GDP to widely from country to country. The rest of this (b) GDP per capita follows an inverted U as indus- chapter discusses the economic processes that trialization proceeds (see Figure 3.6). This same 48 relationship emerges, although not as clearly, dustry and services. Similar trends occur in the when the ratio is compared across different coun- sectoral distribution of employment. tries at a single point in time (see Figure 3.7). The Initial discussion of these long-term trends share of services has also tended to rise over time; (Cohn Clark in 1940 and Simon Kuznets in the its upward trend lasts longer than that of manufac- 1950s and 1960s) were confined mainly to the in- turing. Agriculture's share in output gradually de- dustrialized countries. Since then, a number of clines to accommodate the increased share of in- scholars, notably Hollis Chenery, have studied Figure 3.5 Indicators of industrial performance of developing economies 1966-73 1973 -85 Share Share Change in Growth Growth of manu- Growth Growth of manu- share of in manu- in man u- factu red in manu- in manu- factu red manufactured factu ring factu red exports facturing factu red exports exports from 1973 Rankings value added exports (1973)b 1985 Ranking' value added exports (1985)' 1973 to 1985 Hong Kong U 0 0 1. Hong Kong U U 0 Republic of Korea U U U 2. Republic of Korea U U 0 + Yugoslavia U U 0 3. Singapore 0 U U + Singapore U U U 4. Brazil U U U + India U U 0 5. Yugoslavia U U U Brazil U U 6.India U U U Mexico U U 7. Malaysia U U U Argentina U D U 8. Mexico 0 U U Pakistan U 0 U 9. Turkey O U U Greece U 0 U 10. Philippines U U U Malaysia o 0 U 11. Thailand U 0 U Thailand O U U 12. Indonesia U U U Colombia 0 U U 13. Greece O U U Philippines o 0 U 14. Pakistan U U U Egypt 0 U 0 15. Argentina U U 0 Turkey o 0 U 16. Morocco U 0 U Jamaica U 0 U 17. Tunisia U U U Morocco 0 U U 18. Colombia U U U Zimbabwe U U U 19. Egypt U U U Guatemala U U U 20.Peru U U U El Salvador U U U 21. Sri Lanka U U U Dominican Republic U 0 U 22. Botswana U U U Tunisia U U U 23. Venezuela U U U Sierra Leone U U U 24. Zimbabwe U U U Costa Rica U U U 25. Jamaica o U U Venezuela U U U 26. Trinidad and Tobago o U 0 Zaire U U U 27. Uruguay U 0 U Trinidad and Tobago U U U 28. Costa Rica O 0 U Côte d'Ivoire U U 29. Chile O U U Indonesia U U 0 30. Guatemala U U 0 Algeria U U U 31. Cyprus 0 0 0 + Kenya U 0 U 32. Côte d'Ivoire U U U Uruguay U 0 U 33. Dominican Republic U U U Nigeria o 0 U 34. El Salvador U 0 U Tanzania O U U 35. Kenya U U 0 Sn Lanka o U 36. Cameroon U U U Chile U 0 U 37. Senegal U U U Senegal U U U 38. Zaire U U U Ghana U U U 39. Algeria U U 0 Cyprus 0 U U 40. Sierra Leone U U U Cameroon O U U 41. Tanzania U U U Peru U U U 42. Nigeria U U U Botswana U 0 U 43. Ghana U U U Based on the share in manufactured exports from developing economies. Share of manufactured exports from developing economies. The + sign indicates that the share in 1985 is greater than in 1973, and the - symbol indicates that the share in 1985 is smaller than in 1973. Growth rates (percent) Export share (percent) o equal to or more than 15.0 equal to or more than 10.0 o 10.0 to less than 15.0 o 5.0 to less than 10.0 0 7.5 to less than 10.0 o 2.5 to less than 5.0 o 5.0 to less than 7.5 o 0.5tolessthan2.5 O 0.0 to less than 5.0 U 0.2tolessthan0.5 U less than 0.0 U less than 0.2 49 growth in agricultural employment; in the later Figure 3.6 Historical relationship between phases, high growth of employment in services is GDP per capita and the share of industry made possible by lower growth in industrial and in GDP in selected industrial countries, agricultural employment. 1870-1984 Agricultural productivity and industrialization Share of industry in GDP (percent)a 60 Agriculture's reduced share in GDP has, in many countries, coincided with higher agricultural out- put and productivity. Britain experienced large in- 50 Germany" creases in agricultural productivity in the second half of the eighteenth century, before its industrial 40 Japan revolution. Europe and North America went France through a similar process later. Japan substantially increased its agricultural yields around the second United Kingdom 30 half of the 1800s. United States Increasing agricultural productivity facilitates in- 20 dustrialization in at least four ways: Higher rural incomes raise the demand for manufactures along with the demand for other 10 goods. Moreover, because the share of food in total expenditure tends to decline as income rises, rising 0 rural incomes also lead to a larger proportion of in- comes being spent on manufactures. 0 50 100 150 200 250 300 Index of real GDP per capita (1965 = 100) Rising agricultural productivity increases the supply of agricultural raw materials for industry. Note: The six data points shown for each country represent the Additional foreign exchange made possible by following approximate time periods: (from left to right) 1870, increased agricultural exports can be used to im- 1913, 1950, 1965, 1975, and 1984. Industry includes manufacturing, mining, and construction. port inputs for industry. Higher farm incomes Data for 1950 onward refer to the Federal Republic of Ger- from increased agricultural productivity can also many. generate additional savings, which can then be Source: Kuznets 1957, appendix table 2; Maddison 1982, tables A4 and B2; and World Bank data. made available for investment in industry. Japan's success in its transition to rapid industrial growth in the early twentieth century was partly due to its success in mobilizing agricultural savings. Agricul- ture financed 27 percent of nonagricultural invest- post-World War II trends in developing countries, ment from 1888 to 1902, and 23 percent from 1903 extending the analyses to trends within industry to 1922. In the earlier period two-thirds of the in- (see Box 3.3.). The economic explanations behind vestment was channeled through the public sector, the long-term trends rest, on the supply side, on courtesy of the land tax. In the later period this technological change and its differential impacts share fell to a quarter (the private sector accounted on economic sectors, the induced specializations, for the rest). and the resulting trade and flow of resources Rising farm productivity initially allows new among and within sectors. On the demand side, entrants to the labor force to be employed outside the pattern of consumption changes with income agriculture. Later, it allows labor to be released growth, and this induces changes in the structure from agriculture and to be fed without sharp rises of production. in domestic food prices or recourse to large and In the early phases of industrialization, greater unsustainable imports of food. use of machinery, especially in manufacturing, in- creases labor productivity and output. As industri- The sen.'ice sector and industrialization alization continues, further increases in labor pro- ductivity reduce the growth of industry's demand Growth in the share of services tends to persist for labor. In the early phases, high growth of em- longer than growth in the share of manufacturing ployment in industry is made possible by low as industrialization proceeds. Much of the growth 50 Figure 3.7 Relationship between GD? per capita and the share of manufacturing value added in GD!' in selected economies, 1984 Philippines Egypt / Uruguay Zimbabwe// Brazil Turkey \ 4 Bolivia Peru Chile Zambia) - Thailand Pakistan Developing economy S Senegal Colombia S . Industrial economy Morocco India Share of manufacturing value added in GDP (percent) S Sri Lanka Jordan 40 S Kenya Tunisia Republic Federal Republic of Germany Indonesia of Korea - Bangladesh Belgium / s Nigeria 30 Areentina Singapore Aistria s Japan Côte d'Ivoire Mexico Italy. Sudan / Hong Kong , France Finland United States S Tanzania , Spain Netherlands Sweden T Ghana 20 - Venezuela Israel Somalia j Denmark Australia Greece New Zealand * Canada Zaire Malaysia Norway United Kingdom 10 Algeria 0 0 2 4 6 8 10 12 14 GDP per capita (thousands of dollars) in the share of services reflects the increasing spe- in later phases of industrialization. Fourth, in- cialization and urbanization that come with indus- creasing labor demand leads to the commercializa- trialization. First, the factorythe symbol of tion of domestic services, as housewives and other industrializationrequires a vast, but less visible domestic workers join the formal labor force. Ac- service infrastructure to function effectively. Trans- tivities that previously fell outside the statistics portation, distribution, communications, finance, thus begin to boost the recorded output of ser- and insurance, to name just a few, are all services vices. Fifth, urbanization, which accompanies in- that have to expand to facilitate industrial growth. dustrialization, requires additional services: police, Second, some services (for example, cleaning, in- sanitation, city administration, and so forth. formation processing, advertising, and so forth) Since service occupations, on the whole, are less that previously were performed in-house by in- amenable to automation, an increase in the value dustrial firms have progressively been contracted of service output would normally require more la- to firms in the service sector. Third, just as the bor input than an increase of equal value in the higher income demand elasticity for manufactures output of industry. This explains why the share of (compared with agricultural products) spurs the services in employment rises faster than the share rapid growth of manufacturing output in the early of services in GDP. phases of industrialization, so the higher income These factors account for the shift toward ser- demand elasticity for services (compared with vices within the individual economy. Growing manufactures) encourages the growth of services integration in the world economy has added 51 Box 3.3 Statistical studies of economic growth and industrialization Statistical studies of economic growth fall into two mostly food products, first to industrial products and broad categories. One category extends the celebrated then to services and leisure. In response to these de- Clark-Kuznets studies to a large number of industrial mand changes, the share of agriculture in production is and developing countries. The aim is to describe stan- expected to fall, the share of industry to rise, and later dard patterns of growth in economic sectors and across the share of services to rise. In addition to income per different branches of manufacturing. Another category capita, many of the studies also examine the role of tries to account for the different sources of economic population size and the endowment of natural re- growth and to isolate the contribution of rising produc- sources (or the availability of foreign resources). tivity. Strictly speaking, the structural features, such as the The studies that seek to establish standard patterns share of manufacturing in GDP, and the principal "ex- focus on income per capita. They postulate that as con- planatory" variable, income per capita, are joint out- sumers' incomes increase, their demands shift from comes of underlying economic processes that are not explained in the statistical model. Hence, no causality can be inferred. Nevertheless, the standard patterns Box figure 3.3A Per capita GDP and the share produced by these studies provide useful statistical benchmarks for inquiries into a very complex process of manufacturing (see Box figure 3.3A). Some studies attempt to provide similar standard patterns for the various branches of manufacturing. Share of manufacturing in commodity GDP (percent)a For instance, it is postulated that at low per capita in- 70 comes, demand for manufactures is concentrated on Large countries food and other light manufactures, but as per capita Small countries incomes increase, demand shifts to consumer durables 60 with ample and other heavy manufactures. The demand stimulus resources, thus provided is supposed to be translated into pro- industrial orientation duction, in part with the help of higher savings made possible by the higher per capita incomes. While all this may be true in general, rapid change in industrial 40 technology and in international specialization reduces the relevance for policy of statistical patterns at the Small countries detailed level of industrial subsectors. with ample The studies that seek to account for the sources of resources, growth start from the premise that countries can grow 20 primary orientation either through the accumulation of factor inputs (ex- tensive growth) or through the more productive use of inputs (intensive growth). For fast growth, sustained Small countries through time, both are necessary. Rapid growth rates with modest can usually be achieved with expansion in factor inputs resources at early stages of industrialization, but with time it be- 0 comes more difficult to expand factor inputs, especially 100 200 400 7001,000 2,000 3,000 labor, and efficiency in the use of all economic re- Per capita GDP (1970 dollars) sources becomes critical to further growth in GDP. To- tal factor productivity growth is a concept that tries to capture productivity growth in the use of all physical Note: A country was classified as large if its population in 1970 was 20 million or more; otherwise, it was classified as small. A small inputs. It is usually derived as a residual, after subtract- country was classified as having modest resources if its average per ing the contribution attributable to growth in the use of capita production of primaries (defined as GDP less services and labor, land, and capital from GDP growth. Since land manufacturing) in 1960-73 was less than $84 (in 1970 prices); other- grows slowly, if at all, in most countries, a good ap- wise, it was classified as having ample resources. A small country with ample resources was classified as having an industrial orienta- proximation is the residual obtained after subtracting tion if in most years during the period 1969-73 its value added in the contributions of labor and capital growth from GDP manufacturing was above the regression plane that predicts manu- growth. Box figure 3.3B shows estimates of the growth facturing value added using per capita GDP and population (for rates of real GDP, total factor (capital and labor) inputs, small countries with ample resources); if in most years the actual manufacturing value added was below the regression plane, the and total factor productivity. country was classified as having a primary orientation. The estimates were obtained by examining the The horizontal axis is in log scale. The curves are plots of a logistic growth of countries at different levels of industrializa- function with the population variable held constant at the average tion for the period 1960-75. Changes in the quality of value for each group. The number of observations at higher income levels was insufficient to estend the curve for small countries with capital and labor that occur over time have been taken modest resources beyond $400 per capita income. into account in deriving the estimates for each country. a. Commodity GDP is GDI' minus the value of services. Differences in the stage of industrialization may ac- Source: UNIDO 1979, figure VI, p. 47, and Annex I. count for some of the differences in performance among the countries shown. Nevertheless, the general 52 picture conveyed by the figure is valid. Japan and the than Argentina'sthe result of differences in produc- Republic of Korea have achieved high GDP growth tivity growth. rates through higher growth rates in both factor inputs Like the patterns-of-growth approach, the sources- and factor productivity. In contrast, the high GDP of-growth approach does not provide explanations; growth rates of Brazil and Venezuela have been based rather it provides a useful way of viewing the outcome mainly on the growth of factor inputs. Furthermore, of the complex process of economic growth. Some re- the figure shows that although factor inputs grew at cent studies (Chenery, Robinson, and Syrquin 1986) about the same rate in Argentina and Colombia, the have attempted to encompass the two methodologies latter's real GDP growth was about 2 percent higher within a single framework. Box figure 3.3B Total factor productivity and real GDP growth in selected countries, 1960-75 Real GDP growth (percent) 12 11 10 9 8 7 6 5 4 7 3 6 2 5 I 4 0 3 2 I 0 Note: Real GDP growth is the sum of the contributions from total factor input growth and total factor productivity growth. The closer a point isto the total factor productivity growth axis, the greater the relative contribution of productivity to real GDP growth. As one moves horizontally toward the total factor input growth axis, the relative contribution of productivity to real GDP growth falls and that of factor inputs rises. Source: Adapted from Chenery, Robinson, and Syrquin 1986, figure 2-2. 53 an international dimension. Several developing tiles to heavier industries, they had to rely on big- countries (for example, Brazil, Mexico, the Repub- ger plants to reap economies of scale. This too is lic of Korea, and Singapore) have been able to sup- changing. It is now profitable to produce steel in ply the relatively labor-scarce industrialized coun- mills with a capacity of around half a million tons; tries with labor-intensive manufactures at lower in the old integrated steel mills, plants of less than prices. Although the industrialized countries have 2 million tons were inefficient. In the microelec- sometimes tried to resist this trend, they have also tronics industry, efficient plants can be much adjusted to it, partly by increasing their exports of smaller than in the older branches of manufac- services such as banking, insurance, engineering, turing. computer software, and marketing. Lessons from industrialization experiences Structural change within manufacturing before World War II World industrialization initially centered on tex- What are the lessons to be drawn from the experi- tiles, later moved to iron, steel, and engineering ences of countries which have followed a success- products based on steel, then to chemicals, electri- ful path to industrialization? This section examines cal products, and, finally, to today's electronic and five of the most important issues: the initial microelectronic products. Most of the countries conditionscountry size, population size, and re- that industrialized before World War II followed source endowment; policies toward domestic and this product sequence, at least as far as electrical foreign trade; education; transportation and com- products. Is this pattern of change within the sin- munications infrastructure; and the institutional gle sector of manufacturing as inevitable as the one and macroeconomic background. by which agriculture first gives way to manufactur- ing and then manufacturing itself gives way to Initial conditions services? Textiles are preeminent in the early phase of in- A country with a large domestic market is in a dustrialization mainly because clothing is a good better position to establish industrial plants that for which there is growing demand in countries take advantage of economies of scale. Since dis- with low, but rising, income levels. In addition, tance between countries in many cases confers nat- most countries have a long history of textile pro- ural protection to domestic firms, everything else duction by artisans. Moreover, until quite recently, being equal, a country with a larger domestic mar- textiles technologies have been simple and stable. ket can begin industrializing earlier than one with All in all, then, it was natural for most countries to a smaller domestic market. A large geographical begin industrializing by producing textiles (Box size and a large population can, together, produce 3.2). The same factors also explain the early im- a large domestic market, unless agricultural pro- portance of leather goods, food processing, furni- ductivity is exceptionally low. Hence, a large coun- ture, ceramics, building materials, and household try with a large population can industrialize earlier. utensils. But this has not always been the case. By the time most of today's developing countries Although the United Kingdom is a small coun- started to industrialize (in the postwar period), the try, its growing agricultural productivity in the choice of products and processes in manufacturing early 1700s supported an increasing population was much wider and the world much more inte- and provided an expanded domestic market that grated. Countries could choose not to follow the helped spur the Industrial Revolution. Japan, a product sequence that had occurred in the prewar small country with a relatively large population, period. For example, it was possible to create an went through a similar process. Switzerland has engineering industry without producing iron and industrialized successfully despite its smallness in steel and to produce chemicals without refining size and population. By contrast, Australia and Ar- petroleum. Nonetheless, some developing coun- gentina are both large countries. In the late nine- tries, emulating the previous generation of indus- teenth and early twentieth centuries, their popula- trializers, built steel mills, refineries, factories pro- tions were expanding. In 1895, the per capita ducing consumer durables, and other heavy (or income of Argentina was as high as that of Ger- "late") industries. Some of these enterprises sur- many, Holland, and Belgium; Australia's was vive only with the aid of high protective barriers. higher, exceeding that of the United States. Yet As the industrialized countries moved from tex- neither country industrialized in the nineteenth 54 century, and neither is among today's major in- It is unclear how these shifts of foreign trade dustrial countries. policyliberal followed by protectionist, and vice A rich endowment of natural resources may pro- versashaped industrialization before World War vide a country with the financial means to import II. Domestic markets were generally competitive, foreign technology and with the high incomes to so inefficiencies arising from protectionism may support a large domestic market for industrial have been reduced, particularly in countries with products. But several of the countries that became large internal markets such as Germany and the rich from natural resources were slow to industri- United States. What is clear is that imports were alize. In the sixteenth century, Spain was the rich- the main channel of new technology in the initial est country in Europe, thanks mainly to the min- stages of industrialization in each country except eral resources of South America. But Spain did not the United Kingdom. Furthermore, exports pro- initiate the Industrial Revolution, and the great vided a powerful demand stimulus; the countries surge in industrialization in eighteenth- and whose exports grew rapidly achieved the fastest nineteenth-century Europe largely passed it by. overall economic growth. Domestic and foreign trade policies Education, skills formation, and technology adaptation Many of the countries that industrialized success- The transition from a primarily agricultural and fully in the nineteenth century first acquired tech- trading economy to an industrial economy has re- nology through imports, then rapidly moved to quired, at least in the initial stages, an increase in producing manufactures for export. Policies that the skills of the labor force. To use foreign technol- allowed opportunities on foreign markets to be ogy effectively, producers must examine the communicated to domestic producers, that al- choices available, make intelligent selections, and lowed domestic resources to move freely in re- adapt them to local conditions (see Box 3.4). All of sponse to the opportunities, and that comple- this calls for education. mented existing resources through education, More than general education is required, but training, and infrastructure all contributed to the high achievements at the frontiers of science are success. not. Science played a minor role in the first indus- Unrestricted domestic trade was a precursor of trial revolution in Britain. Scientific excellence Britain's industrial revolution. Many other Euro- played an important role in Germany's rise to in- pean countries and Japan began their industrializa- dustrial prominence in the nineteenth century, but tion with reforms that liberalized their domestic its system of polytechnical institutes, which taught trade. Foreign trade policies, however, were incon- basic industrial skills, probably mattered more. sistent. Episodes of free tradesuch as those in the The United States and Japan both rose to world United Kingdom after 1846, in France during the industrial leadership by copying and modifying 1860s, in Germany in the 1830s and 1860s, and in foreign technologies. (Until the early 1900s the the United States during the 1840s and 1850s United States trailed behind the United Kingdom, were mixed with periods of restrictions on trade. France, and Germany in major scientific discov- The aims of foreign trade policy varied widely, too. eries, but not in practical innovations and inven- In some cases foreign trade restrictions arose from tions.) a desire to protect domestic industry. Examples in- State support for technical education made sig- clude British restrictions on machinery exports un- nificant contributions to French and German in- til 1842 and tariff increases in Germany in the 1840s dustrialization. The United States broadly emu- and in the United States after the Civil War. At lated the German system of technical education. In other times, import restrictions were prompted by addition, its government established a system of the desire to protect agriculture. This was the moti- financial support for research in universities. Pri- vation behind Britain's Corn Laws, the increases in vate industry also maintained research laboratories German and French tariffs in the 1870s, and the that sometimes received public support. Although Smoot-Hawley tariffs in the United States in 1930. some of these laboratories conducted original re- In Germany, France, and the United States, how- search, one of their main tasks has been to spot ever, the tariffs were also extended to cover manu- innovations elsewhere and provide the expertise factured imports. In other cases, import restric- that makes rapid imitation possible. Japan has also tions were adopted with the balance of payments shown a strong and continuing commitment to ed- in mind. ucation. By 1870 it had achieved a literacy rate that 55 Box 3.4 Technology acquisition and adaptation: the experiences of Japan and the United States In a variety of ways the Japanese deliberately adapted the need to adapt foreign technology to domestic cir- Western technology to preserve scarce capital re- cumstances. Dutch water control technology, for in- sources and use abundant labor. In textiles, for exam- stance, was introduced without considering that, in ad- ple, they purchased older, secondhand machines often dition to tidal forces, mountain runoff was a major discarded as obsolete by the Lancashire mills. Once source of flooding. Similarly, the Japanese government installed, the machines were operated at high speeds in 1871 imported a vast mechanized silk-reeling plant and for longer hours than was the prevailing practice in from France. Although it was intended as a model fac- the United Kingdom or the United States. Greater tory, private business discovered that it could not prof- quantities of labor were lavished in servicing the ma- itably operate such capital-intensive plants. chines and maintaining them in a decent state of repair. The United States' earlier adaptation of technology When the Japanese eventually reached the point of in the nineteenth century was very different from that building their own textile machines, they substituted of Japan, but as successful. Endowed with an abun- wood for iron wherever possible. They also introduced dance of natural resources, but with a scarcity of labor, cheaper raw materials into production, as in the case of the United States adapted its technology accordingly. cotton spinning, and added more labor to each spin- Technology imported from Britain was adapted, when- fling machine to handle the increased frequency of bro- ever possible, to the extensive exploitation of natural ken threads. They also employed ring-spinning tech- resources. For example, although the United States nology when virtually every other textile giant, apart had a later industrial start than Britain, it quickly estab- from the United States and Brazil, was using mule- lished a worldwide leadership in the design, produc- spinning machines. When continued improvements in tion, and use of woodworking machinery. It was char- ring-spinning technology and changes in global factor acteristic of these machines that they were wasteful of prices made ring spinning the dominant technology in wood, which was abundant in the United States. the world, Japan was well positioned to increase its These examples show that, ultimately, "appropri- market share (Rosenberg, background paper; Saxon- ate" technology is what a country creates for itself, house 1985). using all the means available to itincluding "inappro- It is noteworthy that Japan at first did not understand priate" foreign technologyefficiently. compared favorably with those in Western Europe. many, Italy, and Japan, the financing was often Today, industrial research is carried out mostly direct. In others, it was indirectfor instance, land within private firms, but in the early period of in- grants (as in the United States) and guarantees of dustrialization the government helped to promote debt issues of private companies (as in France). technological change, for example by setting up demonstration factories which were later sold to Stable institutional and macroeconomic environment the private sector. Laws and institutions that allow markets to func- Transportation and communications networks tion efficientlyproperty rights, standardized weights and measures, patent laws and so forth One of the better known aspects of nineteenth- have helped to promote rapid and efficient indus- century industrialization is the importance of rail- trialization. Laws and institutions should provide ways. Transportation and communications net- a stable environment that promotes long-term in- works integrated and expanded domestic markets vestments and risk taking. Yet they should also be and increased their efficiency. They also integrated flexible enough to allow institutional innovations. domestic markets into the global economy, making For example, faced with the problem of financing it easier for exporters to compete. But transporta- the capital-intensive railway system in the early tion and communications networks are capital- 1800s, Britain lifted its earlier prohibition on the intensive, and therefore expensive, especially dur- formation of joint-stock companies. Late industri- ing the early stages of industrialization. Except for alizing countries in Europe, particularly Germany, Britain, governments of countries industrializing pioneered such innovations as the joint-stock bank in the nineteenth century helped to finance the and the investment bank in the second half of the construction of transportation and communica- 1800s, and the United States devised the modern tions networks. In some countries, such as Ger- corporation in the 1920s. Such flexibility greatly 56 assisted industrialization. early industrialization, but further progress along Industrialization requires large investments in the path is greatly influenced by government pol- machines and infrastructure, especially in its early icy. Provision of infrastructure and education has stages. Moreover, one of the most important been important. A stable institutional and macro- means by which technological innovations have economic environment and domestic and foreign been incorporated in production has been invest- trade policies which allowed producers and factors ment in new machines. Macroeconomic policies in of production to respond to incentives have been the countries industrializing in the nineteenth cen- crucial. Much has changed since World War II, but tury encouraged domestic savings and thus pro- the essence of industrialization is as it was before: vided the funds required for investment. They also the interaction of technological change, specializa- made foreigners, especially the British and the tion, and trade. Some of the policies that proved French, willing to provide loans and direct invest- successful in the years before World War II may ments. not be applicable today. But the key to success is stifi to choose policies that allow economies to uti- Conclusion lize this interaction fully to their advantage. The Initial conditions of size, population, and natural chapters that follow discuss what this means for resources may influence the timing and pattern of today's developing countries. 57 The role of government This is the first of four chapters that deal with gov- time reinforce a social consensus in favor of eco- ernment policies for industrialization. It considers nomic growth (see Box 4.1 on industrialization and the conditions under which governments are likely poverty). to make their best contribution to industrialization Governments have always been central to the in a market-oriented economy and gives particular industrialization process, whether as economic emphasis to the services that governments provide ringmaster in the laissez-faire Britain of the past directly. By way of introduction to the subsequent century or as central planner and provider in to- three chapters, this chapter also takes a prelimi- day's Soviet Union. Most developing countries, nary look at government's indirect role of interven- like the industrial market economies before them, ing to influence the way markets work. Chapter 5 have also relied extensively on the private sector then examines the crucial relationship between and on markets in their effort to industrialize. trade policies and industrialization; Chapter 6 In a market-based system public and private sec- draws lessons from different countries' experience tors have complementary roles. These roles must with trade policy reform; and Chapter 7 analyzes be seen in the context of the growing complexity of the impact of complementary policies, including industrializing economies. While the invisible financial, labor, regulatory, and technology hand of the market is adept at dealing with this policies. complexity, the visible hand of government needs to provide the rules of the game for markets to Governments and industrialization work. But even with these rules there are limita- tions on markets and limitations on governments, Government pervades modern society, and indus- the one requiring greater intervention, the other trialization has to be reconciled with other public reducing the scope for effective intervention. objectiveseconomic, political, social, and cul- In a traditional, preindustrial economy produc- tural. The presence of government varies greatly tion techniques are primitive, there is relatively lit- across countries according to ideology, political tle division of labor, markets tend to be local, pro- structures, administrative capacity, and the level of ductive units are small and family-based, and development. This chapter considers some of the transactions are simple. Industrialization brings broad principles that govern policy choices for in- greater division of labor and new technology. A dustrialization, but does not aim to judge specific cobbler making shoes needs leather, thread, and a country policies. few simple tools. A modern shoe factory divides Governments have a central roleimpinging on, production into many discrete steps. It uses so- but separate from, their role in industrialization phisticated machinery, hundreds of material in- of providing for a desirable distribution of income puts and supplies, financial and commercial ser- and the alleviation of poverty, ill health, and illiter- vices, and many different skills. acy. By providing a safety net, governments can Specialization also leads to far more complicated fulfill their humanitarian duties and at the same transactions. Separate markets emerge for compo- 58 Box 4.1 Industrialization and poverty A fundamental goal of economic development is to im- pate in the more productive activities of the modern prove the welfare of the poor. The evidence suggests sector. that in the long term, in most cases, the benefits of Second, economic reforms (discussed in Chapters 6 economic growth are dispersed throughout society and and 7) also promise to draw the poor into the develop- reach its poorest members. Yet there is also evidence ment process: they open up employment opportunities that the distribution of income can worsen during the in the modern sector by reducing the degree of monop- first decades of development, even if the absolute in- oly in the economy and encouraging the use of labor come of the poorest grows. relative to capital. The demand for labor is likely to be Governments seek to raise the incomes of the poor- stimulated by the relaxation of controls in the capital est in several ways, including fiscal redistribution (di- market, the removal of minimum wage legislation, rect subsidies, for instance), institutional change (land andfor economies with abundant labora reduction reform, for instance), and policies to affect the struc- in the protection of capital-intensive activities. ture of the economy. Policies that directly attack pov- Such improvements for the poor would not be in- erty or its causes are generally preferable to more indi- stantaneous. Meanwhile, the transition to a more rect approaches which undermine the way markets market-oriented economy might aggravate the situa- work. tion of some of the poor in the shorter term. In econo- It is not clear that policies directed at industry can be mies with large budget and balance of payments defi- any better oriented to the alleviation of poverty than cits and high inflation, a necessary initial stage of policies directed at other sectors. The poorest sections economic reform might involve cuts in government ex- of the population (often landless laborers or small penditure and employment that hurt the poor directly. farmers) tend to live in the rural areas, and industry's At the same time, economic reforms that reduce gov- potential for alleviating poverty is probably a good deal ernment intervention in factor and goods markets can less than agriculture's. Land reform and pricing re- be expected to stimulate economic activity. But the net forms for farm output can have significant effects on effect could be to make some of the poor (particularly the rural poor. those in towns) worse off in the short term, for exam- Nonetheless, many governments have sought to use ple by creating regional pockets of unemployment or industry as an instrument of redistribution in the short through the effect of a devaluation on food prices. The term. In practice their initiatives have done little for hitherto protected manufacturing sector might bear the poverty and little for industry. For instance, price con- brunt of this impact. There is, in fact, surprisingly little trols on such essentials as bread, sugar, and cooking oil evidence that trade liberalization has adversely affected subsidize the consumption of rich and poor alike (see employment even in the short term (see Chapter 6). Of Chapter 7). Price controls hardly encourage production course, some countriesIsrael and the Republic of Ko- sufficient to cover demand, and the informal rationing rea, for examplehave liberalized slowly with this very that ensues may well favor those with more political worry in mind. weight. Legislation that raises the level of wages above Economic reform undoubtedly benefits the poor in the marginal product of labor can have similar perverse the long term. It will sometimes hurt them in the short effects. In the formal industrial sector it discourages term. Just how large a problem this poses is not yet hiring, and those who benefit do so at the expense of clear, but governments will need to pay attention to the the urban poor who do not have factory jobs. short-term effects of economic reform, both on human- But other aspects of an industrialization strategy may itarian grounds and to gain broad acceptance for these help in the battle against poverty more than is gener- reforms. Experience suggests that the alleviation of ally realized. First, part of the government's direct poverty in the short term is best tackled directly and most usefulrole in industrialization is to provide through well-targeted programs to provide social ser- basic education, physical infrastructure, and a set of vices or direct compensation in cash or kind to the secure economic rights (to allow, for example, small poorest, rather than indirectly through interventions in business to operate legitimately). When governments factor or goods markets. are effective in this role, they enable the poor to partici- nents, supplies, machinery, differentiated labor are too high, they will slow the process of speciali- skills, and so on. Transactions in these changing zation. markets can be costly. When there is a delay be- Two polar forms of economic organization have tween sale and payment, for instance, contracts emerged to deal with the problem of high transac- have to be drawn up and honored. All this in- tions costs. Centrally planned economies try to volves commercial risk. If these transactions costs maximize information flows and minimize contrac- 59 tual problems with central ownership and alloca- alized have by and large observed the hierarchy of tion of resources (Box 3.1 in Chapter 3). At the priorities described above. They have established other extreme is the decentralized economy of clear rules of the game, contributed judiciously to Hong Kong or nineteenth-century Britain, in the construction of an industrial infrastructure, which resources are privately owned, a multitude and otherwise intervened sparingly and carefully. of separate but interconnected markets conveys in- Some developing countries, however, have under- formation and allocates resources, and the govern- mined their industrialization efforts by approach- ment enforces the laws that regulate these mar- ing these choices in reverse. In the more extreme kets. In between these poles lie the industrial and cases, public intervention in markets has been developing market economies of the world, which heavy, but fragmented and in pursuit of conflicting display a variety of forms of economic organization objectives. The rules of the game have been uncer- and public and private ownership. All of them try tain. These characteristicstogether, in many to influence the way markets work, and all at least cases, with an inadequate infrastructurehave re- partially override markets by allocating resources sulted in poorly chosen industrial investments, from the center. high costs of doing business, and the devotion of The development needs of poor societies are so substantial private resources to getting around the urgent that tremendous pressures are placed on rules or obtaining special economic privileges. their governments to stimulate industrialization. The next part of this chapter discusses the direct Yet the human and physical resources available to role that governments have traditionally played in developing country governments are so limited market-oriented economies, including the provi- that they have great difficulty in attaining their sion of economic rules and industrial infrastruc- many economic objectives, including physical in- ture. An analysis then follows of some of the is- frastructure, agricultural development, health, ed- sues that arise in government's indirect role of ucation, or the alleviation of poverty. The govern- seeking to improve on the working of the market. ments therefore have to be careful in choosing The discussion focuses, in particular, on the pro- their priorities for industry. This chapter suggests motion of infant industries. The final part of the that the case for government involvement in the chapter examines the costs of doing business that industrialization process can be better made in can arise when governments intervene ineffec- some areas than others. tively in markets. There are some economic services that only governments can provide, including certain cen- The direct role of government: public goods tral economic functionslegal, monetary, and and public services fiscaland a welfare net for the poor. Particularly vital to modern industrial economies, with their All governments take responsibility for producing multitude of complex transactions, is an efficient a range of goods and servicescalled public legal and institutional system, which clearly sets goodsthat only they are in a position to supply out the rules of property and commerce and the adequately. These include national defense and in- respective roles of the public and private sectors. ternal security, money, and the provision of a legal Governments have played a major role in pro- system. Among the most important public goods viding important parts of the economic in- is a legal and institutional system which reduces frastructuretransport networks, health and edu- the costs and risks of transactions. Certain other cation services, and so forthon which progress in goods and servicesfor instance, transport, the rest of the economy so heavily depends. But power, education and training, and research how this should be done and the point at which provide a foundation which enables the rest of the the role of government ends and that of the private economy to work more smoothly. These services sector begins will differ from country to country. of the economic or industrial infrastructure often Governments often intervene in markets to require the efficient management of large invest- improve economic performance, to limit abuses ments, which is difficult to achieve in many devel- (such as fraud, pollution, and endangerment of oping countries. As a result, costs are higher and health), or to promote the welfare of the poor. But markets fail to work as well as they should. The it is here that the government's precise role is most direct presence of government in these areas has difficult to identify. been very important to industrialization, although Experience suggests that the governments of the private sector has also had a significant role in market economies which have efficiently industri- most countries. 60 The legal and institutional system tries is that, whether these countries embrace the market economy or not, the economic rules may be The economic rules of the game"property unclear and the rights that go with them insecure. rights" in the shorthand of economicsprovide for the ownership and transfer of factors of pro- ECONOMIC RULES IN MARKET ECONOMIES. In the duction and goods. Every type of economy industrial market economies the economic rules of market oriented or centrally planned, advanced or the game have evolved as a system of laws in developingcan be defined by its economic rules. which private ownership and freedom to dispose The question is whether any given set is efficient. of property are guaranteed, there is some guaran- In particular, does it provide a climate of stable tee against arbitrary seizure or punitive taxation by expectations? Knowing clearly who owns what the state, the limits to public ownership are well and how goods and services can be used, bought, defined, and private individuals are allowed to as- and sold reduces uncertainty and provides the ba- sociate freely and make contracts which can be up- sis for the specialization and investment essential held in law (see Box 4.2). to industrialization. Defining a suitable set of Governments need to raise revenues and regu- rights gives rise to technical problemshow to late the economy for a variety of reasons, and they cope with rights to clean air, with common prop- invariably have to make compromises between an erty that is becoming overexploited (desertification ideal set of economic rules for a market economy in the Sahel, for instance), with intellectual prop- and their other objectives. For instance, the greater erty such as computer software, with new prob- the level of taxation, the more it reduces the real lems such as theft of computer data, and so on. But value of assets. The same is true of inflation, which the most pressing issue in many developing coun- imprudent government policies can provoke. Priv- Box 4.2 The historical evolution of economic rights in England and Spain Starting in the late Middle Ages, in a number of Euro- merchants increasingly expressed their power through pean countries, commercial interests grew more pow- the parliament. After a long struggle the parliament erful and sought to force the state to cede to them finally achieved victory over the king in the late seven- greater commercial freedom in return for the increasing teenth century. From then on, economic rights became demands that the state was making on them. Where more secure, and capital markets developed rapidly. these commercial interests were successful, the results The subsequent Industrial Revolution reflected these were momentous. Economic and political decentraliza- changed institutional conditions. Individuals were free tion weakened governments' arbitrary powers of con- to form enterprises with few political restrictions, en- fiscation and prompted the evolution of the economic terprises were authorized to acquire and sell goods and laws and rights that characterize most of today's indus- switch activities freely, andalthough subject to trial market economies. The history of these develop- taxationthese enterprises became largely immune ments from late medieval times in England and Spain from arbitrary seizure. is instructive. In Spain, however, the Castilian kings were able to The development of expensive new military hard- resist demandsexpressed through the Cortesfor a warethe longbow, the crossbow, and gunpowder better deal for commerce. This was partly because the meant that medieval rulers needed additional revenue. kings continued to benefit from the riches offered by One way to raise funds was to create representative their colonies in the New World. In turn, the demands bodies which could exchange revenue for economic of this large overseas empire led to the development of rights. The segment of society capable of supplying a vast, centralized bureaucracy to administer it. this finance was the emerging class of landed gentry According to one authority (North 1986), these two and merchants. different paths of historical development go far to ex- For a time the English Crown used its royal preroga- plain the evolution of a set of economic rights compati- tive to satisfy the interests of this class and its own ble with efficient markets in British-colonized North financial needs through the sale of offices and the crea- America and Spain's legacy to Latin America of a tradi- tion of monopoly rights. But the increasing reliance of tion of bureaucratic centralization. This happened in the English kings on this form of finance pitted them spite of the similarities of many of the written constitu- against the landed gentry and merchants who de- tions in the northern and southern parts of the New manded greater commercial freedom in return. The World. 61 ileges granted to certain economic agents War II, a law put a nominal 10 percent ceiling on monopolies or subsidies, for instancereduce the the rate of return on historic book value for private incomes of others. Regulation to protect welfare power utilities. High inflation made this rule use- to ensure standards of safety and health or to pro- less, so the government permitted the utilities to tect minors, for instanceaffects private rights. get around it with various ad hoc regulations Sudden changes in policy reduce business confi- which established, for example, surcharges or dence. preferential exchange rates. In the meantime, the Certain institutional arrangements have helped ceiling on profits created great uncertainty, which to shape the system of economic rights that fos- led to a deterioration in the service and encour- tered industrialization in the industrial market aged businesses to install their own generating economies. Legal forms of incorporation promoted equipment. the separation of ownership and management of The perceived insecurity of economic rights in firms. Limited liability and bankruptcy laws developing countries has been revealed in several which allow a firm's equity holders to limit their surveys of foreign investors. (In all probability, losses to the capital they have subscribed and to most of their fears are shared by domestic inves- spread the remaining losses among the firm's tors.) According to the surveys, this insecurity de- creditorshave helped to spread commercial risk rives from the following: internal political pres- and transfer the assets of failed companies to those sures (to control prices, for instance); the problems who can make better use of them. Various regula- of dealing with the bureaucracy (slow and arbi- tory institutions, public and private alike, have trary decisionmaking, especially at the base of the evolved to oversee the functioning of financial bureaucratic hierarchy, and lengthy regulatory markets, partly as a means of preventing abuse. procedures); corruption; the risk of expropriation; The rules of the game and conventions in business uncertainty over whether legal and contractual behavior have developed in mutually reinforcing rights would be upheld by the courts; uncertainty ways: the greater the level of trust in the business about changes in legislation, especially on tax community, the more likely it is that contracts will rates; and excessive legalism (a barrage of unclear be honored. laws, often flexibly interpreted by governments). ECONOMIC RULES IN DEVELOPING COUNTRIES. Information and welfare Many developing countries have inherited or adapted their legal systems from the Western tra- All governments take steps to increase the infor- dition. This has sometimes meant laws that cannot mation available to producers and to protect con- deal adequately with developing countries' prob- sumer welfare. Governments have a comparative lems. In some countries legal provisions for com- advantage in collecting and disseminating certain pensation have taken too little account of inflation. kinds of information, especially in developing In most developing countries product liability law countries, where information is scarce and educa- is weak (particularly in view of the import of haz- tion often poor. All governments provide basic sta- ardous foods, drugs, or pesticides from industrial tistical and other information on their own activi- countries that ban these products at home). In ties and on the economy in general. Some go China, in recent years, the government has been further and provide information about likely fu- seeking to decentralize microeconomic decisions to ture developments in domestic or foreign econo- the individual enterprise. It has, for instance, been mies. This kind of forecasting can be risky. In some seeking ways to modify contract and bankruptcy cases, howevernotably in Japan and the Republic laws. of Koreagovernments have played a useful role For many developing countries the biggest prob- as a clearinghouse for information and forecasts on lem is that the nominal rules of the game do not domestic and foreign markets and technologies. correspond to the real rules, which are unclear Governments regulate to protect welfare by and unstable. In the Philippines, for instance, ad checking weights and measures, by establishing hoc decrees in the 1970ssometimes unpublished health standards for foods and drugs and clean granted favors to certain firms, often at the ex- water, by requiring product safety standards and pense of their domestic competitors. The gov- product guarantees, and by imposing safety stan- ernment granted an import monopoly on black- dards in the workplace. Similarly, governments and-white televisions and a monopoly to produce regulate financial markets to prevent abuses such newsprint. In Brazil, for many years after World as insider trading, to require companies to disclose 62 more information, and to require financial institu- 1965. The most successful also achieved high per- tions to insure their smaller depositors. centages enrolled in secondary schools and near- In all this, regulation is a two-edged sword universal literacy of their labor forceusually just even in areas in which the government's role is before the economy embarked on rapid and sus- indisputable, such as welfare protection. Legisla- tained industrial growth. (Figure 4.1 shows a con- tion can create barriers to entry, limit consumer siderably higher level of educational attainment in choice, and add to production costs. For instance, Korea's labor force than in Sub-Saharan Africa's, the licensing procedures for new drugs in indus- with Indonesia's in between.) trial economies are a tradeoff between increased Returns to investment have generally been safety and the expense and delay to be faced by higher in education than in physical assets. Eco- companies bringing new drugs to the market. nomic rates of return to primary education in de- veloping countries have averaged 26 percent, com- Education pared with estimated returns on physical capital of 13 percent. This suggests that lack of education is a Education spurs the process of industrialization by greater obstacle to industrialization and develop- imparting skills, improving health, and allowing ment than lack of physical assets. more women to enter the labor force. Education, Economic returns are higher at the lower and investment in technological knowledge, and phys- more general levels of education (see Table 4.1). ical investment go hand in hand. Countries that General education is profitable because it teaches neglect any one of these forms of investment may the skills of basic literacy and numeracy, the ability not be efficient in industrializing. China, Hong to think adaptively, and the importance of time- Kong, Israel, Japan, Korea, and Singapore have all based discipline. Modern industry has little use for achieved fast economic growth. All adopted a bal- illiterates. Some developing country governments anced investment strategy that included education have tended to expand higher-level vocational along with increased physical capital and technol- training too fast. ogy transfer. All had achieved universal or almost Education can be produced in small units, can be universal enrollment at the primary school level by easily charged for, and can be provided privately. Figure 4.1 Educational profile of the labor force in selected developing countries Sub-Saharan Africa, 1985 Indonesia, 1985 Republic of Korea, 1975 Percentage of the labor force that has: completed higher education El completed secondary education fl had at least some primary education had no formal education Source: McMahon (background paper). 63 Table 4.1 Economic rates of return in education liarities which sometimes make trade difficult. (percent) These are frequently used to justify public inter- Level of education vention. Country group Primary Secondary Higher Producers of technology often face high risks, Industrial market economies since the outcome of innovation is uncertain and (ten countries) 15 11 11 technologies can sometimes be easily copied. Pur- Developing country ex- chasers of technology also face risks, because they porters of manufactures' 15 13 9 often cannot know just what they have bought un- Other developing countries (twenty-six countries) 28 17 til they have acquired and used it. Technologies 14 often require substantial adaptation to local cir- Note: The economic rates of return (referred to as social rates of return in the literature on the economics of education) on which cumstances; those that come in the form of ma- these averages are based are from studies which for the most part chines or blueprints require a substantial comple- refer to the 1970s and early 1980s. For comparison, economic rates of return to investment in physical capital averaged 13 percent for de- mentary input of human capital. Although the veloping countries and 11 percent for industrial market economies. process of international technology acquisition is The lack of a control group of illiterates in the industrial market economies prevents a direct computation; the estimate is based on complex, the problems are no different from those the return for developing country exporters of manufactures. faced by firms in the normal competitive process in India, Israel, Singapore, and Yugoslavia. Source: McMahon (background paper). advanced countries. And for the same reasons it is difficult to define the best role for government in developing countries. In some respects technological knowledge is Yet the case for a large public effort is strong. The akin to a public good. Technological knowledge is need for national educational standards and for already produced as a freely available good by uni- civic responsibility implies elements of a public versities, publicly subsidized laboratories, or pri- good. A basic primary and secondary education vate foundations. This tends to be in areas of purer for those unable to pay for it is both an economic (less applied, less product- and firm-specific) re- investment and a means of income redistribution. search, which the more advanced countries are For vocational and higher education the argu- likely to dominate and from which less advanced ments are different. The more specialized the edu- countries can (eventually) benefit without having cation or training, the more its beneficiaries will be to pay the full costs of the research. able to appropriate the returnand the more will- The public goods argument can apply to devel- ing they will be to invest in their own education. oping countries, particularly the more advanced Firms will provide training if they can reap the among them, and thus justify university research, rewards. Individuals will invest in their own edu- higher education, research and development insti- cation if they can profit from the skills they ac- tutes (such as the Korean Institute of Science and quire. (Apprenticeship is one such form of private Technology), technological information services investment.) Governments could therefore (as in Brazil), or even collective research projects achieve greater cost recovery from students in (as in Japan). But it may be more advantageous to higher educationor, in poorer developing coun- focus the public sector resources of developing tries, from students in the higher levels of second- countries on health or agriculture rather than on ary education. There may be scope, too, for greater industry, where the developing countries are decentralization of higher education in order to clearly technology followers. Thus government make it more responsive to market signals. regulation of private technology transactions is likely to prove more effective (see Chapter 7). Technology Transport, communications, and energy Much of the unprecedentedly rapid development of large parts of the world economy in recent dec- Early in the industrialization process there is rapid ades is due to advances in technology (Chapter 3). growth in the transport and power-generation sec- These advances can be reproduced for a fraction of tors. In 1980, Rwanda had a per capita income of the cost borne by the industrial countries that de- $223; its transport and communications sectors ac- vise them. This explains the emphasis placed on counted for 2.2 percent of GDP; gas, electricity, technology in the industrialization process. Often and water had a share of 0.1 percent of GDP. In technological knowledge is a commodity that can Malaysia, with a per capita income of $1,787, those be traded like many others, but it has some pecu- sectors had considerably larger shares-5.3 and 1.8 64 percent, respectively (see Figure 4.2). Once coun- to decline. Note that there is also some support for tries are more fully industrializedat income lev- the notion that the share of physical infrastructure els of around $4,000-6, 000these GDP shares start in GDP may begin to rise again once per capita GDP is around $12,000. This is reflected in the rela- tionship shown in Figure 4.2. In transport and communications, for instance, this may be ex- Figure 4.2 Economic development and plained by rapid growth in telecommunications industrial infrastructure services in high-income societies. These sectors provide important services to Transport and communications other parts of the economy as well as to con- Sectoral output as a percentage of total output sumers. The phase of rapid growth in transport 11 and communications partly reflects the growth of transactions as more and more firms sell to one another and to households and as interregional trade grows. The increasing demand for power is 8 largely explained by the introduction of mecha- nized techniques throughout the economy, espe- cially in industry. Both sectors require large invest- ments which, once made, can dramatically reduce costs or open up economic opportunities. In Korea 4 and Yugoslavia, for instance, public decisions to extend the road network led to an increase in traf- fic, which in turn laid the basis for government decisions to encourage the domestic production of automobiles. 0 It is difficult to judge whether today's develop- 0 4 8 12 16 ing countries have invested enough in these infra- GDP per capita (thousands of dollars) structure systems. There is plenty of evidence of Gas, electricity, and water unsatisfied demand (at prevailing prices) for Sectoral output as a percentage of total output power and telecommunications services, as well as 4.0 of congestion in much of the transport system, In Kenya, for instance, some 55 percent of local phone calls and 87 percent of long-distance calls . . cannot be completed because of the heavy traffic. 3.0 . . Overloaded and undermaintained electricity sys- S tems lead to frequent power cuts and encourage S S many firms to invest in their own power plants. S 2.0 One study estimated the costs of power shortages in India in the mid-1970s to have averaged 2 per- cent of GDPmost of this representing lost output 1.0 S in the industrial sector. If such servicesnow often subsidizedwere priced nearer to their costs, their quantity and reli- ability would be more in line with demand. But the 0.0 I apparently high economic rates of return for infra- 0 4 8 12 16 structure projects suggest that for many countries GDP per capita (thousands of dollars) the present supply of infrastructural services is still a bottleneck to development. Certainly, infrastruc- Low-income economy Middle-income economy ture investment was a priority for the more suc- Industrial economy cessful developing economies, whether the bur- den was on the public sector (as in Korea and Note: Data points represent observations for 1980. Singapore, for instance) or on the private Sector (as Source: Khan (background paper). in Hong Kong). Government involvement in the provision of 65 technical progress the market for telecommunica- Figure 4.3 Economic development and tions equipment has been liberalized in many in- government expenditure on transport dustrial countries. In the United Kingdom and the and communications United States a limited amount of competition has even been introduced in the telecommunications Ratio of government expenditure to sectoral output (percent) network. In some countries cooperatives supply 90.0 telecommunications services (as in Bolivia, for in- stance) or electricity. In other countries some pub- . . S lic services are subcontracted to the private sector S (the telephone system in Botswana, for instance, and road maintenance in Brazil and Costa Rica). In cases of monopoly, a public authority usually fixes prices, whether the utility is publicly or pri- . . vately owned. These prices are often set too low, S S usually for social reasons. The result is that de- 4.5 mand at the prevailing price outstrips supply, and 100 1,000 10,000 20,000 the utilities are unable to cover their costs. Experi- GDP per capita (dollars) ence firmly suggests that the pricing of outputs at their long-run marginal cost (that is, the invest- Low-income economy ment, maintenance, and operational costs of pro- Middle-income economy ducing an additional unit of output) is the best way to match supply and demand, recover costs, and Industrial economy ensure adequate investment. Often this is easier said than done. Prices may need to be adjusted to Note: Both axes are in log scale. Data points represent observa- account for specific social, fiscal, or financial objec- tions for 1982 or the most recent year available. Government expenditure generally includes all transfers to public corpora- tives. Where the level of investment is still inade- tions but excludes the expenditures of the public corporations quate, prices may need to be adjusted to clear the themselves. Source: Khan (background paper). market. Moreover, it is sometimes difficult to mea- sure long-run marginal costs or to meter the use of the services. But analytical techniques to overcome these problems have improved greatly. transport, communications, and power occurs for State-owned enterprises several reasons. There is a public goods argument in cases where user fees are difficult to collect, al- State-owned enterprises (SOEs) were extensively though governments can sometimes levy indirect discussed in World Development Report 1983. Virtu- user chargesthey might finance roads, for exam- ally all governments provide at least some com- ple, with gasoline taxes and license fees. Larger mercial goods and services, notably power and projectstelecommunications, railways, and elec- telecommunications, through SOEs. SOEs are im- tricity and gas production, for instancemay in- portant producers of a broad range of industrial volve economies of scale. In other words, a single products such as steel, fertilizers, automobiles, investmentprivate or publicmight be more effi- and petrochemicals (see Figure 4.4). Governments cient than a number of competing investments. have created them for a variety of reasons: to The preference in most countries for public enter- spearhead industrialization in countries with virtu- prise may reflect a belief that control is better exer- ally no large-scale industry; to promote industries cised through ownership than through regulation. deemed to be of strategic importance; to save For large projects, underdeveloped financial mar- threatened jobs; to reduce the presence, or prevent kets or political risks might also deter private in- the entry, of foreign-owned firms; and so on. vestments. The performance of SOEs varies widely within Unlike power, transport services tend to be left and between countries, but their record has fre- more and more to the private sector as develop- quently been poor, particularly in developing ment proceeds (see Figure 4.3). This suggests that countries. They have clearly failed to play the stra- the scope for competition in some public services tegic role in industrialization that governments may be underestimated. For instance, thanks to had hoped for. Financial rates of return have gen- 66 Figure 4.4 Public ownership of selected industrial sectors, 1984 Sector Textiles Electronics Petrochemicals Motor vehicles Not available or na. negligible Cement Nearly all private Mining 25 percent public Nitrogenous fertilizers 50 percent public 75 percent public Steel Nearly all public Telecommunications services Note: For the purpose of this chart, public companies with substantial (but less than 50 percent) private ownership have been treated as fully public. Source: Ayub and Hegstad 1987. erally been lower for SOEs than for the private SOEs frequently operate without competition, as a sector, as recent comparative studies for Brazil, In- result of protection or barriers to entry. Govern- dia, and Israel have indicated. Financial profitabil- ments often place little emphasis on efficiency and ity has often been compromised by price controls, profitability and are rarely prepared to use the but the indications are that SOEs have also had a sanction of liquidation. Other objectives set for generally poor record of social profitability. They SOEsin particular, employment maintenance or have often put large burdens on public budgets price controls on essential goodsweaken any em- and the external debt. For example, the net deficit phasis on profitability. At the same time, SOEs of a sample of SOEs accounted for about 4 percent may develop their own momentum and objectives, of Niger's GDP in 1982. For the seven largest Latin which often diverge from the public interest. Para- American economies, the combined deficit of doxically, their public status often gives them SOEs rose from about 1 percent of GNP in the greater independence from government control mid-1970s to about 4 percent in 1980-82. One than equivalent private firms. study has found that countries in which SOEs ac- SOEs have generally improved their perfor- counted for higher shares of gross domestic invest- mance when competition has been greater, when ment generally had lower rates of economic managers have had more financial autonomy, growth. when poor performers have been removed and SOEs perform poorly partly because of the in- good ones have been rewarded, and when govern- centives faced by their managements and partly ment interference with the day-to-day operations because of the control exercised by governments. has been reduced. Some governments have pur- 67 sued more radical solutions to the problem of observed. These approaches are examined in detail SOEs: liquidation or privatization (see Box 4.3). later: trade policies in Chapter 5 and complemen- tary policies in Chapter 7. If a generalization can be The indirect role of government: made, it is that most developing economies rely intervening in markets extensively on private ownership and markets, but Among some 130 developing economies, a broad temper this with substantial interventions to influ- variety of approaches to industrialization can be ence the way markets work and with at least some Box 4.3 State-owned enterprises and divestiture Governments in industrial and developing countries cians who fear the short-term unemployment conse- alike are divesting their ownership of state-owned en- quences of liquidation or of cost reductions by private terprises (SOE5) in an effort to improve efficiency and owners; from bureaucrats who stand to lose patronage; competition. They are doing this in three ways: and from those sections of the public that fear that Liquidation, which can be either formal or informal. national assets are being cornered by foreigners, the Formal liquidation involves the closure of an enterprise rich, or a particular ethnic group. and the sale of its assets. Under informal liquidation, a Relatively undeveloped capital markets sometimes firm retains its legal status even though some or all of make it difficult for governments to float shares and for its operations may be suspended. individual buyers to finance large purchases. Privatization of ownership through the sale of assets The experience of developing countries also high- to the private sector. lights some important policy issues. Privatization is Privatization of management, using leases and man- meant to introduce a greater emphasis on profitability. agement contracts. The disposal of inefficient SOEs Whether or not this leads to greater efficiency depends permits the government to shed an economic and fi- on the policy framework and, in particular, on the ex- nancial burden. Governments hope that it will lead to tent to which product markets are subject to competi- innovative management. But divestiture also serves tive forces. Often competition is more important than other objectives. For example, privatization can in- ownership in inducing efficiency. Thus governments crease popular ownership of productive assets. This should place priority on lowering entry and exit barri- was an important consideration in the sale of British ers and removing import barriers that restrict trade. Telecom and in recent efforts at privatization by Brazil Even where markets are competitive and there is no and Chile. In addition, divestiture raises revenues for significant market failure, the efficiency gains from governments. transferring ownership to the private sector can be sub- Among industrial countries, the United Kingdom stantial. For natural monopolies, however, there is a has been particularly active in divesting publicly need for a regulatory watchdog irrespective of whether owned manufacturing and service enterprises. Major- the firm is in private or public hands, and strong mea- ity control of British Telecom and British Gas was sures are needed to deter anticompetitive behavior. turned over to private shareholders in two of the larg- In addition, managing divestiture is a complex task, est share offerings in history. Among developing coun- and a well-prepared strategy is important. The govern- tries, Bangladesh, Chile, Kenya, Malaysia, Mexico, the ment needs to consider removing price controls and Philippines, Thailand, Togo, and Turkey have shown implicit subsidies and amending its pay and employ- particular interest in divestiture. But substantial privat- ment policies. Some firms can then be divested imme- ization has occurred in only a few countries (Bangla- diately, so that the search for investors can begin. Inef- desh and Chile among them) and has mostly involved ficient enterprises that are potentially profitable may small manufacturing and service firms that had once require physical and financial restructuring before their been privately owned. Privatization of management divestiture. Nonviable enterprises will have to be liqui- has been used less frequently as a form of divestiture. dated; for this to happen, assets must be valued and Formal liquidations are rare except in Africa, but inf or- arrangements made for sale. mal liquidations are common. Although divestiture of state-owned enterprises is a Governments confront several obstacles when they relatively new and untested instrument, it is a promis- decide to divest SOEs. For example: ing avenue for improving the efficiency and dynamism Governments usually want to sell the least profit- of the industrial sector. It is important to stress, how- able enterprises, those that the private sector is least ever, that the gains from privatization will be greater if willing to buy at a price acceptable to the government. the trade and domestic policy environment encourages Divestiture tends to arouse political opposition: competitive markets. from employees who may lose their jobs; from politi- 68 measures for the central allocation of resources. instance, price controls imposed on welfare Such interventions can address a number of grounds can affect profitability and hence discour- shortcomings in markets. The smaller the degree age investment). of competition, the more limited the information Intervention along these lines can create distor- available to buyers and sellers, and the greater the tions elsewhere in the economy, and governments uncertainty in general business conditions, the less seek to correct these, in turn, through further in- effective markets will be. Markets fail to allocate terventions (see Chapter 7). For instance, import resources efficientlythat is, in a way that equates protection can create domestic monopolies; do- social marginal costs with social marginal mestic monopolies may be regulated through price benefitsin two main ways: controls; price controls may reduce levels of in- Monopolized markets. A single seller (monop- vestment; and so on. oly), or a small number of them (oligopoly), can restrict output and raise prices in the absence of The infant industry argument competition. Monopoly, however, is sometimes the most efficient way to allocate resources. Elec- The most durable argument for intervention is tric power and telecommunications networks, based on the infant industry. This is the main ra- which benefit from economies of scale up to very tionale for the discriminatory structure of protec- high levels of output, are often taken to be natural tion found in most developing countries (see monopolies of this kind. Governments may need Chapter 5), for policies to acquire foreign technol- to regulate prices in monopolized markets or de- ogy, and for policies toward foreign investment vise policies to encourage new entrants (see Chap- (see Chapter 7). Although it is plausible to give ter 7). new industries a "breathing space" through pro- Externalities. Externalities occur when eco- tection, such an argument would apply to most nomic activities have spillover effects. For exam- new activities in developing countries. Whatever ple, a polluting factory inflicts a negative external- the merits of this approach in specific cases, many ity on those who live downwind. In contrast, a developing countries have offered widespread im- firm which invests in acquiring technical knowl- port protection in the name of support for infant edge produces a positive externality when this industries in ways likely to frustrate the objectives knowledge passes outside the firm. In both cases, of the policy. private costs and benefits are different from social The governments of many developing countries costs and benefits. The problem of externalities lies argue that private investors will not undertake so- at the core of arguments over policies regarding cially desirable investments which take time to infant industries, foreign investment, and transfer come on stream or require a long learning process. of technology. The problem of how to finance a project in its ini- Even if markets allocate resources efficiently, tial, loss-making stageoften where a learning they may still fail to produce a desirable distribu- process is involvedis a common one. This may tion of income. indeed be a problem if capital markets do not exist Designed to compensate for some of these mar- or do not work properly, as is frequently the case ket failures, industrial intervention in developing in developing countries (although the failure of the countries has often been heavy. Many different in- capital market to finance a risky project might struments have been employed, often simultane- equally well reflect investors' good judgment). ously, including tariff and nontariff protection, fis- A different argument is made for cases where cal incentives, and direct controls on credit entrepreneurs fail to invest in projects that gener- allocation, interest rates, and foreign and domestic ate benefits for the rest of the economy because the investment. The nonprice instruments among investor would not be able to capture the benefits. these policiesnontariff barriers, for instance One example of this would be investment in tech- have been popular, despite their recognized eco- nical skills, embodied in individual workers who nomic disadvantages, because of the prospects could then take their skills to a new employer. they offer of more immediate public control over There would be no market failure if the firm were the allocation of resources. The typical pattern of able to charge the workers for their training, but if intervention has had two other characteristics. this is prevented by laws, trade unions, or social First, the level of incentives provided has been convention, the private value to firms of invest- high for many activities (see Chapter 5). Second, ment in training will be less than the social value, the objectives pursued have often conflicted (for and there will be underinvestment. 69 Cases of successful infant industry protection are taming relative neutrality in its trade policies, Ko- difficult to prove or disprove. One study (Krueger rea has kept its interventions limited and its ex- and Tuncer 1982a) found little support for the no- change rate competitive. This is not the case in tion that infant industry protection had been effec- most other developing countries (see Chapter 5). tive in Turkey: total factor productivity growth was lower in the most protected industries. Japan and Externalities and industrialization some of the newly industrializing countries are of- ten cited in support of infant industry protection. With urban and industrial development, pollution According to a popular view, the Japanese govern- has grown alarmingly in many countries. This is ment successfully promoted steel, cars, and coop- an externality problem. For example, the manufac- erative efforts in basic researchespecially in elec- ture of bleached paper produces more pollutants tronics (see Box 4.4). Steel, automobiles, and than the manufacture of unbleached paper. But if cement have been cited as examples of successful paper mills are not held liable in law for damaging infant industries in Korea, likewise automobiles in the environment, the price of bleached paper will Brazil. The debate has gone on for the past cen- not reflect the true cost of resources used in its tury, but there have been surprisingly few at- production, and therefore consumers will have no tempts to study individual cases or to compare the incentive to switch from using bleached to un- net costs of infant industry failures with the net bleached paper. benefits of the successes. Pollution control policies are rare in developing It is a sound general principle that interventions countries. Where pollution control has become an should attack the problem of market failure nearest issue, governments have relied heavily on a regu- to its source. This may mean policies to make fi- latory approach. But regulations often lead to un- nancial markets work better, to provide education, intended results, which then require a fresh set of or to establish a patent law, rather than measures regulations to correct. Alternatively, governments directed at particular firms or sectors. Protection can provide subsidies for purchasing pollution may prove counterproductive in several respects. control equipment. But it is very difficult for gov- In many developing countries it has become more ernment officials to determine the most appropri- or less permanent, so that the stimulus for infant ate equipment for a particular process, keep pace industries to mature is removed. Indeed, it has with technological change, and make judgments often created a gap between local costs and world on the tradeoffs between relative costs and effec- prices so wide that it is unlikely ever to be bridged. tiveness. Protection raises prices and therefore reduces do- Urban congestion is another example of an exter- mestic demand for the protected good. By the nality associated with industrial development. same token, protection provides no stimulus to ex- When firms locate in a particular area, they may ports. This in turn inhibits the achievement of impose costs on society by adding to congestion, lower costs through greater economies of scale. but they may also confer benefits by acting as Infant industry protection probably works best a magnet for other investments, particularly in with a preannounced and credible timetable for underdeveloped regions. Developing country gov- withdrawal, In addition, selectivity is vital, for two ernments, therefore, have adopted a variety of in- reasons. First, one activity can be favored, ulti- struments to reduce urban congestion costs or to mately, only at the expense of others. The more stimulate economic development in less developed widespread the support, the more the exchange regions. Again, such policies have proved prob- rate becomes overvalued (with a consequent dis- lematic. crimination against exports), and scarce resources The Indian government, for example, has used are spread thinly through the economy. Second, if investment licensing, public investment, and re- support is offered too frequently, firms will divert gional incentives to induce new firms to locate resources to the task of soliciting favors from gov- away from metropolitan areas. Yet according to a ernment. There is an unresolved debate about recent study there was no overall improvement in whether countries like Koreawhich has trade industrial dispersion between 1961 and 1971. And policies that are broadly neutral between import- in Northeast Brazil, tax credits alone, among a replacing and export activities, combined with in- number of regional incentives, exceeded $15,000 fant industry interventions in specific activities per job created in 1980. have succeeded because of, or in spite of, such Reducing protection itself may correct a bias in interventions (Box 4.4). But in addition to main- favor of urbanization. For instance, in Brazil dur- 70 Box 4.4 Industrial targeting: the great debate A group of economies in East Asia, including Hong (in the 1950s) and inward foreign direct investment (in Kong, Japan, the Republic of Korea, and Singapore, the 1970s). Yet MITT's role in the industry's phenome- has had phenomenal success in industrial growth in nal success has clearly declined since the 1960s. (For recent decades. With the exception of free-trading instance, it has not always had its way on industrial Hong Kong, there is considerable disagreement as to restructuring.) MITT was also instrumental in establish- how much of this success is due to governments that ing the conditions under which foreign firms would be have intervened in markets. In fact, the disagreements allowed to produce integrated circuits in Japan: only on the causes of success go a good deal further, cover- one firm was permitted entry in the late 1960s, and it ing areas such as foreign aid, regional and cultural fac- had to share its knowledge with Japanese firms. tors, and the role of different forms of economic organi- Korea's success in promoting infant industries such zation. as automobiles and steel is also cited. (POSCO, a state- One school of thought points out that these econo- owned enterprise, has emerged as one of the world's mies have by and large 'got their prices right"in lowest-cost steel producers.) But after the mid-1970s other words, they have maintained a competitive ex- the Korean government made a number of expensive change rate and implemented policies that do not in mistakes in its promotion of various heavy and chemi- aggregate discriminate between broad groups of indus- cal industries. The success stories beg a number of trial activity. For instance, the net effect of incentives is questions: Did the benefits of the successes outweigh more neutral between import substitution and export- their initial costs (as well as the costs of infant industry ing activities in Korea than in the great majority of failures)? Did government intervention change deci- developing countries. And public expenditure on re- sions, or did it simply put a seal of approval on what search and development is a considerably smaller frac- the firms would have done anyway? tion of equivalent private expenditures in Japan than in The flagging fortunes of many other industrial coun- the other large industrial economies. tries in comparison with Japan have revived debates on Other schools point to the evidence that these econo- the role of industrial policy. Western Europe's largest mies have intervened in the market to promote specific economies have in fact pursued active industrial poli- activities or firms, often with considerable success. cies since the 1960s, although with indifferent success. They may not deny that getting the prices broadly right Often these policies have differed from Japan's and put is a necessary condition of successful industrial greater emphasis, for instance, on first aid for ailing growth; indeed, the more that intervention aims at a sectors. In France, indicative planning was accorded limited number of targets, the smaller its effect will be some success in modernizing leading industrial sectors on the aggregate level of price distortion. They do, for a decade or two after World War IT, and the devel- however, stress the importance of strong, capable, and opment of civil nuclear energy and the modernization honest government in these countries, close of telecommunications are reckoned to be public sector government-industry relations (with a strong national successes. But intervention has also been conspicu- consensus on economic goals), and domestic markets ously less successful in such sectors as machine tools large enough to allow substantial competition. They and steel. also cite the selective use of import protection, conces- Whatever the allocative effects of industrial interven- sional credit, policies to restructure firms, and in some tion in East Asia, it has been carried out by strong and cases direct public investment to promote specific in- capable governments. It has also been selective and dustrial activities. In some countries interventions ap- time-bound, and competition has been maintained in pear to have been the outcome of a collective decision- domestic markets. The level of intervention has been making process in which government acted as an agent reduced over time. Central guidance becomes progres- for the exchange of information between firms. Of sively more demanding as economies become more course, the pattern of public intervention has differed complex and as the opportunity for imitating more de- from country to country and over time; for instance, in veloped economies diminishes. Further research needs Japan and Korea import protection was more impor- to ask many more questions about the East Asian expe- tant up to the 1960s than it is now. rience, but there is a strong case for suggesting that the The empirical evidence about the success of interven- government's role as a coordinator and information tion in these countries is much disputed. The Japanese clearinghouse was important. Finally, if some East government is said to have played a role in the devel- Asian governments have intervened successfully, it is opment of such industries as steel, automobiles, fertil- not clear whether most developing countries could em- izers, synthetic fibers, and microelectronics. In auto- ulate their administrative capacity, the ability of their mobiles, for instance, nontariff protection was heavy firms and governments to cooperate closely in pursuit up to the mid-1960s, while the Ministry of International of agreed economic goals, or the degree of competition Trade and Industry (MITT) vetted technology transfers in their domestic markets. 71 ing the 1970s the protection enjoyed by industries cede greater commercial freedom in return for the in the two largest metropolitan areas was higher right to tax (Box 4.2). Even today, according to a than the national average, whereas in the lagging widely held view, politics remains the battle- Northeast region it was lower. This suggests that ground in which different groups fight over the trade policy reforms might have exerted a greater distribution of incomes. influence on the regional distribution of industry For all that, few governments have disclaimed than explicit location policies. Governments can responsibility for achieving growth and equity. also reduce some of the pressures for urbanization Yet, when governments choose an active role in by ensuring that private costs reflect more accu- economic development, they may find that their rately the broader economic costs of congestion. In capacity to make and enforce economic policy is particular, governments could enforce the recov- weak. In the debate on the role of government it ery of investment and operating costs in urban has perhaps been too easy to assume that an ideal services, such as education, transport, waste re- policymaking system prevails: namely, that laws moval, and disease control, by charging user fees. are clear, enforcement is effective, and disputes are smoothly resolved. This ideal is never fully at- Government policies and the high costs tained, any more than markets are ever perfectly of doing business competitive. Economies in transition from traditional to mod- Analyses of government intervention in develop- ern forms of organization face special difficulties, ing countries usually concentrate on resource allo- because of problems of poor information and be- cation and efficiency in the production of individ- cause of the way individuals cope with risk. Levels ual products. But extensive intervention also adds of education are lower than in industrial countries, to the costs of doing business. This argument investment in the machinery of communications is starts with the observation that the costs of doing lower, the investigative capacity of the state and of business in many developing countries are gener- the watchdog professions (lawyers, accountants, ally highbecause of regulation and bureaucratic journalists, and so on) is lower, and reporting inefficiency. But the evidence is not conclusive, be- mechanisms are difficult to set up and enforce. cause transactions costs are difficult to measure, Risks arise from the increasing number and com- and intervention often leads to illegal activities or plexity of transactions in a modernizing economy, lobbying efforts which are not publicized, in either often between people who do not know or may industrial or developing countries. not trust each other and where legal and economic The pattern of intervention which creates these rights are uncertain. So individuals steer clear of high costs of doing business has its origins in a impersonal transactions in favor of the more famil- policymaking capacity that is often weak and frag- iar relationships of kinship, friendship, or client mented. Intervention sometimes allows two prices and patron. Because of lack of information and risk to coexist for the same product (because, for in- avoidance, an informal policymaking system often stance, one firm enjoys an import duty concession stands behind the formal structure. on an input that another does not). Alternatively, In some countries the legislative and judicial intervention creates a barrier to entry (for instance, branches of governmentwhich would serve as when an investment license allows one firm to in- counterweights to the executive in an ideal vest where its competitors cannot). These inter- systemare weak and leave wide discretion for ventions in turn have two consequences. First, administrative decisionmaking. Tax rates, for in- they encourage economic dualisma formal and stance, often do not correspond to those set by an informal sector. Second, they create incentives law. Unauthorized and ad hoc concessions are for arbitragethe practice of buying low in one common; noncompliance is rife. In other countries market and selling high in another. the legal system is well developed. But an abun- dance of confusing and inflexible regulations has The policymaking process produced a cumbersome bureaucratic process (see Box 4.5). Laws are passed, then not effectively im- Governments have not always made the welfare of plemented. Litigation is costly, and so few people the governed their principal aim. Historically, Eu- seek legal redress. ropean states sought economic control in order to To some extent these features are present in all extract revenues. Then, in some countries, coun- sorts of countries, industrial and developing, but tervailing powers emerged and forced the state to they are often more pronounced in developing 72 countries. They can have an important effect on sis. Policymaking is subjected to pressure from pri- economic policymaking. The result is uncertainty vate interests. This may help to explain why im- for the private sector: the rules of the game are port quotas, which are usually subject to unclear, decisionmaking is fragmented, and many administrative discretion, are more popular than economic decisions are made on a case-by-case ba- high tariffs, which usually require legislation. In- Box 4.5 Battling ureaucracy in Brazil Wherever modern government structures are built on and exports have long enjoyed a legal monopoly. Each an already highly developed legal and administrative typically has several employees, and almost all sizable system, bureaucracies are bound to multiply. Brazil is businesses maintain their own despachantes. no exception. What is exceptional is the degree to Brazil's rapid economic growth and social evolution which Brazilians have managed to circumvent the demonstrate that a complex bureaucracy need not be a more rigid and obstructive bureaucratic rules. In addi- barrier to development. The costs are nevertheless sub- tion, the government has recently had some success in stantial. Moreover, such resourceful adaptations of the attacking the rules themselves. jeito may have been too effective and undermined at- Brazilians have described their federal administrative tempts to reform public administration. system as excessively centralized, formal, and distrust- The most recent efforts to reform the system, rather ful of the public. This view dates back at least to the than live with it, began in 1979. A National Debureau- temporary transfer to Brazil of the Portuguese kingdom cratization Program was designed to simplify adminis- and its centralized administration in 1808, and perhaps trative procedures and, more broadly, to reverse what even further, to 1549, when the first governor-general was seen as the relentless trend toward growth in gov- arrived with a framework of laws and regulations even ernment, excessive centralization, and abundant regu- before there were people to conform to them. The for- lation. malism embodied the prejudice that documents are The results in 1979-84 were impressive. On the basis more important than facts. The distrust showed in the of a citizens' project (which surveyed all the points of controls that required endless lists of certificates, attes- contact of individuals, throughout their lives, with bu- tations, licenses, and other documents. Not many reaucratic requirements) it was possible to eliminate, or years ago the case was reported of an export license simplify, a long list of documents and procedures rang- that required 1,470 separate legal actions and involved ing from notarization requirements and driver's li- thirteen government ministries and fifty agencies. censes to passport extensions, university enrollment The jeito was employed to overcome such difficulties processes, and income tax returns. Evidence of resi- (Rosenn 1984). This Portuguese term, corresponding dence, economic dependence, and so on, could be es- roughly to "knack," "way," or "fix" in English, refers tablished with simply a written statement by the inter- to the varied ways that Brazilians, like people in other ested party rather than legal certificates and third-party countries, get around the maze of regulations and legal attestation. Thus a "presumption of truth" displaced requirements. The jeito principle has been remarkably the "rule of distrust." Other legal procedures were effective. It relies significantly on the despnchante simplified. In all, more than 600 million documents a (roughly, an expeditor), who has counterparts in many year were removed from circulation. The savings have countries but has been especially active in Brazil, been estimated at close to $3 billion a year, equivalent where the lubrication of sticky administrative pro- to about 1.5 percent of Brazil's GDP. cesses has been essential for social mobility and rapid In the economic field the main achievements were to economic development. simplify rural credit procedures, to change commercial The despachante is an intermediary who, in return registration procedures so that forming a company for a commission or fee, purchases and fills out the could take three days rather than three to six months, multiplicity of legal forms, delivers them to the proper and to bring relief from bureaucracy to 1.5 million small persons, and extracts the needed permission or docu- enterprises. For the time being, however, the program ment. The system developed when the simplest trans- has left many areas of regulation untouched, including actions, such as obtaining a marriage license or identity some that are important to industrialization and trade. card, could take ages or days or hours, depending on It is significant that, although a minister of debureau- whether one used despachantes and how much they cratization was appointed, no new government depart- were paid. The despachantes are thriving, specialized ment was formed. The program was implemented by professionals and have their own union and competi- an executive secretary and just twelve assistants. At tive examinations. Some specialize in police work, nat- the very leastand on a limited frontsome progress uralizations, auto licenses, marriages, or "legalization has been made in simplifying the rules and changing of real estate." The despachantes who arrange imports the relationship between citizens and civil servants. 73 terest groups infiltrate the policymaking process because risk avoidance by government servants and lack of information undermine the capacity of Box 4.6 Informality in Peru governments to centralize and scrutinize deci- Peru has a large informal economy. It comprises small sions. Finally, policies are often designed with fea- businesses, most of them in Lima, that do not have sibility of implementation an uppermost consider- access to the incentives enjoyed by most larger firms ation. Thus, because of the problem of raising and that operate outside the framework of laws and public revenues, governments sometimes prefer regulations (although they are not necessarily intrinsi- import protection to direct subsidies in the promo- cally illegal). The informal economy is the outcome of tion of selected industries. They may prefer to col- numerous historical factors that have influenced the lect taxes through import duties rather than structure of economic activityincluding a chronically overvalued exchange rate, high levels of industrial pro- through direct and indirect taxes (where opportu- tection, high taxes (combined with tax reliefs that en- nities for avoidance are much greater). And, rather courage the use of capital), labor protection laws, pow- than regulate private firms, governments may erful labor unions, credit rationing, and the recent choose to produce through public enterprises, in recession (see Box 7.6). But the informal economy is the hope of gaining easier access to the informa- also a response to the pervasive regulations that have tion on which regulation must be based. come to affect economic activity. The informal economy is perhaps most visible in the explosion of unauthorized housing structures built in Intervention and the creation of a formal and around Lima by the flood of new arrivals from the and an informal sector countryside. Without existing homes to move into, and faced with a multitude of administrative steps to obtain Privileged firms enjoy access to import quotas, formal land title, these immigrants invade barren state- subsidies, investment licenses, subsidized loans, owned land, typically in large organized groups, and and so on, whereas unprivileged firms have to op- erect pueblos jovenes (new minitowns), complete with erate in informal markets. This distinction between wooden houses, streets, sewers, and connections to the electric utility grid. The groups organize their own privileged and unprivileged sectors, more pro- governing councils, which informally settle disputes nounced in developing countries than in industrial over property boundaries and other matters. As many countries, is a simplification. Firms may receive as 2 million of greater Lima's total population (more some privileges and not others. Moreover, it is than 5 million) live in these pueblos jovenes. generally the unprivileged firms which more easily Informality appears, if anything, to be even more evade taxes and ignore minimum wage and social widespread in Lima's transportation system. Only security legislation. some 10 percent of the city's residents use formal, mu- The informal sector has a tacitly tolerated, legally precarious existence in most developing countries. It operates outside the letter of the law and outside the de facto protection that privileged firms receive from governments. In other words, economic and lobbying activities to seek or create rents. All rights are insecure in the unprivileged sector. This of these add further to the costs of doing business adds a risk premium to the cost of doing business in industrial and developing countries alike. Such and can prevent certain transactions altogether. In- activities have been christened directly unproduc- secure economic rights are the reason unprivileged tive profit-seeking activities (see Box 4.7). Tax eva- firms are likely to remain small and labor- sion and smuggling are examples of outright law- intensive: the larger the firm's tangible assets breaking to avoid payment of various kinds of (building and machinery), the greater the ease taxes; other laws are broken to avoid the cost of with which these assets can be confiscated. Peru, meeting standards (on pollution or safety at work, which has a large informal sector, provides an ex- for example). Rent seeking is the devotion of re- ample of the effects of dualism (see Box 4.6). sources to the pursuit of the excess profits that become available when goods, services, and privi- Intervention and directly unproductive profit seeking leges are in short supply. Rent seeking may occur through bribery or lobbying. An example of queu- The dual markets created by government interven- ing is the practice of some firms in developing tion, which express themselves in price differen- countries of holding a phone line open all day be- tials and scarcities, create opportunities for arbi- tween two offices in order to avoid the intermina- trage in the form of queuing, illegal operations, ble wait for a connection. 74 nicipally owned buses. The rest ride buses operated formal sector, informality may be an efficient mode of either by semiformal driversthose with bus routes operation. But if regulation could be reformed and the granted under a municipal franchise and who charge incentive system were to become less discriminatory, regulated fares, but who generally do not report their the evident dynamism of the population currently en- income to the tax authoritiesor by informal drivers, gaged in informal activities could, once formalized, who lack a franchise and charge what the traffic will lead to greater growth in the economy as a whole. bear. First, and perhaps most important, excessive regula- Informality is also prevalent in the small commercial tion and the absence of effective economic rights com- sector, particularly among an estimated 84,000 street bine to prevent informal entrepreneurs from realizing vendorsambulanteswho offer a full menu of goods scale economies. Informal firms must operate with few in direct competition with large formal retail establish- workers, often in remote locations, to avoid detection; ments. The ambulantes are well organized. Street ven- hence the need to incur other costs simply to remain in dor organizations assign and enforce informal property business. Moreover, since credit is rationed and infor- rights to slices of sidewalks that have estimated prop- mals often operate illegally, they have little access to erty values averaging $500 to $750. The organizations formal credit and are forced to pay the much higher also collect dues that have enabled Lima's ambulantes rates of interest charged by informal lenders. This to construct more than 270 local markets. makes it difficult for informal entrepreneurs to expand, Because informality in Peru's industrial sector is least even though their investments may be far more profit- visible, it has yet to be well documented. Nevertheless, able than those of large private and state-owned enter- fragmentary evidence suggests that informal industrial prises which have easier access to credit. enterprisesfor instance, textile factories and repair Second, the imperfect protection of property and shopsare prevalent in Peru's urban areas. contract rights for informal citizens diminishes their Since by their nature informal activities tend to be incentives to save and invest. For example, residents carried out on a cash basis rather than through banks, with formal title to their homes in Peru have invested the size of the informal sector should be positively re- significantly more in housing than have the informal lated to the ratio of cash to broader measures of the residents of the pueblos jovenes with similar incomes. money supply. On this basis, informal activity in Peru Finally, informality undermines the government's is estimated to account for roughly one-third of gross own efforts to establish an evenhanded and effective domestic product and for about 60 percent of the part- legal system. Such a system could help develop the and full-time active population. economic rights and rules often taken for granted in In the face of burdensome regulations and incentives industrial countries. that favor a limited number of firms and workers in the Since profits are to be made by the firm that suc- the price differential and the less effective the po- ceeds in acquiring a privilege, it is clear that firms licing of illegal activities, the stronger the pre- will compete with each other and devote real re- sumption that individuals will engage in directly sources to rent seeking. Thus at least part of the unproductive activities. Some of the evidence on rent will be "competed away" with real resources price distortions was reviewed in World Develop- that could otherwise have been put to productive ment Report 1983, and other evidence is reviewed in uses. If this were not the case, rent seeking would Chapter 7. simply mean transfers of income from one pocket The extent of smuggling has been estimated for to another. But rent seeking has additional costs: several countriescocoa from Ghana, coffee from firms come to specialize in rent seeking, to the det- Uganda, and various commodities from Colombia, riment of production. In consequence, markets op- for example. There is also evidenceunsystematic erate inefficiently and resources are wasted. and anecdotal for obvious reasonson the way The evidence on directly unproductive activities corruption imposes high costs on doing business. is patchy. First, there is the evidence of large price In some countries corruption has been so rife that differentials in parallel marketsblack market pre- better evidence has been collected through official miums on exchange rates, interest rate differentials inquiries. Rent-seeking activities were estimated to between formal and informal capital markets, and account for 24 percent of Kenyan GDP in 1982 (see wage differentials in the labor market. The higher also Box 4.7 on estimates of rent seeking in India 75 Box 4.7 Rent seeking and directly unproductive profit seeking Economic analysis has traditionally focused on produc- ample, lobbying efforts can be directed at creating or tive activity. But economists are now taking a closer sustaining quota or tariff protection against imports. look at unproductive activity. The terms "rent seek- DUP also embraces activities designed to make money ing" and "directly unproductive profit seeking" (DUP) by evading policies. For instance, tariff evasion yields have become common parlance in economics. While pecuniary income by exploiting the difference between unproductive activities can certainly arise in the private legal (tariff-paying) imports and illegal (tariff-evading) sector, economists have been particularly interested in imports. those arising from policy interventions of various In an analysis of the costs and benefits of policy inter- kinds. vention, these activities cannot be ignored. Economists Rent seeking embraces lobbying activities designed have therefore begun to explore ways of estimating the to capture the rentsthat is, scarcity premiumsthat costs of DUP. The conventional costs of protection are are attached to licenses and quotas. Typical examples estimated by calculating the loss that arises from dis- include the lobbies that aim to secure import licenses in torting the prices faced by consumers and producers trade and payments regimes that rely, in many devel- (see Box 5.4). These so-called deadweight losses, how- oping countries, on exchange and import controls. An- ever, are now supplemented by estimates of signifi- other example is lobbies seeking the lucrative premi- cantly larger losses from associated rent seeking and ums generally associated with industrial licenses. Such DUP. rent seeking is common in industrial countries, too For instance, rent-seeking costs have been estimated for example, in the allocation of import quotas and in by assuming that license premiums would lead to public purchasing. equivalent resource costs by lobbyists. For India, the The concept of directly unproductive profit seeking is resulting cost estimates for 1964 were roughly 7.3 per- more comprehensive. It includes all ways of making a cent of GNP; for Turkey, they were 15 percent of GNP profit by undertaking activities which are directly un- in 1968. These estimates may be on the high side, be- productive. That is, DUP activities yield income or cause administered allocations may be routine and profit but do not produce goods or services directly or thus reduce the real resources profitably diverted to indirectly. They are economic activities that produce seeking the licenses. But the full effects on economies zero output while using up real resources. with extensive interventions and associated DUP activ- Thus DUP activitities include rent seeking. But they ities are likely to elude quantification. What is remark- also cover activities where resources are devoted to en- able is that even the quantifiable part of the costs is so couraging policy interventions that create rents: for ex- large. / and Turkey). Finally, in economies where scarcities is often deficient and the policymaking process of- and red tape rule, professionals adept at cutting ten fragmented and ad hoc. What is more, al- through the knot of bureaucracy are in great de- though economic principles play a useful role in mand. These range from the tolkach (pusher) of the indicating the general conditions under which Soviet Union to the despachante (expeditor) of Bra- government action will be most productive, identi- zil (Box 4.5). fying the specific cases in which these principles apply and devising effective measures are often The priorities for government difficult. Nonetheless, a clear hierarchy of priorities At the core of the industrialization process is an emerges for market-oriented governments seeking ever increasing division of labor which reaps the to industrialize efficiently. First, developing the rewards of specialization, but at the cost of an in- web of complex activities and relationships that creasing number of transactions between eco- characterizes a sophisticated industrial sector be- nomic agents. Governments cannot predict the di- comes difficult, if not impossible, in the absence of rection or form of this changing division of labor, clear, evenhanded, and predictable rules of the but they nonetheless have a vital role in facilitating game. These rules must be the primary concern of these transactions. governments since only governments can provide This is not easy for governments. Their capacity them. Second, an efficient and adequate supply of for playing this role is limited, particularly in de- infrastructural services such as transport, commu- veloping countries where the level of information nications, power, and education is also vital to 76 modern industry. Governments must make sure most difficult: the dividing line between measures these needs are effectively met, but this does not that improve and those that worsen the conditions always mean the government should be the pro- under which the private sector operates is often vider. In some cases it may be more appropriate to fine. regulate private monopolies, in others to allow In sum, governments must use their scarce re- competition among providers. Finally, govern- sources carefully. The problem is not so much the ments also intervene to change the way markets right or wrong level of resources deployed by the workfor instance, to prevent abuses, to improve government, but rather the particular way these welfare, and to improve the pattern of investment resources are deployed. or output. It is here that the government's task is 77 Trade policy and industrialization Which trade strategies have enabled countries to be broadly divided into two groups, outward ori- attain high growth and to develop their industrial ented and inward oriented. An outward-oriented potential? This chapter attempts to answer the strategy is one in which trade and industrial poli- question in two ways. First it examines the think- cies do not discriminate between production for ing that lies behind different strategies, the circum- the domestic market and exports, nor between stances under which governments have adopted purchases of domestic goods and foreign goods them, and the economic performance of countries (see Box 5.1). Because it does not discourage inter- that have pursued them. Then it discusses the eco- national trade, this nondiscriminatory strategy is nomic costs and benefits of alternative trade strate- often (somewhat inaptly) referred to as an export gies and suggests some reasons why economic promotion strategy. By contrast, an inward- performance has varied so widely under the differ- oriented strategy is one in which trade and indus- ent strategies. trial incentives are biased in favor of production for Economic growth is fundamental to economic the domestic over the export market. This ap- development. Without generating greater output proach is well known as the import substitution and income, a country cannot make a sustained strategy. attack on poverty, unemployment, and other so- Protection switches demand to products pro- cial and economic problems. In the first decades duced domestically. Exporting is then discouraged following World War II, economists viewed indus- by both the increased cost of imported inputs and trialization as an essential stage in reaching the the increased cost of domestic inputs relative to the goal of rapid economic growth. But industrializa- price received by exporters. This rise in the relative tion cannot be a policy objective in its own right. cost of domestic inputs may occur through domes- This chapter suggests that the real question is not tic inflation or an appreciation of the exchange rate how fast an economy can industrialize, but how to following the imposition of barriers to imports. In structure the industrial sector so that it supports effect, protection puts a tax on exports (see Box sustained economic growth. 5.2). This implicit tax is sometimes offset with export Alternative trade strategies subsidies. As far as the trade account is concerned, Economists and policymakers in the developing a 10 percent tariff on all imports together with a 10 countries have long agreed on the role of govern- percent subsidy on all exports would be equivalent ment in providing infrastructure, promoting mar- to a 10 percent depreciated exchange rate with no ket efficiency, and maintaining stable macroeco- tariff and no export subsidy. Such a policy does nomic policies. But they have disagreed on policies not discriminate between exports and imports, so toward trade and industry. The form of govern- that it too is an outward-oriented strategy. But ment intervention in this area is the distinguishing combining export subsidies and import tariffs in- feature of alternative development strategies. volves administrative cost; in practice, the policy is For analytical convenience, trade strategies can rarely, if ever, designed to simulate liberal trade. 78 Box 5.1 Measuring neutrality in trade regimes: nominal and effective rates of protection The concept of neutrality in trade regimes is straight- forward: it means that the aggregate effect of all trade Box figure 5.1 Calculating the effective rate of and industrial policies is to offer equal incentives to the protection production of all tradables. Measuring departures from neutrality, or bias, is not so simple, however. It in- volves several different indicators. With free trade With tariffs One way of measuring bias starts with the nominal Unit value (price) rate of protection. For any good, this is the difference between the domestic price and the world price, ex- 120 20 percent pressed as a percentage of the world price. The overall tariff on bias of a trade regime can then be estimated as the ratio sweaters of (a) the average nominal rate of protection for import- ables to (b) the average nominal rate of protection for exportables. If this ratio is greater than onethat is, if Unit value Unit value added (v) added (v') importables have a higher nominal rate of protection = $54 than exportablesit reveals a bias in favor of import =$40 10 percent substitution. A ratio of one implies neutrality. (Exactly ) tariff on the same result can be obtained by using the ratio of 60 inputs the effective exchange rate for importables to the effec- tive exchange rate for exportables. The effective ex- change rate for importables must take account of any import duties, import premiums resulting from quanti- tative restrictions, and other incentives. Similarly, the effective exchange rate for exportables must take ac- count of any export subsidies, tax credits, and other export incentives.) 0 Nominal rates of protection, however, often fail to measure the degree of protection actually received by domestic producers. This is because protection de- Note: In this example, where the nominal rate of protection is 20 pends not only on the nominal protection given for the percent on sweaters and 10 percent on inputs, the effective rate of product itself, but also on any taxes or subsidies that protection is: there may be on inputs. For this reason, a different vv 54-40 35percent. measure is more widely used to evaluate the orienta- tion of trade regimes. The effective rate of protection is designed to capture the protection accorded to value added in production, rather than to the finished product. It is defined as the difference between value added (per unit of output) in nominal rate of protection. But if this tariff on sweater domestic prices and value added in world prices, production is combined with a tariff of 10 percent on expressed as a percentage of the latter. The effective inputs, the domestic cost of inputs rises to $66, which ra,te of protection for importables is therefore equal to decreases the effective rate of protection to 35 percent x 100, where v' represents value added at do- (see Box figure 5.1). mestic prices, and v represents value added at world The effective rate of protection for export production prices. The result can be positive or negative, depend- can be obtained in the same way; now z' includes subsi- ing upon whether v' is greater or less than v. In an dies to exports. As before, the ratio of (a) the average extreme case v itself could be negative. This represents effective rate of protection for importables to (b) the the case in which domestic production is so inefficient average effective rate of protection for exportables can that it is actually destroying value. be used as an indicator of trade orientation. (And As an example, consider the effects of tariffs on the again, the same results can be obtained with ratios of sweater industry. Suppose a sweater sells for $100 in effective exchange rates, this time evaluated on the ba- the absence of import restrictions and that the material sis of value added.) inputswool and buttonscost $60 in world prices. The use of any aggregate measure of protection has a The value added at world prices is therefore $40. If a serious drawback. It is possible that nominal or effec- tariff of 20 percent is levied on sweaters, raising their tive rates of protection for importables or exportables imported price to $120, and inputs remain duty free, vary widely across industries, yet have an average the value added in domestic prices is $60. The effective value of zeroimplying no protection. But the vari- rate of protection is the difference between the value ation in nominal or effective rates of protection across added in domestic prices ($60) and the value added in industries is itself an important distortion. Full neutral- world prices ($40), as a proportion of the value added ity of a trade regime therefore requires no variation in in world prices. In other words, the effective rate of nominal or effective rates of protection across the trad- protection is 50 percent, as opposed to the 20 percent able goods industries. 79 Box 5.2 Protection and the taxation of exports It is not unusual for a country to pursue policies of goods to change is less clear. If the factors used to pro- import substitution and export promotion at the same duce importables and nontradables are similar, that is, time. The objectives may be seen as independent. if they are close substitutes in production, the prices of Thus, instruments designed to encourage import sub- importables and nontradables would tend to be closely stitution may be introduced in the belief that they have linked and their relative price would not be much af- no impact upon the export sector. But this is not so. fected by an import tariff. The tariff would serve to The most crucial characteristic of protection is that it raise the price of both importables and nontradables. is a relative concept. When a particular protective in- Since the price of exportables is externally determined, strument is introduced, it is intended to alter relative producers in the export sector would find that the price prices in order to protect the chosen activity relative to of their output has fallen relative to both imports and other activities. For example, if an import tariff nontradables.The effect is akin to a tax on their produc- achieves its objective, resources will be induced tion. At the same time, domestic demand will tend to to move from unprotected activities to the protected switch to the relatively cheaper productsexportables. activity. Both effects will act to tax exports. Recent research has shown that the impact of protec- By contrast, if nontradables and exportables are close tion depends on the way it influences the prices of substitutes in production, the price of exports would nontradable goods. Although the division of an econ- still fall relative to imports, but there would be little omy into importables, exportables, and nontradables is change relative to nontradables. Tariffs discourage ex- somewhat artificial, it is also instructive. (Many service ports to a somewhat smaller extent in this case. industries and industries with high transport costs may Given information on relative prices for exportable be regarded as nontradable: wages are a large compo- output, import substitutes, and nontradables, the rela- nent of their costs.) The introduction of a tariff will tive price effects of protection can be estimated. Box raise the domestic price of importables relative to the table 5.2 reports the results of several studies which price of exportables, which will generally be deter- pertain to Latin American and African economies. The mined by world demand and supply. The manner in "shift parameter" in the table measures the share of which the tariff will cause the price of nontradable any import protection which, because of relative prices, becomes an implicit tax on exports. This ranges from a low of 43 percent in the case of Côte d'Ivoire to a Box table 5.2 Estimates of the shift parameter high of 95 percent in the case of Colombia. In almost in selected developing countries every case, more than half of the burden of protection Country and period Shift parameter is shifted to the export sector. Several important points arise from this analysis. Côte d'Ivoire, 1970-84 0.43 First, protecting one sector usually makes another Uruguay, 1959-80 0.53 Chile, 1959-80 0.55 worse off. Second, when export incentives are intro- Argentina, 1935-79 0.57 duced alongside import restraints, the export incen- Mauritius, 1976-82 0.59 tives may do little more than offset the disincentive El Salvador, 1962-77 0.70 effects of import protection. This may be one reason Brazil, 1950-78 0.70 why export processing zones (EPZ5) have not lived up Côte d'lvoire, 1960-84 0.82 to expectationsthe EPZ incentives may be insufficient Mauritius, 1976-82 0.85 to counteract the implicit tax on exports caused by the Colombia, 1970-78 0.95 restrictions on imports. Finally, the analysis implies Note:The lower estimates for Mauritius and Côte d'lvoire refer to that if export promotion is a goal of policy, the most nontraditional exportables; the higher estimates, to traditional cx- portables. direct means of achieving this goal may be import liber- Source: Clements and Sjaastad 1984; Greenaway and Milner 1987. alization. Export pessimism lar decline in their terms of trade. The income elas- ticity of demand for primary products was low, In the early postwar years most developing econo- synthetic substitutes for natural resources were ap- mies were relatively specialized in the production pearing, and technical innovations were cutting of primary commodities, which they exported in the amount of raw materials needed for industrial exchange for manufactured products from indus- production. All this suggested that the real prices trialized countries. But many economists argued of primary goods would fall over time. World de- that the producers of primary goods faced a secu- mand for manufactures, by contrast, would con- 80 tinue to grow. To many this provided a justifica- sia, and Thailand, which are among the next tier of tion for encouraging industrial production. industrializing countries. Third, export-oriented The prediction of declining terms of trade for countries would produce different products, and primary products has been much debated. Critics intraindustry trade (as occurred with the lowering say it ignored supply conditions: with diminishing of trade barriers within Europe) is likely to be im- returns to limited natural resources, slow growth portant. Finally, the first wave of newly industrial- in demand for primary products will not necessar- izing countries is already providing markets for the ily cause their terms of trade to decline. The pre- labor-intensive products of the countries that are diction also overlooked the growth of developing following. countries and their demand for primary products as well as the early industrial transformation of Policy instruments developing economies with poor natural resource endowments, such as Hong Kong, Singapore, Commercial policy, industrial policy, and exchange and, to a lesser extent, the Republic of Korea. The rate policy can all be instruments of an inward- data in Chapter 2 do show a long-term decline in oriented strategy. Policymakers often prefer direct the terms of trade for exports of primary goods. controls, such as import licensing and quantitative But they should be interpreted with caution be- restrictions, to tariffs. In addition, hidden import cause they take no account of quality improve- duties such as stamp taxes, port duties, and ad- ments in manufactures. And some of the recent vance deposit requirements are common, as are a surplus in primary commodities arose from invest- number of other quasi-tariff measures. Finally, do- ments encouraged by past high prices. mestic content requirements for certain industrial In spite of these uncertainties, it may well be true products have become increasingly common. that the relative price of primary commodities is in Publicly owned firms or industries have ex- long-term decline. The question, however, is panded rapidly in many developing countries, whether an inward-oriented strategy is the right particularly in industrial sectors such as steel, fer- response to this prospect. The overriding need is tilizers, cement, or petrochemicals (Chapter 4). for flexibility in shifting the economy's resources These give the policymaker administrative control to take account of the changing pattern of compar- over investments and purchasing, for example. ative advantage. Inward-oriented strategies are Governments can also use fiscal policy to provide unlikely to promote this kind of flexibility. production subsidies, credit subsidies, wage subsi- New arguments against nondiscriminatory trade dies, and tax holidays of various kinds. In general, policies and their implicit encouragement of manu- these incentives are offered in a discretionary, and factured exports have recently appeared. One is hence discriminatory, way. Administrative alloca- known as the fallacy of composition; it holds that if tion of foreign exchange is also common in inward- all developing countries followed an export- oriented regimessometimes to defend the over- promoting strategy modeled on the example of the valued exchange rates that are partly due to the newly industrializing countries (NICs) of East import barriers themselves. Certain sectors are Asia, industrial countries would refuse to absorb given preferential access to foreign exchange. the resulting volume of imports. Thus, inward-oriented regimes are generally This has been challenged on at least four characterized by high levels of protection for man- grounds. First, the capacity of industrial nations to ufacturing, direct controls on imports and invest- absorb new imports may be greater than sup- ments, and overvalued exchange rates. By con- posed. Developing country exports currently ac- trast, outward orientation links the domestic count for only a tiny share-2.3 percent as of economy to the world economy. The discrimina- 1983of the markets for manufactures in the in- tory use of tariffs, quotas, investment licensing, dustrial economies. (Of course, the proportion is tax and credit subsidies, and so on, would be in- much higher for certain products and in certain compatible with the purest sort of outward- countries.) Second, the idea that a large number of oriented strategy. In practice, however, outward economies might suddenly achieve export-to-GDP orientation does not necessarily mean less govern- ratios for manufactures like those of Hong Kong, ment intervention. Some countries have pursued Korea, or Singapore is highly implausible. The re- outward orientation by offsetting some of the anti- source endowments of the East Asian NICs are export bias of import barriers: they have promoted quite different from those of countries such as Ar- exports while dismantling import barriers only gentina, Brazil, Indonesia, Côte d'Ivoire, Malay- slowly. 81 Some governments have tried to promote ex- Information for the period 1963 to 1985 has been ports by creating free trade zones. For individual collected for forty-one countries. (The availability firms, bonded warehouses often offer subsidized of data limited the choice of countries, but the facilities. But such zones have had little aggregate countries selected nonetheless accounted for 66.5 effect, since they have applied to only a small seg- percent of the total output of developing coun- ment of the economy. In many countries free trade tries in 1985.) This information was then used to status has also been provided to the export sector divide the countries into "strongly outward- in general, through duty exemptions or other ad- oriented," "moderately outward-oriented," ministrative measures to allow exporters access to "strongly inward-oriented," and "moderately imported inputs at world prices. But this is usually inward-oriented" economies. Policies change, and too little to offset the incentives to produce for world trade has been unsettled since 1973, so each domestic markets when import protection is group was examined for two periods, 1963-73 and significant. 1973-85. The criteria for the four categories follow. Positive export incentives fall into three groups: rebates in excess of actual import charges on im- STRONGLY OUTWARD ORIENTED. Trade controls are ported intermediate inputs, or excessive "wast- either nonexistent or very low in the sense that any age" allowances on imported inputs; access to disincentives to export resulting from import barri- loans at below-market rates; and other explicit and ers are more or less counterbalanced by export in- implicit subsidies. Such policies require institu- centives. There is little or no use of direct controls tional sophistication and budgetary resources. and licensing arrangements, and the exchange rate They can be discriminatory and are open to abuse. is maintained so that the effective exchange rates Even relatively nondiscriminatory schemes have for importables and exportables are roughly equal. proved difficult to administer. Furthermore, they are increasingly threatened by countervailing mea- MODERATELY OUTWARD ORIENTED. The overall in- sures imposed by some importing countries. centive structure is biased toward production for domestic rather than export markets. But the aver- Defining trade strategy age rate of effective protection for the home mar- kets is relatively low and the range of effective pro- Trade strategy has a great influence on industrial tection rates relatively narrow. The use of direct performance and economic development. To illus- controls and licensing arrangements is limited, trate this, it is first necessary to classify countries and although some direct incentives to export may according to their trade policies. In principle, the be provided, these do not offset protection against distinction between an inward-oriented and an imports. The effective exchange rate is higher for outward-oriented strategy is straightforward, a imports than for exports, but only slightly. matter of the effective protection provided to pro- duction for domestic markets as compared with MODERATELY INWARD ORIENTED. The overall in- export markets (Box 5.1). In practice, however, it is centive structure distinctly favors production for rather more difficult, because a trade strategy con- the domestic market. The average rate of effective tains many policies at work simultaneously and protection for home markets is relatively high and because the data are very limited. the range of effective protection rates relatively An attempt is made here to classify the orienta- wide. The use of direct import controls and licens- tion of a country's trade strategy by combining the ing is extensive, and although some direct incen- following quantitative and qualitative indicators: tives to export may be provided, there is a distinct Effective rate of protection. The higher the effec- bias against exports, and the exchange rate is tive protection for domestic markets, the greater clearly overvalued. the bias toward import substitution (Box 5.1). Use of direct controls such as quotas and import- STRONGLY INWARD ORIENTED. The overall incen- licensing schemes. The greater the reliance on direct tive structure strongly favors production for the controls on imports, the more inward oriented the domestic market. The average rate of effective pro- economy. tection for home markets is high and the range of Use of export incentives. effective protection rates relatively wide. Direct Degree of exchange rate overvaluation. Inward controls and licensing disincentives to the tradi- orientation generally leads to an overvaluation of tional export sector are pervasive, positive incen- the exchange rate. tives to nontraditional exportables are few or non- 82 Figure 5.1 Classification of forty-one developing economies by trade orientation, 1963-73 and 1973-85 Outward oriented Inward oriented Moderately Moderately Strongly rim ted outward oriented inward oriented inward oriented ong Brazil Bolivia Argentina Republic of Cameroon El Salvador Bangladesh ore Colombia Honduras Burundi Costa Rica Kenya Chile Cöte d'lvoire Madagascar Dominican Republid Guatemala Mexico Ethiopia Indonesia Nicaragua Ghana Israel Nigeria India Malaysia Philippines Pakistan Thailand Senegal Peru Tunisia Sri Lanka Yugoslavia Sudan Tanzania Turkey Uruguay Zambia Brazil Cameroon Argentina Chile Colombia Bangladesh Israel Costa Rica Bolivia Malaysia Côte d'Ivoire Burundi Thailand El Salvador Dominican Republic Tunisia Guatemala Ethiopia Turkey Honduras Ghana Uruguay Indonesia India Kenya Madagascar Mexico Nigeria Nicaragua Peru Pakistan Sudan Philippines Tanzania Senegal Zambia Sri Lanka Yugoslavia Source: Based on Greenaway (background paper) and World Bank data. existent, and the exchange rate is significantly Tunisia. Others moved in the opposite direction, overvalued. toward more inward orientationBolivia, Camer- oon, Colombia, Costa Rica, Côte d'Ivoire, Guate- Figure 5.1 sets out the forty-one developing mala, Indonesia, Madagascar, and Nigeria. economies, classified according to the orientation of their trade strategy in two periods, 1963-73 and Trade strategy and economic performance 1973-85. Although there may be scope for dis- agreement over the two intermediate subgroups, The links between trade strategy and macroeco- the countries which are scored as extreme cases are nomic performance are not entirely clear. Does not likely to be ambiguous. outward orientation lead to better economic per- Figure 5.1 is the basis for the analysis in the rest formance, or does superior economic performance of this section. It shows that, over the period stud- pave the way for outward orientation? Neverthe- ied, several countries underwent policy shifts to- less, Figure 5.2 provides indicators of the macro- ward more outward orientationChile, Turkey, economic performance of the forty-one countries, and Uruguay, along with Pakistan, Sri Lanka, and grouped by the strategies defined above. The spe- 83 Figure 5.2 Macroeconomic performance of forty-one developing economies grouped by trade orientation Real GDP Real GNP per capita (average annual percentage growth) (average annual percentage growth) 10 O 1963-73 6 O 1963-73 8 o 1973-85 0 1973-85 6 I 4 4 I 2 2 0 tiP b. 4 i0 11 II 1 0 U H I Gross domestic savings Incremental capital-output ratio (percentage of GDP) (average annual ratio) 30 0 1963 8 0 [963-73 D 1985 0 1973-85 25 20 6 V 4 15 V 4 10 4 0 2 5 0 0 4 II U. II Inflatio& Manufactured exports (average annual rate) (average annual percentage growth) 50 1963-73 15 40 0 1973-85 30 10 20 5 10 0 0 Strongly Moderately Moderately Strongly Strongly Moderately Moderately Strongly outward outward inward inward outward outward inward inward oriented oriented oriented oriented oriented oriented oriented oriented Note: Averages are weighted by each country's share in the group total for each indicator. See Figure 5.1 for a listing of the economies in each of the trade groups. a. Inflation rates are measured by the implicit GDP deflator. Values are group medians. 84 cific indicators, given for weighted group aver- tation. The average for both strongly and moder- ages, are the average annual growth rates of real ately outward-oriented groups for 1963-73 is 2.5, GDP and per capita income, the gross domestic while the moderately and strongly inward- savings ratio, the average incremental capital- oriented groups averaged 3.3 and 5.2, respectively. output ratio, the average annual growth rate of In the 1973-85 period, the data register a substan- real manufactured exports, and the group median tial deterioration for all groupsincremental of average annual rates of inflation. capital-output ratios are 4.5 and 5.0 for the The figures suggest that the economic perfor- outward-oriented groups and 6.2 and 8.7 for the mance of the outward-oriented economies has inward-oriented groups. been broadly superior to that of the inward- By removing barriers, outward-oriented econo- oriented economies in almost all respects. First of mies tend to tie themselves to the inflation rates of all, growth rates of GDP show a clear descending the international economy. This may restrain their pattern from the strongly outward-oriented to the own inflation rates; however, at times of rapid in- strongly inward-oriented economies. For the 1963- flation in the world economy, it can result in im- 73 period the annual average was 9.5 percent for ported inflation, unless the exchange rate appreci- the strongly outward-oriented group, more than ates. In 1963-73, median inflation rates differed double the 4.1 percent attained by the strongly little between any of the groups; moderately inward-oriented group. The respective rates for inward-oriented economies had the lowest rate. In 1973-85 (7.7 percent and 2.5 percent) show that the 1973-85, the median inflation rate reached double gap has widened. digits in all groups. The highest median inflation As a result of these trends in GDP, the average rate is that of the moderately outward-oriented annual growth rate in real per capita income for group; four of the eight economies experienced 1963-73 was highest in the strongly outward- high or hyperinflation in the 1980sBrazil, Israel, oriented economies (6.9 percent) and lowest in the Turkey, and Uruguay. The other economies in strongly inward-oriented economies (1.6 percent). the sample with particularly high inflation Despite the economic slowdown during 1973-85, Argentina, Bolivia, and Peruare in the strongly per capita income in the strongly outward-oriented inward-oriented group. In the higher inflation en- economies grew by an annual average of 5.9 per- vironment of the 1970s and early 1980s, however, cent, whereas in the strongly inward-oriented the strongly outward-oriented economies were countries it fell on average by 0.1 percent a year. able to maintain relatively low and stable rates of Performance differences are less marked between inflation. the moderately outward-oriented and the moder- The last graph in Figure 5.2 shows the average ately inward-oriented economies; this reflects the annual growth of manufactured exports from 1965 relatively modest differences in their policy envi- to 1973 and from 1973 to 1985. Again, the strongly ronments. (Figure 5.3 shows the per capita growth outward-oriented economies performed best. Be- performance of each of the forty-one economies.) tween 1965 and 1973 the manufactured exports of GDP growth is influenced by the level of savings the two outward-oriented groups grew by 14.8 and as well as by the efficiency of investment. The av- 16.1 percent, compared with 10.3 and 5.7 percent erage ratio of gross domestic savings to GDP of the for the inward-oriented groups. Between 1973 and strongly outward-oriented economies was ex- 1985 the growth rates were 14.2 and 14.5 percent ceeded by all other groups in 1963, registering only versus 8.5 and 3.7 percent. This growth of manu- 13.0 percent. By 1985, however, the strongly factured exports was probably an important factor outward-oriented economies had more than dou- in producing rapid overall economic growth. bled their savings ratio to 31.4 percent, whereas Finally, a good case can be made for suggesting the savings ratios of the other three groups grew that outward orientation leads to a more equitable only slightly, or stagnated. distribution of income. First, the expansion of Given the gross savings rate, efficiency in the labor-intensive exports means higher employ- use of additional capital resources in an economy ment. Second, reinforcing this, outward orienta- can be reflected in the economy's incremental tion removes the bias in favor of capital-intensive capital-output ratiothe ratio of gross investment industries which is often implicit under inward- to the increase in GDP. Lower values suggest more oriented policies. Third, the direct controls of an productive investment. For both periods, there is a inward-oriented strategy generate rents that chan- clear association between lower incremental nel income to those with access to import licenses capital-output ratios and increased outward orien- or subsidized credits. 85 Figure 5.3 Economic and industrial performance by trade orientation Real GNP per capita, 1963-73 and 1973-85 (average annual percentage growth) [963-73 1973-85 Singapore Singapore 8 Furiey 6 HonKong Republic of Dominican - Republic of Indonesia Korea Republic Korea Sri Lanka 6 Uzil Yii.oslavia Malaysia Ban Iadesh I-iongKong Burundi Israel Mexico Argentina a an. India Yugoslavia Thailand Nigeria Pakistan Tunisia Burundi 4 Indonesia Tunisia Tanzania 2 Colombia Dominican Costa Rsa Kenya Sri Lanka I3iaail Milxico Republii Malaysia I Ethiopia Turkey Philippines Ethiopia Côte d'Ivoire Philippines I Chile Kenya Sudan 2 Gambia- Bolivia 0 Israel p Uruguay Hoiidu,as Guatemala Honduras I Uruguay Tanzania El Salvador Chile Senegal Argentina aibia o Cameroon Madagascar Nola Ghana 2 Costa Rica Guatemala Côte dIvoire Zambia Nigcria Senegal Bolivia 2 Bangladesh Sudan El Salvador Nicaragua Ghana Madagascar Real manufacturing value added, 1963-73 and 1973-85 (average annual percentage growth) 1963-73 [973-85 - Republic of Cameroon Korea 12 Repblie-of - Nigeria 18 Burundi s Indonesia - Singapore Zambia - Korea Tunisia Turkey Pakistan Bangladesh 8 - Hong Kong Malaysia Kenya Burundi Tanzania I Nigeria I hailand Sudan Kenya Dominican - Singapore Ccevoire 12 Thailand Mexico Republic Mexico pia Côte dIspj, Tunisia Ethiopia - 4 Turkey Dominican - Hong Kong Costa Rica Brazil Israel Madagascar Nicaragua Philippines I Pakistan Ghana Argentina 0 Braz Isra Chile Costa Rica Philippines Republic Zambia 6 Malaysia Sri Lanka Peru thuguay cegal Pcru Gatirniala El Salvador- Guatemala Tanzania Colombia Honduras Sudan Colombia Bolivia Indonesia Senegal u Chile India - Nicaragua Argentina Cameroon Bolivia El Salado, Uruguay Madagascar 0 Bangladesh -7 Ghana Employment in manufacturing, 1963-73 and 1973-84 (average annual percentage growth) 1963-73 1973-84 18 Singapore Tunisia 9 Philippines Honduras Nigeria 12 Zambia 6 Republic of Thailand jicaraua - Bangladesh Republic ot Nigeria Tanzania - Korea raziI Korea Honduras I Sri Lanka Uruguay Indonesia Ethiopia 6 Hong Kong Côte d'Ivoire Kenya Nicaragua Ghana Turkey - Singapore - Kenya Yu.oslavia Burundi IaI Thnlsta - Sri Lanka Côte Bolivia Dominican Brazil Madagascar Dominican Israel Colombia Philippines Republic 0 d Ivoire Republic Guatemala Zarribia 0 Yugoslavia i Pakistan Mexico El Salvad India Peru Cameroon Madagascar Chile 3 Colombia Ghana Pakistan - Bangladesh -6 5 Chile Strongly Moderately Moderately Strongly Strongly Moderately Moderately Strongly outward outward inward inward outward outward inward inward oriented oriented oriented oriented oriented oriented oriented oriented 86 Empirical evidence also indicates that an The smallest decline was in the strongly inward- outward-oriented strategy can improve the distri- oriented economies-but this group's manufac- bution of income. For example, the Gini coefficient tures had grown at a substantially slower rate than (a measure of income inequality) declined in Hong all other groups in the 1963-73 period. Even with a Kong from 0.49 in 1966 to 0.45 in 1981 and in one-third fall in the growth of manufacturing in Singapore from 0.50 in 1966 to 0.46 in 1980. The 1973-85, growth in the strongly outward-oriented Gini coefficient declined in Korea from 0.34 in 1964 economies remained higher than in any of the to 0.33 in 1970, but it increased to 0.38 in 1976, other groups during the more favorable economic partly because of credit subsidies to promote cer- climate of the previous period. The strongly tain priority investments during the 1970s (Fields outward-oriented economies have clearly coped 1984). better than the others with the economic shocks since 1973. (Again, Figure 5.3 shows the growth Trade strategy and industrialization performance of manufacturing value added in the individual Governments often adopt an inward-oriented economies.) strategy in order to promote industrialization The outward-oriented economies also achieved a through import substitution. But it seems that higher share of manufacturing value added in countries have industrialized faster under outward GDP in 1963(20.1 percent compared with 15.2 per- orientation. Table 5.1 sets several indicators of in- cent for the inward-oriented economies) and in dustrialization against the four categories of trade 1985 (23.0 percent compared with 15.8 percent). strategy. The indicators are the growth of manu- The strongly outward-oriented and moderately facturing and agricultural value added, the share inward-oriented groups both increased the share of manufacturing value added in GDP, the share of of manufacturing value added in their GDP by the active labor force employed in industry (de- more than half from 1963 to 1985. The increase in fined to include mining, construction, and utilities, the moderately inward-oriented economies, how- in addition to manufacturing activity), anq the ever, merely brought their share of manufacturing growth of employment in manufacturing. to a level achieved by all other groups two decades During both periods, average annual growth of before. The share of manufacturing declined by 1.7 manufacturing value added was highest in the percent in the strongly inward-oriented group. strongly outward-oriented group and lowest in the The gap between the outward-oriented economies strongly inward-oriented group-15.6 percent ver- taken together and the inward-oriented economies sus 5.3 percent during 1963-73 and 10.0 versus 3.1 taken together increased slightly. percent during 1973-85. Although both the moder- Industry provides more of the jobs in the ately outward-oriented and the moderately outward-oriented economies than it does in the inward-oriented economies achieved fairly high inward-oriented ones. The share of labor in indus- rates for 1963-73 (9.4 and 9.6 percent respectively), try reached 30.0 percent in the strongly outward- both saw a strong decline in the following period. oriented economies in 1980, considerably more Table 5.1 Characteristics of industrialization for forty-one developing economies grouped by trade orientation Average annual Average annual Average share Average Average annual growth of real growth of real of man ufac- share of labor growth of manufacturing agricultural turing value force in employment value addedb value added added in GDP' industry in manufacturing Trade strategi/ 1963-73 1973 -85 1963-73 1973 -85 1963 1985 1963 1980 1963-73 1973 -84 Strongly outward oriented 15.6 10.0 3.0 1.6 17.1 26.3 17.5 30.0 10.6 5.1 Moderately outward oriented 9.4 4.0 3.8 3.6 20.5 21.9 12.7 21.7 4.6 4.9 Outward oriented (average) 10.3 5.2 3.7 3.3 20.1 23.0 13.2 23.0 6.1 4.9 Moderately inward oriented 9.6 5.1 3.0 3.2 10.4 15.8 15.2 23.0 4.4 4.4 Strongly inward oriented 5.3 3.1 2.4 1.4 17.6 15.9 12.1 12.6 3.0 4.0 Inward oriented (average) 6.8 4.3 2.6 2.1 15.2 15.8 12.7 14.1 3.3 4.2 Note: Averages are weighted by each country's share in the group total for each indicator. See Figure 5.1 for a listing of the economies in each of the trade groups. Data not available for Yugoslavia. Data not available for Costa Rica and Malaysia (1963-73, 1973-84); nor for Thailand and Mexico (1963-73). 87 than in the moderately inward-oriented (23.0 per- cent) and the moderately outward-oriented (21.7 percent). In the strongly inward-oriented econo- mies, manufacturing was a source of employment for only 12.6 percent of the work force. Moreover, employment has grown faster in the Box 5.3 Trade orientation and the structure outward-oriented economies. Manufacturing em- of protection ployment grew by 6.1 percent a year in 1963-73 (compared with 3.3 percent in the inward-oriented Although estimates of effective rates of protection are widely available for many developing countries, they economies) and by 4.9 percent in 1973-84 (com- are not strictly comparable for various reasons. For in- pared with 4.2 percent). In the first period, manu- stance, estimates available for different economies per- facturing employment grew three times faster in tain to different years; some are based on tariffs only, the strongly outward-oriented economies than in whereas others include the effects of other policies that the strongly inward-oriented economies, 10.6 per- encourage or discourage production; and in some cases cent a year versus 3.0 percent. Growth slowed in the protection-induced exchange rate effects are netted the strongly outward-oriented group in 1973-84, out, but in other cases they are not. These shortcom- ings notwithstanding, estimates may be suggestive of narrowing the gap between the two extreme the relationship between the structure of protection groups. But manufacturing in the strongly and the trade strategies they followed. outward-oriented economies still increased em- Box table 5.3 provides a glimpse of typical structures ployment at a faster rate (5.1 percent) than the of effective protection by sector and by sales destina- strongly inward-oriented group (4.0 percent) and tion. Several features are noteworthy. First of all, the at a slightly faster rate than the moderately structure of protection clearly shows that there was, on outward- and moderately inward-oriented econo- average, bias against exports in all countries for which data are availablewith the possible exception of mies (4.9 percent and 4.4 percent, respectively). Singapore and the Republic of Korea, where the bias The outward-oriented countries fared better not was so small that it could easily have been offset by only in industrialization and manufactured export assistance (although the data are insufficient to say growth, but also in agriculture. Their agricultural whether this was the case). For the rest of the sample value added grew by 3.7 percent in 1963-73, com- I countries, the extent of such bias, measured by the pared with 2.6 percent in the inward-oriented difference of effective protection between domestic and economies, and by 3.3 percent in 1973-85, com- export sales, ranges from 9 percentage points for Co- lombia (1969) to 229 percentage points for Chile (1967). pared with 2.1 percent. The data also reveal that there was a clear bias against the primary or agricultural sector and favoring Why outward orientation works the manufacturing sector in every country considered except Korea, where the opposite was true because of The evidence of the previous section strongly sug- the rising price support for rice production. In the case gests that outward-oriented trade policies have of Colombia, the negative rate of protection for agricul- been more successful than inward-oriented trade ture in 1969 was largely due to the export tax applied to policies. It is a harder task to explain precisely coffee. Such a negative rate of protection for primary exports may be justifiable when import demand is in- why. The two regimes confront economic decision- elastic so that disincentives to export sales can provide makers with radically different signals and incen- I larger export revenues. But such cases are probably tives. A full answer would call for an analysis of exceptional. The extent of bias against the primary sec- the effect of each of these elements. The best that tor in relation to the manufacturing sector is more con- can be achieved in practice is to consider the broad spicuous in the inward-oriented sample of countries. economic themes that seem to be at work. These figures indicate the negative incentives provided It is well known that the protection associated to export sales in countries in which primary goods constituted major exports. with inward-oriented policies imposes economic Finally, the range of effective protection rates mea- costs, not least on the country that puts the policy sures the scale of discrimination between different in- into effect. Some of this economic burden, which dustries. As indicated in the table, the ranges for the is part of the reason inward-oriented policies have countries are based on different numbers of sectors and failed, can be seen from the structure of incentives are therefore not strictly comparable. Nonetheless, that have resulted from tariffs and other protective they reveal that ranges tend to be greater in countries measures (see Box 5.3). These incentives are where the overall level of protection is higher. bound to have important influences on the effi- ciency of resource allocation. 88 I Box table 5.3 Structure of effective protection in selected economies by sector and sales destination (percent) Effective protection rates by sales destination Effective protection rates by sector Trade Range and Domestic Export Economy and year orientation Primary Manufacturing Overall number of sectors market market Singapore 1967 5 0 0 ---7to21 2 5b (9) Korea, Republic of 1968 11 17 31 to 119 1 3b (11) 1978 77 5 31 38 to 135 31 18" (11) Brazil 1967 El 45 19 4to 123 (12) 1980-81 El 21 23 48 to 17 (3 primary) 85 to 219 (67 manufacturing) Colombia 1969 Eli _23c 4 15 23 to 161 14 23b (10) 0 39 55 44 22 to 88 (5 primary) 25 to 127 (29 manufacturing) Philippines 1%5 0 _13c 99 0 _34to238e (10) 1980 El 9 44 36 Chile 1967 El 217 168 -23 to 1,140 233 4 (22) Nigeriaa 1980 ElI 12 82' 4 to 31 (7 primary) 62 to 1,119 (107 manufacturing) Strongly outward oriented El Moderately outward oriented El Moderately inward oriented Strongly inward oriented Estimates are net of exchange rate overvaluation (compared with a hypothetical free trade situation) owing to import protection. Estimates are adjusted for subsidies through credit and tax preferences. Includes agriculture, forestry, and fishing only. These estimates are based on tariff observations only, whereas all other estimates are based on direct price comparisons between domestic and world prices at the border. An extreme case with negative value added in world prices is excluded. Estimate is for 1979-80. Source: For Brazil 1967 and Philippines 1965: Balassa and others 1971; for Korea 1968, Singapore 1967, and Colombia 1969: Balassa and Associates 1982; for Colombia 1979: Echeverri 1979; for Chile 1%7: Krueger and others 1981; for Korea 1978: Nam 1981; and for others: World Bank data. 89 It may well be, however, that other policies not vealed by conventional analyses of the costs of necessarily part of the inward- or outward- protection (see Box 5.4). The rationing of import oriented strategies as they have been defined here licenses, credit, and foreign exchange has invari- account for some of the differences in perfor- ably generated premiums and, in turn, rent seek- mance. Chapter 4 has already examined the appro- ing. By dismantling these administrative systems priate role of government. Chapter 7 will examine entrepreneurs could direct their energies away the ways in which other policies affect the alloca- from unproductive activities, such as lobbying for tion of resources and hence the prospects for changes in regulations. Further gains derive when growth. The rest of this chapter focuses on the firms achieve economies of scale: in an outward- links between trade policy and economic growth. oriented regime, the size of the domestic market does not limit the output of exporting firms. Trade policies and growth Foreign investment is often attracted to the pro- tected domestic markets of an inward-oriented The advantage of an outward-oriented strategy economyin the form of so-called tariff-jumping over an inward-oriented strategy is that it pro- investments. But this kind of investment may actu- motes the efficient use of resources. The gains ally reduce rather than improve the recipient's from this go well beyond the ones which are re- welfare. An outward-oriented policy will not at- Box 5.4 Measuring the costs of protection The objective of import tariffs and quotas is generally and not undertake the necessary effort to minimize to raise the domestic price of a product above its world costs. Moreover, monopoly can also cause conven- price and thereby stimulate increased domestic pro- tional inefficiencies by restricting output. duction. The attainment of this objective will not be The cost of protection is also underestimated if the costless, however. Protection generally imposes costs costs of rent seeking and directly unproductive profit on the citizens of the protecting economy. Moreover, seeking are ignored (Box 4.7 in Chapter 4). Lobbies the magnitude of these costs differs between one in- spend resources enacting protection. Similarly, once strument of protection and another. For example, protection is enacted, it may lead to further resource- quantitative restrictions are likely to impose substan- wasting lobbying_for example, in pursuit of import tially greater costs on society than tariffs that restrain quotas carrying scarcity premiums. imports to an equal extent. Most of the earlier studies which measured the costs Protection imposes a variety of costs on society. of protection have been conducted using "partial equi- Economists frequently divide the efficiency costs into librium" methods. In other words, the analysts fo- consumption losses and production losses. Consump- cused attention only on the industry or sector being tion losses refer to the losses in real income of con- protected. But protection has effects which reverberate sumers of the protected product that occur because beyond the sector or sectors in which the initial re- protection generally induces consumers to buy less of straint is imposed. Some analysts have attempted to the protected product while paying a higher price. Pro- estimate the costs of protection in models where such ducers benefit from the higher price and will often re- secondary effects are allowed for, that is, using "gene- spond by increasing their output. A production loss is ral equilibrium" methods. In principle, such models involved here to the extent that resources have to be incorporate all the repercussions of protection on pro- drawn from other activities (including production for duction and consumption, including effects on X ineffi- export), where they can be more efficiently used. Many ciency, the terms of trade and income, and employ- studies on the cost of protection have attempted to ment beyond the industry under consideration. These estimate the magnitude of these production and con- studies generally provide substantially greater esti- sumption losses: estimates of less than 1 percent of mates of the cost of protection than do the partial equi- GDP are common. It should be noted that these are librium studies. For example, recent studies show that annually recurring costs which apply for as long as removing quotas alone in Turkey in 1978 would have protection is in force. increased its GDP by as much as 5.4 percent (Grais, de These production and consumption losses are not, Melo, and Urata 1986) and that eliminating tariffs, quo- however, the sole costs of protection. In addition, there tas, and export taxes in the Philippines in 1978 would can be losses associated with so-called X inefficiency have increased its GNP by as much as 5.2 percent when protection leads to domestic monopoly. For ex- (Clarete and Whalley 1985). ample, monopoly can permit the entrepreneur to relax 90 tract investment projects which depend on the re- SAVINGS RATES AND TRADE STRATEGY. As noted tention of import barriers. earlier, some outward-oriented economies have While protected firms are sheltered, often within achieved spectacular growth in savings rates (Fig- monopolistic markets, firms under outward orien- ure 5.2). Lack of empirical work makes it difficult tation face greater competitionand hence incen- to establish the relationship between savings rates tives to increase their production efforts. So-called and trade strategies, but several links seem plausi- X inefficiencythe economic cost of a quiet lifeis ble. First, a policy shift from inward to outward likely to be greater under inward orientation than orientation should generate additional real in- under outward orientation. come, partly by reducing the misallocation of re- All of these factors are important, but the scale sources and partly by raising income through mul- and persistence of the growth rate differentials be- tiplier effects as rising exports bring spare capacity tween the strongly outward-oriented economies into use. In developing countries the marginal pro- and the others suggest that more subtle economic pensity to save tends to exceed the average pro- forces might also have been at work. pensity to save, so that the increase in real income would help to raise the average propensity to save. INNOVATIONS. It is tempting to argue that a more Another possibility is that domestic savings rise competitive environment for firms could lead to further under outward orientation because a more incentives for increased productivity through higher-than-average share of income generated by technological innovations. Equally, it can be ar- exports is saved. Several studies found a strong gued that "uncompetitive" profits might be positive correlation between export growth and needed before firms wifi engage in the efforts of domestic savings, but the issue remains unre- technological innovations. Little is known about solved. technological innovation in relation to trade policy. A third link between trade policy and savings Nonetheless, there is increasing evidence that may be that high real interest rates are an impor- adoption of new technology has been faster in tant incentive for personal (and especially small- outward-oriented than in inward-oriented devel- scale) savers. Capital markets are often highly oping economies (see the section below on produc- distorted and underdeveloped in developing tivity growth). It is worth noting that exporting countries, and they tend to be more so in inward- firms often benefit from a considerable transfer of oriented than in outward-oriented economies, technology from abroad, including advice on pro- even to the point of offering negative real interest duction engineering and aid in product design and rates in some instances. This could discourage sav- marketing. Exposure to foreign know-how may ings in some inward-oriented countries (see Chap- help to speed innovations. ter7). Investment may be financed by foreign savings SELF-CORRECTING POLICIES. Arguably, outward- as well as by domestic savings. Under inward ori- oriented regimes provide self-correcting mecha- entation, tariff-jumping foreign investment is com- nisms to align the macroeconomic variables that mon. In contrast, foreign investment is often at- affect growth. For instance, if the exchange rate is tracted to exporting industries in outward-oriented permitted to become overvalued, the misalign- economies. Foreign capital is more likely to gener- ment is quickly obvious under outward orientation ate the income (and exports) for its own servicing because the balance of trade goes into deficit. In an in export-oriented countries. Overvalued ex- inward-oriented regime the effect of the misalign- change rates maintained by exchange control sys- ment would take the subtler form of rising premi- tems, which are so common in inward-oriented ums on import licenses. economies, also deter foreign capital inflow. Savings, investment, and productivity PRODUCTIVITY GROWTH. Proponents of import substitution base their policies partly on the infant Growth performance can be looked at in another industry argument. They argue for temporary pro- way: what has happened to the stock of capital tection while firms raise their technical efficiency and to its level of productivity? Much work re- by creating industrial skills and mastering modern mains to be done on this question, but there are a technology. But high protection may have the op- few indications that outward orientation might posite effect. By limiting competition in sheltered have encouraged higher savings rates and produc- domestic markets, it may inhibit specialization and tivity growth. promote risk aversion among managers (see Box 91 Box 5.5 Productive inefficiency under import protection: an example at the plant level An intensive examination of the cotton spinning and Box table 5.5 Total factor productivity relative to best weaving sector in Kenya and the Philippines illustrates practice in Kenyan and Philippine textile plants, 1980 I some of the productivity losses that can occur in coun- Relative tries in which import substitution is the dominant strat- productivity Spinning Weaving egy. Productivity of individual plants in these countries and sources was calculated in relation to productivity in textile mills of deviation Kenya Philippines Kenya Philippines using identical equipment in industrial countries. Total Relative total factor factor productivity in the two sets of developing coun- productivity 0.70 0.73 0.68 0.55 try plants ranged from 55 to 73 percent of that in the industrial country factories. On the basis of both engi- Sources of deviation neering and economic analyses, the source of the dif- from best practice ference in productivity was decomposed into three fac- Horizontal specialization 0.85 0.79 0.63 0.70 tors: the absence of horizontal specialization; technical Technical exper- expertise in management; and task-level productivity tise in manage- in the work force. The results of this decomposition are ment 0.93 0.91 0.99 0.75 shown in Box table 5.5. Each number in the table Task-level shows the percentage of best-practice productivity in productivity 0.85 1.03 1.11 1.03 industrial countries realized in each activity. The Note: The values are a productivity index of developing country sources of deviation from best practice are multiplica- plants relative to best practice in industrial countries. Source: Pack 1987. tive, so that the product of the bottom three rows yields the relative total factor productivity shown in the top row. tivity is close to industrial country levels. Productivity The main cause of low total factor productivity was losses from excessive product variety and from inade- the inability of firms to obtain the benefits that special- quate incentives to obtain technical competence have izing in a narrow range of products brings. Inadequate been a standard criticism of import-substituting indus- managerial skills reduce total factor productivity by 9 to trialization. Although it is not correct to attribute all of 25 percent. Surprisingly, once the other productivity- the shortcomings shown in Box table 5.5 to this strat- reducing factors are taken into account, labor produc- egy, it was undoubtedly an important factor. 5.5). To maintain or improve their market position, ity growth rates of the moderately inward- and however, exporting firms need to keep up with outward-oriented groups were similar. modern technology and bring managerial skills up Recent World Bank studies of Turkey and Mexico to international standards. show that total factor productivity growth was low The empirical evidence is far from conclusive, or declined during periods when foreign exchange but postwar experience of productivity growth in control and protection increased. At the level of developing countries suggests that trade policy is the individual industry, another World Bank study important. Table 5.2 presents data on factor pro- (covering Korea, Turkey, and Yugoslavia) found ductivity and factor growth in selected developing that total factor productivity grew faster in most economies. It shows that total factor productivity exporting industries than it did in most import- increased much faster in the strongly outward- substituting industries. oriented economies than in the strongly inward- oriented economies. The annual growth rate was Trade strategy in perspective more than 4.0 percent in Hong Kong and Korea during the 1960s and early 1970s, compared with The evidence discussed in this chapter suggests 1.5 percent or less in Argentina, Chile, and Peru. In that rapid economic growth and efficient industri- India, total factor productivity declined in 1960-79. alization are usually associated with outward- Singapore is an exception: its total factor produc- oriented policies on trade. Outward orientation tivity declined between 1972 and 1980. But this encourages efficient firms and discourages ineffi- was a period when the government put an increas- cient ones. And by creating a more competitive ing emphasis on industries that required high lev- environment for both the private and public sec- els of skill, capital, and technology. The productiv- tors, it also promotes higher productivity and 92 Table 5.2 Growth of GDP, inputs, and total factor productivity (percent) Total Factor inputs factor productivity Share of Average Share in Growth Growth total inputs growth Growth GDP of of in GOP Trade strategy and period of GDP rate growth capital labor growth Strongly outward oriented Hong Kong 1960-70 9.10 4.28 47.0 7.60 2.97 53.0 Korea, Republic of 1960-73 9.70 4.10 42.3 6.60 5.00 57.7 Singapore 1972-80 8.00 -0.01 -0.1 9.48 5.52 100.1 Moderately outward oriented Brazil 1960-74 7.30 1.60 21.9 7.50 3.30 78.1 Colombia 1960-74 5.60 2.10 37.5 3.90 2.80 62.5 Israel 1960-65 11.00 3.40 30.9 13.10 5.00 69.1 Moderately inward oriented Mexico 1960-74 5.60 2.10 37.5 3.90 2.80 62.5 Strongly inward oriented Argentina 1960-74 4.10 0.70 17.1 3.80 2.20 82.9 Chile 1960-74 4.40 1.20 27.3 4.20 1.90 72.7 India 1959/60-1978/79 6.24 -0.18 -2.9 4.77 1.65 102.9 Peru 1960-70 5.30 1.50 28.3 4.40 2.70 71.7 Turkey 1963-75 6.40 2.23 34.8 6.82 1.02 65.2 Note: Total factor productivity measures the growth of CDI' above and beyond the growth in the use of both labor and capital inputs. Source: Adapted from Chenery, Robinson, and Syrquin 1986, pp. 20-22. Box 5.6 Alternative outward-oriented policies Ideally, the shift to an outward-oriented strategy from ample, that effective rates of protection ranged from an inward-oriented one can best be accomplished by -38 to 135 percent for eleven sectors in 1978, although removing existing trade barriers, devaluing the ex- average effective rates of protection did not signifi- change rate, and relying on the price mechanism to cantly differ between domestic and export sales (Nam allocate productive resources. In practice, many devel- 1981). Second, when export subsidies are used to offset oping countries-including, for example, the Republic the antiexport bias, they have sometimes been cap- of Korea, Brazil, and Mexico-have used export incen- tured by selective interests. Third, if import subsidies tives to offset bias against exports without dismantling are used through preferential loans at below-market all of their import barriers and without devaluing their rates, the choice of production technique may also be currencies. distorted in favor of capital, which adversely affects There are several ways to justify this approach. First, employment. Finally, using import tariffs and export devaluations are feared because they may be inflation- subsidies puts a heavy strain on the government's ad- ary. Compared with import restrictions, however, it is ministrative machinery and encourages evasion, rent unclear whether this is so. Import prices under protec- seeking, and other directly unproductive profit- tion already reflect scarcity premiums, which the de- seeking activities (Box 4.7 in Chapter 4). valuation could simply cut into. Second, where import In any event, the alternative route to outward orien- tariffs rather than quantitative restrictions are used, the tation in trade-subsidizing exports-faces two prob- loss of fiscal revenue in shifting to outward orientation lems. First, where the overvaluation of exchange rate may be a problem for some governments. Third, im- caused by high import protection is large, as in Brazil port tariffs and quantitative restrictions can be used and Mexico, the export subsidies required to offset the selectively, which stimulates focused resistance to their antiexport bias are simply too great. Second, subsidies removal. by developing countries have increasingly become sub- Empirical studies, however, underscore the folly of ject to countervailing duties in some industrial coun- resorting to export subsidies to offset antiexport bias. tries. The developing countries most frequently subject The selectivity of import barriers is economically dam- to countervailing measures by the United States in- aging. Often governments are not aware of this. A clude Brazil, Korea, and Mexico-although export sub- study of the incentive system in Korea shows, for ex- sidies had been removed in Korea by the early 1980s. 93 hence faster economic growth. Economies that countries may only make matters worse by turning have followed inward-oriented trade policies have inward. In other words, however protectionist the performed poorly. industrial countries, from an economic standpoint Many arguments for industrialization through the best choice for developing countries is an import substitution have been advanced at various outward-oriented strategy. But as protection in- times. They are questionable, however, for several creases, such an orientation becomes much more reasons. For example, suppose that export pessi- difficult politically. Note that outward-oriented mism were justified, in the sense that when a policies involving export subsidies are increasingly country expanded its exports of a primary com- threatened by countervailing actions by some in- modity, the price fell in world markets. The appro- dustrial countries. This tilts the balance even more priate policy response would then be to levy an in favor of the policy which, on economic grounds, export tax on that commodity, not provide blanket is in any case the better one: import liberalization import protection for the industrial sector as a combined with currency devaluation, rather than whole. Or suppose that the infant industry argu- protection offset by export subsidies. Often coun- ment applies and that some sort of government tries such as Korea have adopted the second ap- assistance is therefore in order. A policy of restrict- proach for their transition from inward- to ing imports is unlikely to be the best answer. Sub- outward-oriented policies, and it is still in use in sidies directed at the source of any external bene- such countries as Brazil and Mexico (see Box 5.6). fits avoid the costs of protecting an entire industry The evidence in favor of outward-oriented over from import competition. inward-oriented policies may be convincing, but The new protectionism in some industrial coun- the issue of how an economy may be successfully tries (see Chapter 8) raises an important question moved from one to the other is a separate ques- for developing countries: can an outward-oriented tion. Recent experience in Argentina, Chile, and strategy be successfully adopted in these adverse Uruguay suggests that the transition to outward- circumstances? Protection by industrial countries oriented policies should be carefully phased. reduces the gains from trade both for themselves Chapters 6 and 7 examine this in greater detail. and for the developing countries, but developing 94 Trade policy reform Chapter 5, in reviewing the experience of today's from inward to outward orientation. The transition developing countries, concluded that rapid eco- means that some activities become more profitable nomic growth and efficient industrialization are and others less so. Often it is protected manufac- more likely to be achieved by outward-oriented turing activities whose profitability is most threat- trade strategies than inward-oriented ones. In the ened. The more inward-oriented the original poli- light of that evidence, it is not surprising to find cies, the greater these shiftsand the costs increasing disenchantment with the inward- associated with themwill be. The pattern of tran- oriented approach and greater interest in trade pol- sition may need to be designed to suit specific na- icy reforms that increase the degree of neutrality in tional situations. trade regimes and lead to competitive exchange The more rapid and fundamental the policy rates. Yet the number of countries which have ex- changes, the greater the immediate benefits to the perimented seriously with trade reform is limited, economy. But there is also a greater likelihood that anduntil recently, at leastrelatively little atten- more people will face transitional costs as workers tion has been paid to the lessons to be drawn from are displaced from old jobs and firms abandon old their experience (see Box 6.1). activities. Few of the developing economies which adopted As some activities or occupations become less such reforms sustained them for any length of remunerative, resistance to policy change will time. Greece, Spain, Israel, and the Republic of emerge. Those who are threatened will use politi- Korea were among the first to embark on trade cal means to obstruct reform. policy reform; today, they all have relatively Trade policy reform is closely related to reform outward-oriented regimes. Singapore and Hong of other economic policies. In particular, the ex- Kong have, of course, inherited open trading re- change rate and the way domestic inflation affects gimes from their status as trading ports. Chile (in it in real terms are crucial to competitiveness in the mid-1970s) and Turkey (in 1980) adopted re- import-replacing and export activities. In turn forms more recentlythey were particularly ambi- these are influenced by domestic fiscal, monetary, tious in Chile's casebut they have not yet stood and credit policies and by policies affecting capital the test of time. flows. Elsewhere, trade reform has been spasmodic. All these problems of transition make the design For instance, Pakistan undertook halting and lim- of policy reform important. How can policies best ited reforms starting in the early 1960s. Somewhat be selected, phased, and sequenced to gain the more ambitious attempts by Yugoslavia (also start- benefits of reform as quickly as possible while mm- ing in the early 1960s), Brazil (in the later 1960s), imizing transitional costs and political resistance? and Argentina (from the mid-1970s) have since The second half of this chapter tries to answer this been reversed. question. First, to put the issues in perspective, the This limited progress reflects a number of chapter reviews the experience of trade liberaliza- problemsreal or perceivedin the transition tion around the world. 95 Box 6.1 Studying the process of trade liberalization There is an extensive literature comparing policies and the timing and sequencing of trade liberalization poli- performance in outward- and inward-oriented econo- cies (Papageorgiou, Michaely, and Choksi 1986). mies, but until recently less attention has been paid to Thirty-seven episodes of liberalization in nineteen the transition from the one to the other. One multi- countries have been studied. The research is asking country study of foreign trade regimes and economic such questions as: Should the switch from quantitative development looked at the relationship between liber- restrictions to tariffs, say, or the direct promotion of alization and economic stabilization (Krueger 1978). In exports be undertaken as separate stages of trade liber- recent years several multicountry research projects alization? What national and international conditions have tried to deal with trade liberalization more di- affect the chances of success? How do other policies rectly. One of these is a World Bank project that looks affect trade liberalization? at the experience of liberalization with stabilization in In this study trade liberalization has two meanings: the Southern ConeArgentina, Chile, and Uruguay first, a reduction in the levels and dispersion of rates of (World Development 1985). protection and, second, a change in the form of protec- Another project is under way at the World Bank on tion from quantitative restrictions to tariffs. In any Box figure 6.1 Trade liberalization indexes for selected countries, 1946-86 Argentina Brazil Chile Colombia Greece Indonesia Republic of Korea New Zealand ls>,y 1950 1960 1970 1980 1950 1960 1970 1980 1950 1960 1970 1980 96 Pakistan ippines tJ PeT'\JN Portugal UPA 1' Singapore Turkey Uruguay Sri Lanka 1950 1960 1970 1980 1950 1960 1970 1980 1950 1960 1970 1980 Yugoslavia Note: The trade liberalization index is on the vertical axis. Given the nature of the index, its scale has been omitted. Source: Papageorgiou, Michaely, and Choksi 1986. given episode of liberalization, these two elements of- fewer the trade restrictions. The indexes reflect judg- ten appear together; occasionally, they may be in con- ments by different authors, based on quantitative indi- flict. cators, such as the degree of antiexport bias and non- As part of the research, a synthetic measure of tariff protection, and qualitative information about the changes in trade policy over timethe trade liberaliza- trade regimes. Thus, the index is strictly ordinal, mean- tion indexwas established for each of the countries ingful only in a comparison within one country over studied. In the indexes reported in Box figure 6.1 the time; it cannot be used to compare the degree of trade vertical axis represents a synthetic measure of increas- liberalization across countries. ing trade liberalization: the more the curve rises, the 97 The diversity of country experience suffered a number of temporary reversals, al- though the entry of some of these countries into The modern trend toward trade liberalization got the European Community (EC)Greece in 1981 under way in Western Europe in the late 1940s. It and Spain and Portugal in 1986makes it likely was encouraged by treaty obligations under the that the liberalization will continue, even if their General Agreement on Tariffs and Trade (GAU) as entry may complicate EC trade policy. well as by such arrangements as the European A broad pattern emerges for these liberalizing Payments Union of 1949underwritten by U.S. countries. The reforms started when a macroeco- aid under the Marshall Planand the European nomic crisis led the government to stabilize the Economic Community established in 1958. A series economy over a relatively short period; the ex- of GAU-sponsored tariff-cutting rounds, as well change rate was devalued (and the impact of mul- as the expansion of various preferential trading ar- tiple exchange rates reduced); and nontariff barri- rangements within Western Europe, continued the ers were replaced by substantial tariff protection. process of trade liberalization. In spite of increas- (See Box 6.2 for a discussion of the relationship ing protection in agriculture and in spite of the between liberalization and stabilization.) The later new protectionism against exports from develop- moves toward neutrality in trade policymainly ing countries (see Chapter 8), the economies of the through tariff reduction, but also through export industrial countries were probably as open by 1980 subsidy in some caseshappened over a far longer as they had been at the height of the free trade era period. Within that period, each country se- before World War I. quenced its trade reforms differently. Greece took the boldest initial steps, devaluing and abolishing Southern Europe and the Mediterranean import controls in one go in 1953. Israel, by con- trast, started with a series of devaluations in 1952- Some of the then-developing countries of South- 55, but did not take the step of replacing quantita- ern Europe and the Mediterranean began to liber- tive restrictions with tariffs until it had enacted a alize on the coattails of other European countries further series of devaluations in 1962-65. Greece, Israel, and Portugal in the 1950s and Spain Trade liberalization in these countries was put in the 1960s. The process is not yet complete. It has under great pressure with the onset of interna- Box 6.2 Trade liberalization and economic stabilization Economies often follow a certain pattern when controls tion of tighter direct controls on imports. The external are used to try to suppress inflation and trade deficits. deficit will have to be financed by extra borrowing, and This has been particularly true of some economies in so debt builds up. Price controls, meanwhile, will ei- Latin America. The cycle may start with inflation, ther increase the budget deficit (if they are sustained which is provoked, as a rule, by government deficits through subsidies) or simply reduce the incentive to that are financed by the creation of money. Typically, produce. governments then seek to offset this inflation by main- In these extreme circumstances governments are taining the nominal exchange ratethe price of foreign faced with the need to act on several fronts. For the currency in units of domestic currency. Their aim is to short term they need to stabilize the economy, usually hold down the domestic price of imports to dampen through a combination of devaluation and deflation. To inflation. But, as a result, the exchange rate becomes improve resource allocation they also need to ease the progressively overvalued. At the same time govern- various controls. The reform of trade policy is, like the ments may also use price controls or subsidies to hold liberalization of labor and financial markets, part of this down prices. broader economic program. This approach may work in the short term, but it It is virtually impossible to sustain trade reform in an creates other distortions which then require new con- economy facing a stabilization crisis. On the one hand, trols. For instance, the overvaluation of the exchange inflation leads to a progressive overvaluation of the rate will reduce the supply of exports, while the aggre- exchange rate, which increases the bias against export- gate excess demand created by inflation will increase ing; on the other, inflation distorts relative prices and the demand for imports. Together these may result in a makes them unpredictable. Yet an atmosphere of crisis balance of payments crisis, followed by the introduc- has sometimes been the political stimulus for reform. 98 Figure 6.1 Major economic liberalization policies in the Republic of Korea, 1959-83 Tariff reform Reduction of nontariff barriers Introduction of direct export incentives Major devaluation or exchange rate unification Liberalization of domestic financial markets Liberalization of foreign capital transactions Reduction of price controls 1960 1965 1970 1975 1980 Policy reversal Note: The quantitative impact of each of the trade liberalization policies (tariff reform, reduction of nontariff barriers, and changes in the level of direct export incentives) is shown in Figure 6.2. Source: Adapted from Kim 1987. tional recession in the 1970s. Recession and shocks East Asia in the terms of trade led to expanding public sector deficits, inflation, and growing balance of pay- In the 1960s a few East Asian economies re- ments problems. At first governments were un- sponded to the market opportunities offered by willing to consider devaluation. Trade liberaliza- economic growth in the industrial countries (and tion may have survived, in some cases, only in some cases to the opportunities for foreign di- because of commitments to the European Commu- rect investment from these countries) by embark- nity. Another Mediterranean country, Turkey, fol- ing on an aggressive export-oriented strategy. lowed a more inward-oriented strategy for a long Hong Kong had been following such a strategy time even though, like Greece, it had an associa- since the 1950s. Singaporeanother city-state that tion agreement with the EC. In recent years Turkey had grown up on trading activitieshad initially has embarked on ambitious economic reforms, in- taken a different direction, protecting its domestic cluding trade policy reform, with positive results. market in a short-lived arrangement with Malaysia 99 switched its import control system from a list of Figure 6.2 Evolution of trade incentives in goods that could be imported to the more liberal Korea, 1958-84 device of a list of goods that could not be. Starting in 1978 it made further cuts in quantitative restric- tions and tariffs. Percent 100 From early on, incentives were more neutral between import substitution and exportsin Ko- rea than in most other developing countries. On 80 the import side, Korea's liberalization has been slow. Another feature was the stability of the real exchange rate. (The real exchange rate is the nomi- nal rate corrected for inflation in domestic prices relative to inflation in world prices; see Box 6.3.) This reflected the government's emphasis on maintaining export competitiveness in spite of per- sistent inflation. There has been almost no visible cost of adjustment in this rapidly growing econ- omy. This in turn has helped to make further trade liberalization feasible. Korea's trade liberalization remains limited in several respects: selective import controls are still 1958 1963 1968 1973 1978 1984 significant (although they are being phased out), controls on the domestic financial market remain, and there has been little liberalization of the capital Average ad valorem rate of legal tariff account. Share of import items not subject to quantitative Several other countries in the region have suc- restrictions cessfully promoted manufactured exports, but in Net export subsidies as a share of the value of exports some cases this success has been limited by incen- tives that continue to encourage import substitu- Source: Kim 1987. tion. In the Philippines, for instance, a substantial volume of nontraditional exports developed in the 1970s. That would have been much harder to achieve if not for a large initial devaluation of the currency and the maintenance of a stable exchange rate thereafter. In addition, bonded warehouses in 1963-65. But by the early 1970s it had returned and free trade zones partially offset the continuing to a strategy of low protection. high levels of import protection. Nontraditional The Republic of Korea has pursued an export- exporting has remained an enclave activity with promoting strategy that combines trade liberaliza- little impact on the rest of the economy. Most of tion with considerable intervention (see Figures this activity involves the assembly of imported pre- 6.1 and 6,2). Introduced in the late 1950s, export cut garments and electronic components. As a incentives were ineffective at first because of im- result, the net foreign exchange earnings of non- port protection and the overvaluation of the ex- traditional exports are far lower than their gross change rate. In the early 1960s the government value. abandoned multiple exchange rates, and in 1964 it Latin America devalued the currency substantially. This enabled it to cut its direct export subsidies. The govern- For decades many of the Latin American econo- ment stabilized the economy and liberalized the mies suffered large fiscal deficits, balance of pay- domestic financial markets in 1965 and then re- ments problems, runaway inflation, and distorted duced price controls. The reforms that started in financial systems. The depression of the 1930s and 1964 led to strong growth in exportsbut this was the enforced self-reliance of World War II gave an also partly due to the fact that import protection impetus to import substitution. This became the was at the outset not as heavy as in many other region's dominant industrial strategy in the 1950s. developing countries. In 1967 the government Several limited experiments in stabilization and 100 Box 6.3 The real exchange rate When domestic inflation is higher than world inflation, prices for tradables (foreign wholesale price indexes, for a country must devalue its currency if it wishes its instance, or the import and export price indexes for the prices to remain competitive abroad. When the devalu- national economy). For a small country that cannot af- ation exactly offsets the inflation differential, the real fect the world price of traded goods, this variant pro- exchange rate is said to remain constant. vides a measure of the changing incentives to move in The real exchange rate is an index of relative domes- and out of production and consumption of nontradable tic and world prices expressed in terms of a common and tradable goods. For instance, a depreciating real currency (that is, the index of the number of units of exchange rate raises the relative price of tradables, en- domestic currency per unit of foreign currency multi- couraging more production and less consumption of plied by the ratio of a domestic price index to a foreign import substitutes and exports. This is the interpreta- price index). Thus, wh2n the real exchange rate is ris- tion that is most useful to bear in mind when looking at ing over time it is said to appreciate, and when it is the effect of changing trade and macroeconomic poli- falling it is said to depreciate. (Many analysts calculate cies on the structure of incentives and on the current the index inversely, with the foreign price series in the account of the balance of payments. numerator and the domestic in the denominator. The The two variants do not necessarily move together. coexistence of the two conventions can be confusing. This may be important, particularly for economies with The convention adopted here has the merit of quantitative restrictions, which break the link between consistencyappreciations go up, and depreciations changes in the foreign prices and domestic prices of go down.) traded goods. Goods subject to quantitative restric- There are two main variants of the real exchange tions become nontraded goods, whose domestic price rate. The older variant is the "purchasing power par- is set by domestic supply and demand. ity" real exchange rate. This compares the domestic In practice, there are problems of measurement. Few price of a representative basket of goods and services published indexes of domestic prices correspond to with the price of the same basket at world prices con- baskets of either tradable or nontradable goods. There verted into local currency. It is, in effect, a measure of are also weighting problems in constructing an index of overall competitiveness. It can be approximated by foreign prices. So real exchange rates calculated using comparing changes in consumer prices or changes in different statistical series fail to move in tandem. labor costs. It does not distinguish between traded and Excessive variability in the real exchange rate in- nontraded goods, because it implicitly assumes that creases risk and therefore discourages investment and their prices move together. production. Frequent adjustments in the nominal ex- The other variant, which has recently come to be change rate (if inflation persists), stable macroeco- emphasized, compares the price of nontradables in the nomic policy (implying a stable rate of domestic infla- national economy (typically services and labor, whose tion), and few quantitative restrictions on imports all prices can be proxied by the GDP deflator) with world promote stability in the real exchange rate. liberalization were carried out in the 1960s, notably sion, inflation, declining terms of trade, and the in Brazil and Chile from 1964 and in Colombia volatile capital flows which helped to provoke the from 1967. These countries adopted more realistic international debt crisis of the 1980s. New govern- exchange rate policiespartly through domestic ments came to power in the mid-1970s in all three stabilization effortsand tried to reduce the bias countries and designed far-reaching liberalization against manufactured exports. They made less programs. These radical reforms were undertaken progress, however, in reducing import protection. in the face of entrenched political opposition to Brazil and Colombiawhose reforms were more economic reform, which had grown out of the fail- extensive than Chile'ssaw much improved ex- ure of several earlier attempts. port performance. All three countries carried out an initial stabiliza- The most significant experiments in trade liberal- tion program of reduced public expenditure and ization in the 1970s took place in the countries of devaluation, together with a program of economic the Southern Cone of Latin America: Argentina, liberalization measures which included removing Chile, and Uruguay. These countries tried to stabi- quantitative restrictions, cutting the highest tariffs, lize and liberalize their highly controlled econo- reducing price controls, and reforming the finan- mies against an international background of reces- cial system. But important differences in the em- 101 Figure 6.3 Major economic liberalization policies in Chile, 1972-86 Tariff reform Reduction of nontariff barriers Major devaluation or exchange rate unification Liberalization of domestic financial markets Liberalization of foreign capital transactions Reduction of price controls Divestiture of state-owned enterprises Reform of labor laws Reduction of budget deficit L -r. 1973 1975 1977 1979 1981 1983 1985 Policy reversal Source: Adapted from de Ia Cuadra and Hachette 1987. phasis and sequencing of policies in the three tion. In the early 1980s all three countries faced countries contributed to different outcomes for the severe economic crises that were the result partly three experiments. Chile attached great impor- of international conditions but largely of their own tance to a radical reform of trade policy, and this mistakes, particularly in pursuing policies that en- reform was achieved before the liberalization of couraged a real appreciation of the exchange rate. capital account transactions. Argentina and Uru- Chile, whose trade reforms survived the crisis, and guay liberalized the capital account comparatively Argentina, whose reforms did not, provide an in- early and made less progress in reducing protec- structive contrast. 102 Chile's trade liberalization was unprecedented for its speed and breadth. Trade reforms followed Figure 6.4 Ka1 exchange rate, imports, and in the immediate wake of other major reforms (see exports in Chile, 1960-86 Figure 6.3). These included the virtual elimination of a large budget deficit (starting in 1974); the elim- Index (1960 = 100) ination of multiple exchange rates (between 1973 140 and 1976); a large real devaluation (in 1973), fol- lowed by the adoption of a crawling peg exchange rate; the removal of price controls (from 1973); di- 120 vestiture of public enterprises (from 1974); and lib- eralization of domestic financial markets (from 1974). In 1974-75 the government removed quanti- tative restrictions on imports. It had already 100 started to introduce a series of progressively more liberal tariff reforms, and by 1979 it had achieved a Y1Real echange rate uniform tariff of 10 percent. Exports were neither 80 taxed nor subsidized (although an import duty without a corresponding export subsidy is equiva- lent to a tax on exports). 60 I I I Inflation, although much reduced, still persisted after the stabilization, and the government began in 1976 to use the exchange rate in its fight against Percentage share of GDP inflation. Its use of the exchange rate became more 30 systematic from 1978 on when it adopted a crawl- ing peg exchange rate that entailed a series of pre- announced nominal devaluations at less than the differential between domestic and international 25 Eports/ I Surplus rates of inflation. This system, intended to fight inflation expectations, in fact contributed, with the 1' continued indexation of wages and the lifting of 20 controls on capital inflows, to a gradual appreciation of the real exchange rate. This eroded much of the Imports Defici, substantial real depreciation that had occurred 15 since 1973 (see Figure 6.4). Nonetheless, the real exchange rate in the years following 1974 was on average far more favorable to the production of 10 I I I tradables than that for the decade preceding 1973. 1960 1964 1968 1972 1976 1980 1984 After a recession in 1975the result of stabiliza- tion measures adopted since 1973 and an adverse Note: A rise in the index of the real exchange rate indicates an appreciation, and a fall indicates a depreciation. movement in the terms of trade from 1974the economy responded clearly to liberalization. From 1976 to 1981 GDP grew by 8 percent a year. Trade grew even fasterexports after 1973 and imports after 1976until the beginning of the 1980s, by which time the effects of the real appreciation of rate higher, and it remained high (between 13 and the peso were being felt in earnest (Figure 6.4). In 17 percent) for the rest of the decade. Effective im- the 1970s Chile began to send new products port barriers came down significantly only after abroadfor example, fruits, vegetables, and for- 1976. According to one estimate, trade liberaliza- estry products. Its share in world exports grew, tion in isolation did not lead to net job displace- although this was also helped by favorable interna- ment: lower import protection cut employment in tional markets for its nontraditional products until manufacturing, but this was offset by employment the beginning of the 1980s. gains caused by trade liberalization elsewhere in Chile's unemployment rate increased to 10 per- the economy, particularly agriculture. Jobs were cent in 1974. The 1975 recession helped make the lost as firms went out of business or were taken 103 Box 6.4 Sri Lanka: the 1977 trade liberalization Sri Lanka's United National Party came to power in increased from $0.7 billion (constant 1960 prices) in 1977 with a large majority and a commitment to reinte- 1977 to $1.1 billion in 1984. Manufacturing output grew grate Sri Lanka with the world economy after more quickly (by 7.8 percent in 1978), and capacity utilization than a decade and a half of heavy protectionism. The in manufacturing increased from 54 percent in 1974 to government saw trade reform as the only way out of 74 percent in 1981. During the initial stage of reform, the country's economic trouble. It hoped that liberal- the economy's capital-output ratio declined and its ization would quickly raise employment and improve output-labor ratio increased: this points to an improve- the supply of goods to meet the widespread shortages. ment in the allocation of resources. Labor also began to It also hoped that trade reform would help the country replace capital in the medium term. attract external assistance. These early successes stemmed from, first, the shift The government replaced most of the quantitative from quotas to tariffs (which increased the availability restrictions with tariffs. The new tariff structure had six of raw material inputs); second, capacity increases that bands, with rates varying between zero on essential led to higher employment; and third, an expansion in consumer goods (rice, flour, and drugs) and 500 per- the production of tradable goods (compared with non- cent on luxuries. The exchange rate was devalued by 46 tradables) brought on by the depreciation of the real percent against the dollar, and the prevailing dual ex- exchange rate. change rates were unified at the new rate. The reforms By 1980 the program's initial successes were begin- removed a wide range of domestic price controls. Food ning to wane because of poor macroeconomic manage- subsidies were reduced and targeted at the poor. Li- ment and deteriorating external conditions. Liberaliza- censing requirements were relaxed, and repatriation of tion was partly reversed by a massive increase in profits was allowed in order to encourage direct invest- domestic aggregate demand, thanks to a rapid expan- ment from private foreign sources. sion of public investment. Financed by foreign borrow- By most standards the two years following the liber- ing, this increased the demand for domestic goods, alization were successful. The economy rebounded which caused the inflation rate to rise and the real ex- with GDP growth rates of 5.7 and 6.4 percent in 1978 change rate to appreciate. and 1979, respectively, and continued to grow at 5.8 Abroad, the hike in oil prices in 1979 triggered a percent in 1980 (see Box figure 6.4). GDP growth aver- world recession. This reduced the demand for Sri aged 5.2 percent a year from 1978 to 1985, against 3.8 Lanka's exports and worsened the terms of trade. Ex- percent from 1970 to 1977. Growth was spread across ternal events and the appreciation of the real exchange nearly all sectors of the economy. By 1983 the unem- rate combined to squeeze the export sector. Only in late ployment rate had fallen by half, to 12 percent of the 1984 did the government make efforts to get back onto labor force. the path of trade policy reform. Merchandise exports (excluding petroleum products) over; other firms survived by achieving large gains the rationalization it had fostered left Chile's in- in productivity. This rationalization was achieved dustrial sector in a far stronger position to with- with little additional investment. stand the shocks of the 1980s. In recent years the An exchange rate policy that led to real apprecia- economy has grown strongly, and unemployment tion, post-1977 measures to liberalize exchange has come down to under 10 percent. Economic lib- controls, and high domestic interest rates all con- eralization clearly contributed to this recovery. tributed to heavy borrowing from abroad. The pe- Argentina acted with as much speed as Chile in so's appreciation was particularly marked from an initial phase of macroeconomic stabilization in 1979 to 1981. Exports became uncompetitive, and 1976. The new government devalued the currency the trade deficit soared. By late 1981 a domestic and dismantled its multiple exchange rates. The recession was setting in, and in 1982 the peso was government also attacked the budget deficit, but substantially devalued. The recession was so deep was never able to reduce it below 6 percent of that unemployment reached 25 percent (in June GDP. From 1976 the government began to liberal- 1982), and the financial sector was virtually bank- ize the capital account, and from 1977 it embarked rupted. The uniform import tariff was raised to 35 on a series of domestic financial reforms. Its trade percent in 1984, but came down to 20 percent in policy reforms were, however, far more limited 1985. Thus trade reform survived the crisis, and than Chile's. In 1976-78 export taxes were substan- 104 tially reduced from their average level of 50 per- cent. Quantitative restrictions on imports were re- placed with tariffs, and some of the highest tariffs Box figure 6.4 Trade liberalization and economic were cut. But, on average, tariffs remained high performance in Sri Lanka, 1970-85 and protective. A program of further reductions was announced in 1978. Percent Argentina compromised its trade liberalization from the beginning in the way it phased its re- forms. The exchange rate was used right from the start as a tool for curbing inflation. By contrast with Chile, the ordering of reforms encouraged an appreciation of the real exchange rate. Traditional exporters responded to the removal of large export taxes, andsince exports were liberalized before Annual change in GDP importsthis helped to fuel expectations of cur- rency appreciation. At the same time, internal fi- nancial liberalization resulted in higher interest rates, and external financial liberalization thus at- tracted foreign capital. The stubbornly high public sector deficit helped push up the interest rate and sucked in more foreign loans. ars Around 1979 the situation became critical. The 13 terms of trade deteriorated severely in 1979-80. By 1980 the currency was highly overvalued. This led 05 Foreign investment (left scale) to an outflow of dollars (in the form of capital and foreign tourist expenditure), which culminated in - 0.95 the inevitable balance of payments crisis, a huge devaluation, an explosion of the budget deficit, raging inflation, and a virtual closing of the econ- - 0.84 omy. Economic liberalization was dead, and trade liberalization was stillborn. Exports (right scale) - 0.74 South Asia South Asian countries have made little attempt to liberalize trade. The region has followed a strategy Index (1960 = 100) ons of dollars of import substitution similar to Latin America's. 100 200 This has created industrial sectors with vested in- Current nt Terms of trade terests in continued protection. The governments balance (righ :e) (left scale) of India, Pakistan, and Sri Lanka have also empha- 90 0 sized macroeconomic stability, and the success of their stabilization policies has done much to avoid 81) 200 the economic crises that have been the spur to ma- jor trade liberalizations elsewhere. Perhaps the most important attempt at liberalization in South 70 400 Asia was Sri Lanka's package of reforms in 1977 (see Box 6.4). Sub-Saha ran Africa 1970 1975 1980 1985 It was not until the 1960s that countries in Sub- Saharan Africa began to adopt inward-oriented in- dustrialization strategies, Several countries have recently undertaken adjustment programs which 105 Box 6.5 Trade policy reform in Sub-Saharan Africa With independence, many countries in Sub-Saharan Price controls. Governments controlled the prices Africa saw industrialization as the main route to eco- of products subject to import controls in order to pre- nomic development. Indeed, from 1965 to 1973 the re- vent local manufacturers from making excessively high gion's industry grew at 14 percent a year and played a profits. Where they were effective, price controls leading role in economic progress. But this changed merely discouraged domestic production; but often dramatically in the 1970s. Industrial growth slowed to they were ineffective, and black markets emerged for 5 percent a year between 1973 and 1980 and was nega- several controlled items (see Chapter 7). tive between 1980 and 1985. Industries were plagued Nationalization. Several countries nationalized for- by massive excess capacity, and exports remained a eign or joint ventures, discouraged investment from small part of output. The sector had consumed a great abroad, and became less hospitable to private domestic deal of foreign exchange for little benefit in jobs or investors. output. This rapid decline was part of an overall deteri- The combination of these policies proved extremely oration of African economies, which included the stag- damaging to industrial growth and efficiency. High nation of agriculture. protection and precious little domestic competition of- The disappointing performance of manufacturing in ten permitted large profits in protected industries. Sub-Saharan Africa was the result of several complex Technological development languished. With time, in- factors. Formidable resource constraints, which in- dustries became less competitive internationally. When cluded a critical shortage of local skills and inadequate oil prices rose in 1979 and the international recession infrastructure, combined with inappropriate policies to followed, Sub-Saharan countries were plunged into a create high-cost and inefficient manufacturing indus- foreign exchange crisis. Policies intended to cope with tries. Among the policies that contributed to this were: this only made matters worse. In recent years firms Exchange rate policies. Most African countries main- have been starved of inputs, profits have plummeted, tained overvalued exchange rates. The weighted index and real wages have fallen in the formal manufacturing of the real effective exchange rate for all Sub-Saharan sector. countries appreciated by 75 percent between 1974 and Reforming the exchange rate and trade regimes may 1984. (In comparison, the index for Asia depreciated by not produce an immediate increase in export growth, 26 percent over the same period.) This hurt export but such measures will at least improve the efficiency profitability and discouraged investment in export in- of investment and production. dustries. Since the early 1980s there has been a fundamental Tariffs and quantitative restrictions on imports. Short- shift in the policies of some Sub-Saharan countries. ages of foreign exchange, caused by the overvaluation The success of these changes is difficult to judge, since of exchange rates, led governments to restrict imports most are recent and several are incomplete. Several through tariffs and quantitative restrictions. This pro- countries have substantially devalued their currencies tected domestic manufacturers from foreign competi- (see Box figure 6.5). tion and fostered inefficient local production. Smug- Nigeria made radical policy changes in 1986. It abol- gling flourished, aided by a booming black market for ished the compulsory surrender of export proceeds foreign exchange. For some industries, smuggling and and the licensing of imports and introduced a more overvalued exchange rates have in fact led to negative moderate tariff structure. (Further tariff reforms and or uncertain protection. the removal of some import bans are yet to come.) The include elements of trade liberalizationfor exam- employment. Protected sectors may contract as ple, the auctions of foreign exchange in Ghana and protection is lowered, which can cause temporary Nigeria, the elimination of quantitative restrictions unemployment, especially if certain skills are spe- in Mauritius, and tariff reforms in Côte d'Ivoire, cific to certain sectors. Other sectors will take time Senegal, and Zaire. It is too early to judge the suc- to expand, and workers will need to prepare for cess of these experiments (see Box 6.5). and seek out the new jobs. Note that trade liberal- ization cannot cause permanent increases in unem- The transition to more outward-oriented policies ployment. In the long run the level of unemploy- ment depends on macroeconomic policies and the Liberalization means abandoning old activities and efficiency of the labor market. In the short run, adopting new ones. Perhaps the most important however, resistance to trade policy reform is likely and politically sensitive cost in this process is un- to arise, both from displaced workers and from 106 demand for foreign exchange is now largely met by authorized dealers (mainly commercial banks). They Box figure 6.5 Currency devaluation in selected purchase the auctioned proceeds of oil exports and for- Sub-Saharan African countries eign loans and buy other foreign exchange earnings (percentage fall against the dollar, September 1983March 1987) directly from their customers. In Ghana reform is pro- ceeding almost as rapidly. The government devalued the cedi several times before it began to auction foreign 97 exchange, a practice that is being steadily extended to 93 all merchandise imports. To complement this, the gov- ernment has taken measures to liberalize imports and 84 promote exports. 81 79 Mauritius dismantled its quantitative restrictions on 77 imports within the space of fifteen months. It has since 70 enjoyed an export boom and an economic upsurge. Contributing factors were the recovery in international markets, the promotion of export processing zones, and the country's improved competitiveness after a de- valuation and a period of wage restraint. Zaire's deval- uation in 1983 and its subsequent move to a market- determined exchange rate have already provided a stimulus to exports. These reforms are to be followed by lower import tariffs and the abolition of all export duties and other taxes on manufactured exports. Fi- nally, Côte d 'Ivoire, Senegal, and Togo are rationalizing their tariff structures, Malawi is promoting exports through better duty rebate systems and improved ex- port credit and insurance facilities, and Burundi is elim- inating all export taxes on locally manufactured prod- ucts. There is ample scope in the rest of Sub-Saharan Af- rica for trade and exchange rate reform. Such reforms 4. . . ., q Sc would need to be supported both by other policy changes that allow a greater role for domestic competi- c5' tion and by the provision of adequate infrastructure, skills, and institutional support. With a policy environ- ment conducive to efficient industrial development, there is no reason why the Sub-Saharan countries can- not compete in international markets and benefit from the advantages of international trade. producers in those sectors which suffer the biggest discharging labor from the activities which con- loss of protection. tract because of trade liberalizationhas some- times been substantial. But, as a rule, timely ab- Short-term costs sorption of labor into other activities has helped to prevent large rises in aggregate unemployment. In fact, there is evidence that the unemployment Often there have been relatively few layoffs, even cost of more liberal trade policies may be smaller in the sectors which lost their protection. Shifts of than commonly supposed. Employment losses are labor within sectorspossibly even within individ- often more concentrated, and hence more visible, ual firmshave been common and have damp- than the employment gains which liberalization ened the effect on aggregate unemployment. may spread over the rest of the economy. Gross After Brazil cut its tariffs in 1967, for instance, unemploymentthat is, unemployment caused by there was no apparent increase in unemployment 107 or business failures. The dramatic dismantling of been an economic stabilization crisis springing Indonesia's restrictive import-licensing regime in from excessive budgetary and balance of payments 1966-67 led to a much improved performance in an deficits and rising inflation. But history should not economy that had been on the verge of collapse be taken as prescription: countries that do not face and there was no rise in unemployment. Sri such crises should grasp the opportunity for re- Lanka's experience in 1977 was similar. A broad form that stability offers. dismantling of its highly protective barriers was To sustain trade liberalization beyond its initial followed by higher employment, even in the sec- stage, economic and political stability has proved tors which had seemed to depend most on the essential. Few governments have been willing to trade barriers. commit themselves to liberal trade policies. One The big exception to this pattern is Chile in the way to make the commitment and to make it credi- second half of the 1970s. The country's shift from a ble is to participate in a treaty. In Greece, Israel, highly restrictive trade regime to virtually free Portugal, and Spain the long-term commitment to trade was implemented within five and a half an economic alliance with the European Commu- years. One estimate places the manufacturing jobs nity has helped keep the trade regime relatively lost by 1979 owing to trade liberalization at 11-12 open compared with other developing countries. percent of the 1974 manufacturing labor force. Another way to boost credibility is to act deci- These losses, ho'wever, were offset by liberal- sively. Hesitant policy which leads to gradual liber- ization-induced employment gains elsewhere. alization is much more likely to run out of steam. (The study does not try to account for the rise in This is particularly true of countries with a long unemployment caused by factors other than trade history of trade restrictions. liberalization.) In Chile, for instance, a liberalization in 1956-61 These generally low transitional costs support had a weak initial impact. It left high import pro- the view that even partial liberalizations can open tection in place, provided little incentive to ex- up enough new opportunities to allow the econ- ports, and failed to prevent a real appreciation of omy to adjust rapidly. Replacing quotas with tariffs the currency. These reforms were quickly re- is a case in point. In many developing countries versed. But a second set of reforms, in 1974-81, is controls on foreign exchange transactions are a still in place thirteen years after its implementa- particularly important form of quota. When access tion, in spite of minor reversals in 1983-85. The to foreign exchange is controlled, some firms will experience of Indonesia is similar. The initial im- find it hard to obtain imported supplies; once pact of the first episode (1950-51) was weaker than these controls are removed, efficient firms will be that of the second (1966-72). The first liberalization free to buy the inputs they need and new firms was short-lived and largely reversed; the second may enter. Such effects help to explain why this has, with some reversals in the mid-1970s, re- form of trade liberalization seems to have been es- mained in effect. So even when a first liberalization pecially fruitful. attempt collapses, a second has a good chance of Popular perceptions of the unemployment prob- success if it is boldly done. lem can be mistaken. Sometimes trade liberaliza- A clear shift in policy is important in two ways. tion really has led to unemployment, but the rise First, without it producers may expect the reform was disguised by other developments, and so the to be quickly reversed. This, in turn, can be a self- public did not connect the rise in unemployment fulfilling prophecy because, unless the pattern of with trade policy. Occasionally, however, unem- production changes to take advantage of the new ployment caused in other ways has been blamed pattern of incentives, the reform may prove unsus- on liberalization (as it was in Chile, for instance). tainable. Pressure to reverse it will rise as soon as In any case, when trade liberalization has been lower protection allows imports to come in with- aborted, the reversal has rarely had anything to do out any offsetting rise in exports. Second, a major with unemployment. reform should spur exports appreciably. It will thus create vested interests in support of the new Political sustainability trade regime. Historically, the single most important factor pro- Macroeconomic policy and trade liberalization viding the spur to trade liberalization has been crisiseither of the country's own making or im- One of the clearest lessons from previous trade posed from outside. Its most common form has reforms is the link between trade liberalization and 108 macroeconomic policy. Many trade reforms have inflation expectations is inconsistent with main- started with a program of stabilization in which taining it at a level appropriate for trade liberaliza- inflation has been reduced through the control of tion. public spending and the application of tighter monetary control and the trade deficit has been FINANCIAL LIBERALIZATION. Efficient capital mar- reduced both by domestic deflation and a substan- kets ought to improve economic flexibility and tial devaluation. The devaluation, improving the thus facilitate trade liberalization (see Chapter 7). incentive for both import substitution and export- But, again, the real exchange rate complicates the ing, is a vital step in trade policy reform. Indeed, it picture. The trade reforms of Argentina and Uru- is probably more important than the way vested guay were derailed in the early 1980s after abnor- interests or the economic costs of transition are mally high capital inflows appreciated the real handled. exchange rate. To guard against excessive appreci- The more ambitious and long-lasting liberal- ation, governments may need to monitor capital izationsin Portugal, Greece, Spain, Israel, Chile, flows and, where necessary, influence their tim- and Turkeyall started with macroeconomic stabi- ing or sterilize them. (See Box 7.4 for a discussion lization. The countries which have tried to liberal- of the role of financial sector reforms in Chile's ize trade in the midst of macroeconomic crisis have macroeconomic problems.) failed. The Philippines, for example, embarked on trade policy reform in the early 1980s as inflation, LIBERALIZATION IN OTHER DOMESTIC MARKETS. the trade deficit, and foreign debt were all rising Governments often maintain substantial controls rapidly. Attempts at reform were abandoned after on labor markets, industrial prices, and industrial a severe balance of payments crisis in 1983. But investment (through investment licensing or state- there was a subsequent stabilization, and the trade owned enterprises, for instance). Maintaining liberalization process has now been resumed. these controls will, as in the case of financial con- The evidence also stresses the importance of bal- trols, hamper the effects of trade policy reform on ance of payments equilibrium once trade liberaliza- resource reallocation. Fortunately, easing these tion is under way. A large deficit involving a sub- controls is unlikely to influence the real exchange stantial loss of foreign exchange reserves is almost rate as directly as capital market liberalization (see sure to undermine trade reform. This happened in Chapter 7). the Philippines after the liberalization of the early 1960s, in Argentina and Uruguay after the liberal- The design of trade policy reform izations of the 1970s, and elsewhere. By the same token, Pakistan has been cautious in liberalizing Reform in the conventional instruments of trade trade for fear of its effect on the balance of pay- policy can be discussed under three headings: re- ments. placing quantitative restrictions with tariffs, re- The balance of payments can be affected by forming tariff protection, and the direct promotion changes in capital flows or in foreign remittances of exports. of labor income and by other factors over which governments have little control. But what seems to Replacing quantitative restrictions with tariffs matter most for successful liberalization is export performance. Exports too can change exogenously, It is broadly accepted that moving from nontariff because of shifts in the terms of trade or fluctua- barriers to tariffs is a move toward a more open tions in crop output because of the weather. The trade policy. This is so for two reasons. First, tariffs crucial determinant of export performance, how- are generally less protective than quantitative re- ever, has been the real exchange rate for exports. strictions (although it is possible to have tariffs set Good performance usually goes hand in hand so high that they prohibit imports). Second, a tariff with a depreciation of the real exchange rate and is a price instrument, not a quantity instrument. possibly even more importantwith a real ex- As a result, tariffs are more "transparent" change rate which is stable in the long run. The changes in foreign prices feed through more readi- real exchange rate, in turn, depends on changes in ly to the domestic economy. Quotas, by contrast, the nominal exchange rate and in local pricesand uncouple national economies from the world econ- hence on fiscal and monetary policy. The experi- omy. For example, in India cotton is protected by ence of the Southern Cone countries has shown quantitative restrictions, and textile producers are that appreciating the real exchange rate to reduce required to use Indian cotton. As a result, move- 109 ments in the price of this crucial raw material are sion, or variance, of protection. If the dispersion of not always related to those of world cotton prices, tariffs is not reduced as the tariff average is re- which determine the cost of this input to competi- duced, the tariff structure may not become more tors. It is therefore difficult for Indian producers to neutral. Indeed, a reform that reduces tariffs on commit themselves to production for export: the intermediate and capital goods but leaves intact conditions under which they have to compete are those on final outputs could increase effective unpredictable. protectionthe level of protection afforded to do- In many cases a shift from quotas to tariffs has mestic value addedeven though it reduced the av- been a key element in the early stages of trade erage level of tariffs. policy reform. Sometimes it has been the only ele- Of course, it is possible to reduce at the same ment. For example, Israel's first and second time both the average level of tariffs and their dis- phases of reform focused on imports and consisted persion. Governments have approached the task of the gradual removal of quotas and their replace- in several ways: an equiproportional cut in all tar- ment with tariffs. Greece's first reforms removed iffs, an equiproportional reduction of the excess of almost all quotas and replaced them with tariffs each tariff over some target level, higher propor- which were for the most part lower than the tariff tional reductions of higher tariffs, or some combi- equivalent of the quotas. nation of these and other methods. As a rule, sim- The evidence of similar episodes strongly sug- ple schemes widely applied work better than gests that this shift in the form of protection was case-by-case and fine-tuning methods. Some tariff highly beneficial (Box 6.4). Often, not only did the reforms have attempted to target the effective, economy's growth speed up following such shifts, rather than the nominal, rate of protection (the but even in the sectors whose protection had been Philippine reforms of 1981-85 are one example). lowered, production increased as firms began to This is unnecessarily complicated and may misfire operate in a less restrictive and more transparent anyway because of measurement problems. regime. This suggests that in an economy in which Many economists favor the so-called concertina trade is regulated largely by quantitative re- approach to tariff cutting. First, all tariffs above a strictionsand this is true for most economies in certain ceiling are lowered to that ceiling; next, all which trade is severely restricteda liberalization tariffs above a new, lower ceiling are lowered to policy should start with a shift from the use of that ceiling; and so on. This should yield the low- quotas to the use of tariffs, even if it means very est adjustment costs without leading to inadver- high tariffs. tent increases in effective protection. Chile's tariff What level of tariffs is needed to replace any reductions in the 1970s more or less followed this given quantitative restriction? In practice it is diffi- scheme. cult to measure the protection from quantitative Lessons about the amount of time necessary to restrictions. And, even if this could be done with eliminate quantitative restrictions and tariffs are confidence, the switch to tariffs brings about such difficult to draw. Some reforms have taken a long large changes in the way protection works that the timeKorea and the countries of southern Europe, exercise is likely to be pointless. Some countries for instance, have still not completed their reforms have sought to replace quantitative restrictions after at least two decades. Fewer have been com- with more or less equivalent tariffs. For example, pleted within the medium termthe process Sri Lanka replaced quantitative restrictions with lasted five years in Chile, for example. But none high tariffs in 1977, and the Philippines did this in have been fully implemented over the short term. an ad hoc process from 1957 to the mid-1960s (and There is no obvious relationship between the ended up unintentionally reducing average protec- length of the period of policy reform and its tion). In Argentina, however, the tariffs used to chances of success. But the apparently low adjust- replace most of the quantitative restrictions in ment costs in most trade reforms, together with 1976-78 were on average so high that they shut out the danger that lengthier reforms will be less credi- imports just as effectively. ble, are arguments for faster reform. Some tariff reforms have used institutions, typi- Reforming tariffs cally tariff commissions, either to set tariffs on a case-by-case basis or to hear appeals for exceptions The movement toward greater neutrality has two to the reforms that have been scheduled. Tariff dimensions: the lowering of the average level of commissions such as those in Australia, New protection and the reduction in the average disper- Zealand, the Philippines, and Sri Lanka have often 110 approached their task with too many objectives. age tariff is not zero, an element of discrimination Their work has probably not contributed to in- against exports remains (unless they are equiva- creasing neutrality (see Box 6.6). lently subsidized). Chile's reforms achieved a urn- form tariff of 10 percent with no exceptions. Later, Direct promotion of exports this was revised, and Chile ended up with a uni- form tariff of 20 percent, which left a mild discrimi- The logic of trade liberalization is that the tariffs nation against exports, but not enough to prevent should be as low as possible. As long as the aver- export growth. The experience of Brazil and the Box 6.6 Can governments ease the trade reform process? Governments are seldom able to bring about economic With sufficient independence and investigative powers reform at the stroke of a pen. They first have to over- a transparency agency could influence other branches come the opposition of groups which fear they may be of the bureaucracy. A bipartisan agreement that such adversely affected. review would be mandatory could serve as a kind of Transparency and persuasion legislative constraint on government. There is sometimes a bias in government decisionmak- Safeguards and compensation ing: pressure groups can noisily voice their narrow in- A government trying to convince the public that a cer- terests, but when benefits are spread widely across the tain reform will proceed smoothly might tip the scales community no single group sees that it has much to by offering guarantees against disruption. These might gain. For example, it is easier to grasp the costs of include strengthened antidumping provisions (a safe- closing down an inefficient car manufacturing plant guard measure) or additional income support for those than to see the benefits of cheaper cars and employ- who stand to lose (a compensation measure). ment opportunities spread across the rest of the econ- Unfortunately, the experience with safeguard mea- omy. sures is not encouraging. In practice, the search for Another bias can arise when governments, to accom- safeguards has become a complicated process which is modate tensions between a sectional interest and the carried along by its own momentum and has precious public interest, pass laws so vague that they appear to little to do with economic efficiency. For example, a satisfy both. The law must then be implemented by recent antidumping case in Australia dealt with cher- administrative decision, and the special interest groups ries in brine from Italy. It turned on the appropriate will attempt to influence the relevant administrators. valuation to be attached to the drums in which these One way to promote public understanding of the cherries were packed for shipment. It seems that public interest is to set up a "transparency" agency "dumping" could be "proved" if the drums were val- whose job would be to provide an overview of govern- ued at their price when newbut if, as turned out to be ment intervention. The aim would be to help the gov- the case, some drums were secondhand, then dump- ernment and the public see sectoral proposals in an ing could be not proved. economywide framework. Tariff commissions, estab- Compensation measures are an alternative approach, lished in such countries as Australia, Canada, New but they too have had many defects. The costs of iden- Zealand, the Philippines, Sri Lanka, and the United tifying winners and losers are very large. This is be- States, are intended to carry out this role, but the cause of the practical difficulties of sorting out policy results have been mixed. The commissions have often changes and their impactspeople win and lose for all spent much of their time working on highly technical sorts of economic reasons, and it is seldom possible to questions such as whether an industry has suffered be sure of the cost inflicted on a particular group by any "damage" or "injury," whether it can be attributed to given policy. Compensation measures also create imports, and whether these imports are unfair in some "moral hazard," in which people are given incentives sense. to behave inefficiently to qualify for compensation. Transparency agencies can, in fact, claim some real Buying off pressure groups differs from straightfor- successes, but the problems they face should not be ward compensationat least in principle. It is a way of underestimated. On top of the sheer difficulty of pre- overcoming obstacles to change in an overtly political dicting the future, governments are always under pres- way. Even with this more limited objective, however, sure to mute their role by diluting their terms of the record is discouraging. Far from softening resis- reference. tance to change, this approach merely channels protest A possible defense against this kind of pressure into pressure on governments about who should get would be to make full review a legislative requirement. the most compensation. 111 Philippines shows that export growth can be in the international environment. Because of this achieved in the presence of significant import pro- complexity, there is no single optimal path to re- tection, as long as governments can prevent the form. But there are, nonetheless, lessons to be real exchange rate from appreciating. drawn from previous attempts. Where significant import protection remains, Trade liberalization must involve large shifts of governments might consider offsetting the dis- resources, but it has not always raised unemploy- crimination against exports with administrative ment by as much as is commonly supposed. measures to provide imported inputs at world Strong and decisive reforms have carried prices or with subsidies. Directly promoting ex- greater credibility and have been better sustained ports in this way may also help to form a constitu- than more timid reforms. ency for continued protection. But it may come to Replacing quantitative restrictions with tariffs be seen as a long-term alternative to further import is a useful first stage of trade liberalization. liberalization. This appears to have been the case Providing a realistic real exchange rate is vital in Pakistan and, in the 1970s at least, in the to the successful introduction of trade reform. Philippines. Keeping it stable is essential if the reform is to be Direct export promotion is a difficult alternative sustained. All this requires a macroeconomic pol- to cuts in import protection. It raises administra- icy that manages inflation and the nominal ex- tive problems and often requires significant bud- change rate so as to keep domestic costs in line getary resources. Like any other selective interven- with world prices. tion, it will also encourage rent seeking. Above all, The scope for successful trade liberalization the risk of GATT disputes and of countervailing depends on complementary reforms in the domes- duties in importing countries has made direct ex- tic economyespecially in financial and labor mar- port promotion increasingly unattractive. kets. (These issues are explored further in Chap- ter 7.) The lessons of trade liberalization Trade liberalizationlike any major economic reformis not easy. Above all, it requires a strong Trade policy reform is complicated. It is closely political commitment, most likely in the face of re- linked to liberalization in capital, labor, and do- sistance from those who, in the short term at least, mestic product markets and to macroeconomic stand to lose. It is to be hoped that this commit- policy. It is partly a political process, in which cred- ment will come more easily as the evidence ibility and expectations play an important role. mounts that trade policy reform will quickly bring Feasible policy choices may differ from country to benefits at a lower cost than policymakers have country, and reform may be vulnerable to changes sometimes feared. 112 Complementary policies for industrial development The previous chapters noted the benefits of inter- In pursuit of these goals many countries have national trade for efficient industrialization and adopted price controls, Often they have found that discussed the problems in shifting from an inward- such controls are difficult to enforce because black to an outward-oriented trade strategy. But govern- markets mushroom and drive large sections of the ments also use other policies to promote industrial economy underground. In addition, multiproduct development. This chapter describes these policies firms, such as those in the textile industry, tend to and examines their effects. It also shows how they compensate for price controls on one product by interact with trade policies to influence, first, the expanding production of uncontrolled products. markets for capital and labor; second, the pattern As a result, fewer "essential goods" are produced of domestic competition; and, third, the acquisi- in favor of more "nonessential goods." tion and mastery of technology. As a rule, the wider the controls, the harder they are to enforce. In 1970 the Ghanaian government The policy choices attempted to control 6,000 prices for 700 groups of products. Yet its Prices and Incomes Board had Governments often complement their trade strat- only 400 personnel. The scale of such a task is be- egy with a variety of policies. The most important yond even the most competent agencies. Prices in among these involve regulating product prices, di- such a system are often set by adding a fixed mar- recting private investment, controlling interest gin to costs. This removes any incentive for firms rates and credit allocation, and intervening in labor to reduce costs. Furthermore, controlled prices dis- markets. courage new investments; therefore, as demand expands, shortages begin to appear. Often the Regulating product prices poorest consumers, the supposed beneficiaries of price controls, suffer the consequences along with Prices play a powerful role in directing industrial- others. ization. High prices reflect scarcity; they raise prof- Attempts to remove price controls have been itability and attract resources for increased produc- most successful in countries where stable macro- tion. Low prices reflect abundance and keep economic policies provided a low inflation envi- resources away. Prices best fulfill this role in com- ronment and governments introduced the reforms petitive markets. Market imperfectionssuch as gradually by reducing the number of controlled monopoly or poor informationdistort these sig- items in manageable steps. Producers and con- nals. But governments sometimes regulate prices sumers are responsive to price incentives. When deliberately, either to correct such distortions or to cement prices were freed in India in 1982, the in- pursue other objectives. These objectives might in- crease in supply was so strong that market prices clude the redistribution of income, the promotion fell rapidly. (See Box 7.1 for a discussion of of high-priority industries, or the control of infla- Ghana's experience with removing price controls.) tion. Apart from controlling prices directly, govern- I 13 Box 7.1 Removing price controls: lessons from Ghana Ghana has used assorted price controls since 1962 for textiles, and other products that were made in Ghana several purposes: to limit rents accruing to sellers in and then smuggled out, while liquor and other luxuries times of scarcity, to combat inflation, and to keep down with high scarcity premiums and less stringent controls prices of key items in the cost of living. But price con- were brought in. During the 1980s, land borders were trols have proved ineffective in times of extreme scar- closed for some time in an effort to stem smuggling, city and rapid inflation and have often exacerbated the and storekeepers were forced to sell their stocks at con- problems brought about by currency overvaluation and trolled prices (often below what they had paid). But expansionary fiscal and monetary policies. this worsened the scarcity of goods on the market and By 1970 nearly 6,000 prices relating to more than 700 drove up prices further. product groups were controlled. Efforts to liberalize Price and distribution controls became interwoven the system were reversed following a change of gov- with political power in 1982, as the new government ernment, and the Prices and Incomes Board was given attempted to broaden and decentralize political partici- authority over all price and wage changes. But with pation. Many of those who joined village and workers' inflation reaching 100 percent a year during the 1970s, committees were more concerned with obtaining ac- frequent requests for price adjustments greatly ex- cess to goods at controlled prices than with the govern- ceeded its administrative capacity. Delays of up to six ment's difficulty in subsequently moving away from months forced firms to choose between accumulating controls. stocks, losing money by selling at the old price, or As the economy worsened, the government recog- evading the controls altogether. nized that price controls were not working and that Rapid inflation increased the gap between market economic recovery required shifting profits from black prices and official prices. Failure to adjust the exchange marketeers to producers. It reduced underlying distor- rate meant that imports through officiai channels cost tions and inflationary pressures through a reform pro- as little as a tenth of their market value. Price controls gram introduced in April 1983 that featured devalua- prevented producers from realizing this scarcity rent, tion and restrained fiscal and monetary management. which would have given them extra incentive to pro- The government also wished to lessen its direct re- duce more. But the inability to enforce controls at the sponsibility for prices and distribution, which entailed retail level made trading an increasingly lucrative activ- high administrative costs as well as political pressures. ity. Obtaining access to goods at the official price for Yet it could not totally abandon such controls while resalea practice known as kalabulebecame an impor- monopolies and excess profits were seen to exist and tant source of income. By the early 1980s the market while it was also trying to restrain wage increases. It value of civil servants' monthly allocation of rice, milk, therefore adopted a strategy of gradually softening the soap, and so forth (although not received regularly) enforcement of controls. could equal their monthly take-home pay. The first step was to shift most commodities to a Controls over the distribution of scarce goods be- system whereby producers simply notified the Prices came increasingly important. During the 1970s, mili- and Incomes Board of price changes; the board re- tary trucks transported canned milk to the north for tained its right to intervene. The list of goods requiring sale at the same price as in the southern cities of origin. prior approval was reduced first to twenty-three and But this greatly increased the profits from smuggling it gradually (over sixteen months) to eight, which greatly to neighboring countries. Similarly, northern rice was reduced the board's workload and turnaround time. smuggled out because price controls made it impos- Firms were permitted to charge a provisional price ap- sible to cover transport costs to the south. The tighter proved quickly by the board, and the review of its rec- the controls on a commodity, the scarcer it became. The ommendations was shifted from the Ministry of Fi- markets of Togo became well stocked with soap, milk, nance and Economic Planning to a tripartite corn- ments have also subsidized the consumption of ernment's attempt to reduce subsidies on a range essential industrial products. Well-targeted subsi- of basic commodities led to riots. dies are preferable to price controls: although such subsidies reduce prices for consumers, they do not Directing domestic investment lower incentives to producers. But subsidies have often led to budgetary deficits and, in turn, to high Regulations, coupled with fiscal incentives, have inflation. Furthermore, once installed, subsidies been used to guide private investment in industry can be hard to remove. In Egypt in 1977 the gov- at one time or another in many countries, includ- 114 investment. Other objectives include the preven- tion of industrial concentration, the promotion of regionally balanced industrial development, and, finally, public sector control over key industries. mission with representatives from government, labor, Perhaps the most common tool of investment and business. This public review process maintained the principle of intervening whenever changes were regulation is the industrial license. Under such out of line, while eliminating the need to publish offi- systems governments grant licenses for the crea- cial prices. tion of new industrial capacity according to their The consumer price index rose by only 10 percent in projections of future demand. Studies of Brazil, 1985, the year after price controls were eased; inflation Egypt, India, Indonesia, Mexico, Pakistan, and had fallen from 122 percent in 1983 to 40 percent in Spain indicate that in these countries licensing in- 1984 following the introduction of the reform program. volved unexpected costs, but delivered few of the The inflationary impact of massive devaluations and price liberalization during 1983-85 was limited, be- expected benefits. The systems are often too com- cause market prices already reflected scarcities and plex and implemented ad hoc. For example, in because various measures operated to reduce the gap Spain, government agencies developed economic between supply and demand. On the supply side, the criteria for the granting of licenses, but were un- incentive effects of price liberalization helped in four able to implement them on a systematic basis. This ways: hoarded consumer goods were released, scarcity creates uncertainty among investors. In some rents were shifted from distributors to producers, agri- countries the licensing process can take six months cultural producers responded to favorable rainfalls by greatly increasing food availability, and industrial pro- or longer, and even then the applicant may fail. ducers sought additional foreign exchange through a Investment is discouraged, and research suffers newly opened auction window for foreign exchange. because there is little assurance that firms will re- On the demand side, the ability of consumers to absorb ceive licenses to turn plans for new products into price increases was limited through fiscal and mone- reality. tary restraint. Licensing usually favors large firms over small. These policies generally improved the market situa- (Although very small firms often lie outside the tion. Increased local supplies of some commodities such as milk, bread, soap, and beer brought market licensing system altogether.) Large firms tend to be prices down, sometimes below the previous official better informed and can allocate more resources to prices, while increased imports eliminated scarcity deal with the licensing system. Where multiple ap- rents for other goods (for example, tires and vegetable plications are permitted, large firms have been oil). known to preempt the entire capacity available Three main factors contributed to the success of through licensing. In some countries the authori- Ghana's liberalization of price controls. First, market ties have attempted to promote competition by li- prices already reflected scarcities, so that liberalization mainly shifted scarcity rents from distributors to pro- censing several small firms. But in industries ducers. Second, complementary policies helped raise where economies of scale are important, invest- marketed supplies and restrain inflationary pressures, ment in firms of less than optimal size has merely so that consumer resistance was minimized. Third, fostered inefficiency. price control enforcement was depoliticized by permit- Another drawback is that countries need to com- ting provisional price changes while retaining the right mit manpower to administer their licensing sys- of review and by including representatives of inter- tems. This carries a high price, particularly in Afri- ested groups in the review process. can economies where skilled manpower is scarce. Furthermore, industrial licensing can engender corruption, especially when the interpretation of rules is left to the discretion of a few officials. Some developing countries, notably in East Asia and Latin America, have avoided using rigid sys- ing Benin, Brazil, Ethiopia, India, Indonesia, Libe- tems to influence the pattern of investment. Their ria, Malaysia, Mauritius, Mexico, Pakistan, Sri resources have been better able to respond to Lanka, Tanzania, Togo, and Zambia. They reflect changes in incentives following trade liberalization the view that markets fail to allocate resources ac- and to flow to industries offering the highest finan- cording to national priorities. These priorities are cial returns. Firms in these countries are motivated often embodied in development plans, and the to be more competitive since there are few legal regulatory and tax systems are used to ensure that restrictions to entry by new firms (see Box 7.2). plan priorities are reflected in the pattern of private Such benefits have prompted some countries to 115 Box 7.2 Capacity licensing in India Capacity licensing is perhaps the most important of 250,000 vehicles, while the two smallest produced India's regulatory policies for the industrial sector. The fewer than 5,500 vehicles each. Not only did the rigidi- government has used this instrument to influence total ties in the licensing system lead to an inefficient struc- domestic industrial capacity and its allocation among ture of the scooter industry, it also led to substantial sectors, firms, and locations. In all but a few industries, unmet demand in the domestic market. By 1985 the investors must have a license to establish or relocate a government had relaxed its capacity licensing require- plant, manufacture a new product, or expand output ments for two-wheeled motor vehicles and had eased beyond 5 percent a year or 25 percent in five years. its restrictions on technical collaboration with foreign Only firms with assets of less than Rs50 million (about firms. The result was a rapid expansion of capacity. The $4 million) and located at least thirty miles outside ur- largest scooter manufacturer in India is now expanding ban areas are exempt. its capacity to 750,000 vehicles a year and will even- The aim of capacity licensing has been to ensure that tually become the fourth largest in the world. And industrial activities are consistent with industrial and competition between companies has stimulated the social policy objectives. These objectives include the production of technically superior products at interna- promotion of priority industries, the decentralization tional standards of price and quality. of plant location to "backward" regions, and the con- The first three nylon filament plants in India were servation of scarce resources by striking a physical bal- licensed and established in 1962, when total domestic ance between domestic supply and demand. demand was less than the capacity of one plant of mini- But India's capacity licensing system has constrained mum economic scale. Eight others were added by 1985, competition between domestic firms. High rejection which raised the total number of firms to eleven. Each rates, long delays, and changing subsector priorities firm had a single plant, and capacities ranged from 500 have made it a significant barrier to entry and growth. to 5,000 tons a year. The average capacity of nylon It has contributed to the high concentration of Indian plants in other countries is usually much higher; for industry, suboptimal scales of production, and slow example, in the Republic of Korea the average capacity technical progress. is 33,800 tons a year. Smaller plants, although ineffi- As the scale of India's markets has increased and the cient, were financially profitable in India because they adverse effects of capacity licensing have become more were sheltered by import barriers and the capacity li- apparent, the government has relaxed or modified censing system. In an effort to redress the inefficient some of its licensing requirements to promote growth structure of the nylon industry, the Indian government and productivity in a few industries. In cases where announced in 1986 a minimum scale for new nylon capacity licensing has been relaxed, competition and plants of 12,000 tons a year. efficiency have tended to improve rapidly. For exam- The removal of licensing restrictions in the profes- ple: sional instruments industry prompted a challenge by Until recently, attempts by large, relatively effi- new entrants and forced a major producer to shed out- cient producers of two-wheeled motor vehicles to ex- dated lines and offer improved products. Similarly, pand production and meet the rapidly growing de- when licensing requirements were relaxed selectively mand for low-cost transport were thwarted by capacity for the manufacture of telecommunications equipment, licensing requirements. As a result, large firms capable several private sector firms drew up plans to enter and of capturing economies of scale existed side by side thus put pressure on the largest producer to improve with small firms of limited capacity. For example, in efficiency. 1984 the largest scooter manufacturer produced streamline their licensing systems. Others have tors. These regulations may require exclusion from tried to dismantle their systems gradually. One ap- some sectors, limits on foreign equity participa- proach is to relax restrictions and raise the lower tion, domestic content minima, export obligations, limit for investments that require licenses. employment quotas, establishment of research and development facilities, appointment of Directing foreign investment host-country nationals to senior managerial posi- tions, ceilings on repatriation of profits and royal- Foreign investors in developing countries are often ties, and limits to the duration of technology subject to regulations and requirements that are licensing agreements. At the same time, gov- more stringent than those faced by domestic inves- ernments offer foreign investors a wide variety of 116 incentives such as tax holidays, tax concessions, accelerated depreciation allowances, duty-free im- Figure 7.1 The stock of foreign direct ports of capital goods, investment subsidies, and investment in developing economies guarantees against expropriation. (percent) This mixture of restrictions and incentives re- flects an ambivalence on the part of some develop- Where it is' ing countries. On the one hand, they fear that for- Brazil eign direct investment may undermine their sovereignty, limit their tax revenues, displace do- mestic firms, blunt local initiative, introduce inap- Ot Mexico propriate technology, pollute the environment, and squander exhaustible resources. On the other -Singapore hand, they recognize that foreign direct invest- Others 6 ment augments domestic investment, transfers indonesia Netherlands\ new technologies, and avoids some of the risks of external borrowing. Many of the concerns about foreign direct invest- ment arise when countries use protection to stimu- late local output. Foreign (as well as domestic) in- Japan - vestors can then earn financial returns that are often much higher than the economic returns to France the country. Thus, protection attracts foreign di- rect investment. But this can mean a net loss of Federal Republic foreign exchange for the developing country if the of Germany United Kingdom sum of repatriated profits and imported inputs ex- ceeds the foreign exchange saved through local Where it came from" production. In such circumstances, foreign direct investment can even reduce a country's real in- Note: Estimates have been rounded to the nearest percentage. come. Based on IMF estimates for 1983. Many controls on foreign investors therefore Based on OECD estimates for 1982. Source: IMF 1985, tables A.2. and A.3. take the rents from protection that accrue to for- eign firms and channel them to groups within the country, such as organized labor, shareholders, or domestic entrepreneurs. But this may deter for- eign firms from investing in the first place. Con- trols seem to matter more than incentives to for- of its resources. Foreign investments, therefore, eign investors. Most regard incentives as volatile are more likely to align themselves with the coun- and transitory. Empirical studies suggest that a try's comparative advantage and to augment do- country's natural resources, its recent growth per- meStic resources in fostering efficient industrial formance, and its political and economic stability development. are the factors that attract foreign investment. This may help explain why eight countries account for Controlling interest rates more than half the stock of foreign investment in developing countries (see Figure 7.1). Many of Firms need finance to exploit investment opportu- these countries do offer tax concessions, but it is nities. Not surprisingly, therefore, governments unlikely that in the absence of a favorable eco- have often made the financial sector an instrument nomic and political climate for investment, tax con- of industrial policy. For example, in a majority of cessions alone would be enough. developing countries, governments control at least Countries that follow outward-oriented strate- some interest rates to encourage investment in gies tend to have fewer problems with foreign di- some sectors. Interest rate controls also help gov- rect investment. Since a country following an ernments finance their budget deficits: many state- outward-oriented strategy does not discriminate owned enterprises (SOEs) rely on low-interest between import substitution and exports, it tends loans from the banking system, and many govern- to attract foreign firms wishing to take advantage ments require banks to buy low-yielding govern- 117 ment bonds or place some of their assets in low- make them negative in real terms (see Table 7.1). interest reserves with the central bank. As well as promoting investment in low-return Although interest rate controls and selective projects, interest rate controls encourage firms to credit policies may serve specific purposes, they build up their inventories. Furthermore, faced tend to have broad and, on the whole, unfavorable with the need to ration credit, banks lend to the effects on the behavior of savers, lenders, and borrowers they know welllarge-scale enterprises borrowers. and parastatalsor even to the industrial groups They reduce the efficiency of investment. This is that own them (see Box 7.3). In Colombia, interest particularly true when controls on interest rates rate controls reduced the funds available for smaller-scale industrial enterprises; the efficiency of investment fell as a result. Interest rate controls Table 7.1 Real interest rates and selected growth also keep credit cheap in relation to labor for those indicators, 1971-85 firms with unrestricted access to loans from the (average annual percentage) formal financial sector and thus encourage capital- Average Average Average intensive investments in some parts of industry. real GDF growth Range of real interest growth rate of These distortions ultimately affect growth. A study interest rates rate rate industry of seven Asian developing countries found that 60 and 10 21.1 2.3 1.1 interest rate controls reduced economic growth by 10 and 5 7.8 3.0 3.3 roughly half a percentage point for every percent- 5 and 5 1.4 5.5 7.2 age point by which the real interest rate was below Note: Data are unweighted group averages based on a sample of its market-determined rate. thirty-one developing countries. Source: IMF International Financial Statistics, various years; World They inhibit savings. In countries where infla- Bank data. tion is high, controls on deposit rates can make Box 7.3 The "iron law of interest rate restrictions" The "iron law of interest rate restrictions," as formu- increasingly on lending to large borrowers. lated by Claudio Gonzalez-Vega (1976), states that as The iron law also has implications for the distribution government-regulated interest rate ceilings become of income. Subsidized credit is often recommended as more restrictive, the share of credit granted to large the only politically and administratively feasible way of borrowers increases while that to small borrowers de- redistributing income to low-income earners. But the creases. Although the iron law was originally put for- iron law implies that subsidized interest rates tend to ward and tested in the context of subsidized lending to be inefficient instruments for income redistribution. small farmers, it applies with equal force to any finan- Subsidized interest rates influence income distribution cial system in which interest rates are subsidized. through their effect on the access to credit afforded to The starting point of the iron law is that interest rates different classes of borrowers. Since the size of the loan are the price of loanable funds. In an unregulated mar- tends to rise with the wealth of the borrower, the large ket, therefore, interest rates move to balance the de- subsidies that go with large loans accrue to wealthy mand for funds and the supply of funds. But when borrowers. Nonborrowersusually the poorest interest rates are suppressed by government regula- receive no subsidy at all. So the subsidies make the tions at below market-clearing levels, the demand for distribution of income even less equitable. funds will exceed the supply, and some would-be bor- Ultimately, it is access to credit that is important. rowers will be denied credit. Low interest rate ceilings cannot create the missing The iron law says that under these circumstances physical inputs, the missing markets, or the missing banks tend to deny credit to small borrowers first. The technologies that affect the performance of entrepre- I reason is that for each loan the share of overhead costs neurs. Instead, below-market interest rates create dis- in the total costs of lending tends to be higher for small tortions in the price of capital and contribute to in- borrowers than for large borrowers. In the absence of equalities. By contrast, if financial intermediaries are interest rate restrictions, banks can accommodate free to set their own interest rates in competition with higher costs and maintain the profitability of lending to others in the financial market, small borrowers will small borrowers by increasing the rate of interest. But stand a better chance of gaining access to credit, and with interest rate controls, the only option that banks investments will tend to be financed on the basis of possess for maintaining profitability is to concentrate their financial profitability. 118 Figure 7.2 Financial savings and the real deposit rate in selected developing countries Jamaica, 1976-84 Nigeria, 1971-84 Percent Percent Percent Percent 40 0 50 10 Average real deposit rate Financial savings as a share (right scale) of GNP (left scale) 35 5 40 0 30 10 25 15 30 10 Financial savings as a share --20 Average real deposit rate 20 (right scale) of GNP (left scale) 20 20 15 25 1976 1978 1980 1982 1984 1971 1974 1977 1980 1983 Philippines, 1971-84 Thailand, 1977-84 Percent Percent Percent Percent 35 5 Average real deposit rate (right scale) 55 Financial savings as a share 15 30 0 of GNP (left scale) 50 10 25 5 Average real deposit rate 45 5 (right scale) 20 10 Financial savings as a share 40 15 of GNP (left scale) 15 35 10 20 1971 1974 1977 1980 1983 1977 1979 1981 1983 Note: Financial savings are defined as currency in circulation plus demand and time deposits held by the banking system. Source: Based on data from IMF, International Financial Statistics, various years. them negative in real terms. Even where interest dude farmers, small firms, export industries, and rate ceilings apply only to loans, they control de- SOEs. In a recent study of interest rate policies in posit rates indirectly by acting as a constraint on ten developing countries, the share of credit sub- the yield and liquidity that banks can offer savers. ject to government control ranged from nearly 100 In a sample of eight developing countries between percent in Nigeria to 33 percent in Thailand. 1970 and 1985, average real deposit rates ranged Directed credit has usually failed to promote eff i- from about 11 percent in Peru to 2 percent in cient and competitive industries. Often it goes not Thailand (see Table 7.2). The sensitivity of financial to its intended use, but to finance other low- savings to real interest rates is illustrated in Figure productivity investmentslargely because credit is 7.2 for Jamaica, Nigeria, the Philippines, and Thai- fungible and also because of favoritism and abuse. land. Where directed credit does reach its intended ben- When interest rates are kept low and the de- eficiaries, many high-return activities are starved mand for credit outstrips its supply, the banking of finance because they are not deemed "high pri- system must ration credit according to other crite- ority." The result is a stock of capital that is less ria. Often the government directs the banks to efficient than it could be. lend to certain sectors. Such sectors typically in- Several developing countries adopted financial 119 Table 7.2 Real interest rates and inflation (average annual percentage) Deposit Lending Inflation Country Period rate rate rate Box 7.4 The risks of financial Bangladesh 1971-85 -7.4 -5.1 18.5 liberalization: lessons from Chile Kenya 1970-85 -4.3 -1.2 12.0 The failure of the reforms attempted by Chile in the Korea, Republic of 1971-85 -1.1 2.6 13.1 1970s highlights some important issues for govern- Morocco 1978-83 -4.2 -2.8 10.1 ments undertaking financial liberalization. When Chile Nigeria 1970-85 -9.7 -7.0 16.5 introduced its reforms, the economy was suffering Pakistan 1970-84 -1.7 0.2 10.7 from many years of import substitution and price con- Peru 1970-82 -10.6 -0.2 38.2 trols. Large fiscal deficits to promote output growth, Thailand 1970-85 1.7 7.9 7.8 combined with fixed exchange rates and restrictive Source: World Bank estimates based on IMF, International Financial trade barriers, had resulted in high inflation rates, pro- Statistics, various years. duction bottlenecks, chronic balance of payments prob- lems, and slow export growth. The reforms had two objectives: to eliminate hyper- inflation and to disengage the government from its ex- sector reforms during the 1970s and early 1980s. tensive control over large areas of economic activity. These ranged from major reforms, as in Uruguay, The first objective was achieved initially by slashing the to more limited realignments of the structure of budget deficit and later by slowing the rate of currency nominal interest rates, as in Nigeria. Yet regula- depreciation. The second was pursued by privatizing tions continue to hamper market forces in most public enterprises, by returning to the private sector developing countries. Many governments are con- the firms that were confiscated by the previous govern- vinced of the need for reform, but are concerned ment, by removing price and interest rate ceilings, by cutting import protection, and eventually by easing re- about the transition to market-determined interest strictions on international capital movements. rates. The experience of financial reform in countries I Perhaps the most extensive deregulation was in the financial sector. Prior to these reforms, directed credit such as Argentina, Chile, Indonesia, the Republic policies and negative real interest rates had been the of Korea, and Uruguay provides some guidelines rule. Immediately after the reforms, annual real interest on this. I rates climbed to 127 percent, receding gradually to 44 percent in the next three years. Part of the explanation The transition to a more competitive financial for the high rates was that capital inflows remained sector is easier to manage when inflation is low partly restricted until 1980. When foreign borrowing and real exchange rates are stable. In economies was freed, the differential between the peso and dollar with high inflation and appreciating real exchange interest rates narrowed and then stabilized at between 20 and 30 percent (see Box figure 7.4). In the meantime, the financial performance of firms producing tradable goods was weakened by an appreciating real exchange Table 7.3 Pre- and postreform nominal deposit rate. Burdened by a rising share of nonperforming rates I (average annual percentage) Prerefonn Post reform Reform interest interest Country period rates ratet' rates, stabilization policies should precede finan- Bangladesh 1980 7.5 13.0 Indonesia 1983 cial reforms. If financial reforms are undertaken at 9.0' 17.5 Kenya 1980-82 5.4 13.2 the same time as stabilization policies, the result Morocco 1978-82 4.5 8.5 may be insolvencies in both firms and financial in- Nigeria 1982 6.0 8.5 termediaries. Pakistan 1973-75 5.6 8.9 Controls on international movements of capi- Peru 1978-82 14.0 71.2 Thailand 1980 7.0 10.0 tal should remain until the financial sector reforms Turkey 1980-82 12.0 50.0 are complete. If the capital account is liberalized Uruguay 1974-79 18.0 50.6 when domestic interest rates are still fixed, the re- Note: Each increase in nominal deposit rates is usually accompanied sulting outflow of capital may destabilize the econ- by similar increases in lending rates. omy. Similarly, the rise in interest rates immedi- Refers to the rate prevailing at the end of the year preceding the reform period. ately after reform might induce a sudden capital Refers to the rate prevailing at the end of the last year of the inflow and an appreciation of the exchange rate. reform period. Nominal deposit rate for state banks only. The speed of reform is often an important con- Source: Hanson and Neal 1986; World Bank data. sideration. Interest rates need to rise slowly to re- 120 loans and spurred by a growing recognition that a de- Opening the capital account before financial sector valuation was becoming necessary, the financial sector reforms are complete provokes destabilizing capital began to charge real rates of 40 percent by early 1981. flows. The crisis peaked with the international recession in A realistic exchange rate policy is important. Using 1982: foreign lending fell sharply, capital fled the coun- the nominal exchange rate to stabilize domestic infla- try, aggregate demand collapsed, and the government tion could lead to an appreciation of the real exchange was forced to devalue the peso. Several conglomerates rate and create incentives to hedge against devalua- and banks failed and had to be rescued by the govern- tion. ment, and unemployment climbed to 30 percent by 1983. Ironically, the most serious defect in Chile's financial reforms was that they went too far. There was a lack of Box figure 7.4 Net capital inflows and interest rate effective supervision of the financial sector and virtu- differentials in Chile, 1979-81 ally no monitoring of bank portfolios. As a result, most of the financial intermediaries were acquired by one of several large conglomerates. These industrial-financial conglomerates, or gru pos, used the financial resources obtained through a newly acquired bank either to buy \èSs peso Lt rn ) tVfl1) I firms that were being privatized or to expand their own ver dollar borrow tog rat operations. Many newly privatized firms had to spend (lcit scole) 81) fresh resources to operate, modernize, and expand. A large number turned unprofitable as the real exchange rate appreciated and had to resort to additional bor- rowing to stay afloat. As a result, when the interna- tional debt crisis broke in 1982, Chile was already in a deep financial crisis. Other countries contemplating financial sector re- forms can draw three important lessons from Chile's experience: Financial reforms need to be accompanied by strict I II III IV I II III IV I II III IV supervision of the banking and financial sectors to 1979 1980 1981 avoid undue financial concentration and prevent un- sound banking practices. Governments need to be par- ticularly alert in countries where conglomerates form Source: Corbo 1985; Galvez and Tybout 1985. an important segment of the industrial sector. duce disruption to investors. A precipitous rise in icits may fuel expectations of exchange rate deval- the cost of borrowing would only push many firms uations and push nominal interest rates well above into insolvency and threaten, in turn, the solvency the rate of inflation. In such circumstances, lower of the banking system itself. At the same time, budget deficits are a precondition for financial sec- interest rate controls need to be lifted fast enough tor reform. Second, high taxes on financial inter- so that loans based on expected postreform rates mediation and lack of competition between banks are not postponed indefinitely. may mean large spreads between lending rates Once interest rate controls are relaxed, nomi- and deposit rates. Smaller budget deficits help nal and real interest rates in the formal sector are here too, by reducing the need for taxes on finan- likely to rise (see Table 7.3). In some instances, cial intermediaries. And central banks need to postreform real lending rates may exceed the real monitor competition between financial institu- rate of return on industrial investment. This may tions. Otherwise, financial concentration may lead threaten growth and jeopardize the trade reforms to noncompetitive practices, particularly in those that seek to change the structure of industry. The banking systems where industry-bank conglomer- problem arises in two ways. First, high budget def- ates play an important role (see Box 7.4). 121 Better supervision of the banking system is an gins inhibited development banks from mobilizing important element of financial reform. All well- deposits. As a result, most of these institutions established banking systems are governed by reg- remained small and narrowly focused and de- ulations that temper competition with prudence. pended on official or semiofficial sources for fund- One of these requires that banks possess a mini- mg. mum amount of capital in relation to their assets. A second requires that banks maintain a prudent EQUITY MARKETS. Thirty-five developing coun- deposits-to-capital (or gearing) ratio. Furthermore, tries have active equity markets. These widen the central banks usually urge banks to adopt an accu- options to savers by offering high-return, high-risk rate system for evaluating the quality of their as- financial assets. By competing for funds with the sets and potential loan losses. Prudence also sug- rest of the financial sector, they may increase the gests that limits be placed on loan concentration. total supply of savings. In addition, they improve Finally, central banks often act as lenders of last the allocative efficiency of the financial sector by resort and sometimes offer deposit insurance giving firms greater access to risk finance, they schemes to protect small depositors. bring a new element of competition to the financial sector and thus provide firms with an alternative to Establishing development banks and equity markets long-term borrowing, and they improve the flow of financial information. Financial reform may do little by itself to increase Capital markets depend on the health of the the supply of medium- and long-term finance. economy. A well-developed banking system and Commercial banks usually concentrate on trade fi- macroeconomic stability are preconditions for their nance and short-term lending. This reduces their growth. In addition, by taxing dividends and capi- risks and matches the maturity structure of their tal gains on equity at the same rate as the returns liabilities. As a result, many governments have in- on other financial investments, governments can tervened to increase the supply of medium- and avoid discriminating against the development of long-term finance for industrial development. an equity market. Above all, for equity markets to work properly, rules on trading, intermediation, DEVELOPMENT BANKS. In the 1950s and 1960s information disclosure, and takeovers need to be many governments established development clear. The investing public needs to be protected banks. The banks were given long-term financial from stock market manipulation, and brokers and resources, which they would then lend, in accor- underwriters need to follow professional codes of dance with accepted economic criteria, mainly to conduct. industrial projects with high returns. Then, during Intervening in labor markets the 1970s, development banks were encouraged (with the support of multilateral and bilateral lend- Just as financial and capital markets play a crucial ing institutions) to pursue development objectives. role in industrialization, so too do labor markets. Sometimes this was at the expense of portfolio Labor and capital join as factors in the transforma- quality. Their financial frailty became clear when tion of raw materials into final products. One of the world economy entered a recession in the early the aims of economic policy is to ensure that these 1980s. For a sample of development banks at the two factors are combined efficiently. But in addi- end of 1983, almost half had 25 percent of their tion to this, governments in developing countries loans in arrears and almost a quarter had more are also anxious to expand employment opportu- than 50 percent in arrears. Some have since been nities for those entering the labor force in ever in- bailed out by the government or the central bank, creasing numbers. In the next few decades, indus- but many remain under heavy financial pressure, trial employment will be a key element in meeting and some under threat of insolvency. the challenge of creating jobs, reducing poverty, Well-functioning equity markets would have and raising standards of living. eased these difficulties. Firms did not have suffi- As noted in Chapter 5, industry's demand for cient equity to absorb financial shocks; instead, labor depends partly on the country's strategy for they relied on borrowed funds. Some develop- trade and development. An overvalued exchange ment banks performed badly because their man- rate, when combined with industrial protection agements were forced to finance unviable govern- and tariff exemptions on imported capital goods, ment projects. In addition, interest rate controls tends to encourage a pattern of industrial develop- together with excessively high interest rate mar- ment that limits employment growth. In addition, 122 protecting industry discourages the farm sector, a Although minimum wages in Africa and parts of sector that tends to be significantly more labor- Asia are now of less importance than they were intensive than manufacturing. Outward-oriented thirty years ago, governments will come under in- strategies that provide equal incentives to the agri- creasing pressure to reactivate them once their cultural and manufacturing sectors are better able economies adjust and expansion resumes. The to blend the twin objectives of employment reintroduction of such policies can reduce employ- growth and efficiency in the allocation of re- ment in the formal sector. The magnitude will ob- sources. viously tend to vary by country and by sector, but Urban labor markets also play an important role recent research shows that on average a 1 percent in the employment performance of industry, espe- increase in the real wage will tend to reduce em- cially in the modern manufacturing sector. Urban ployment by about 0.03 to 0.04 percent. Minimum labor markets in developing countries often have wage laws also increase inequalities between the formal and informal sectors. The informal sector formal and informal sectors. Moreover, they re- comprises small family-owned enterprises that duce wage differentials between skilled and un- usually lie outside the purview of government la- skilled workers and thereby reduce incentives for bor regulations. The formal sector usually com- education and training. prises the government itself and the modern man- ufacturing sector. PAYROLL TAXES. Many governments, especially In some countries, labor markets are reasonably in Latin America, tax employers on the number of efficient, and wage differentials are determined their employees. Studies show that industries with largely by differences in education and experience. relatively high payroll taxes tend to pay lower But in others there are large wage differentials for wages, which pushes nearly all the tax onto the unskilled labor between the formal and informal workers. But when a binding minimum wage law sectors; and high rates of urban unemployment, or strong workers' unions prevent wages from fall- especially for educated labor, are common. Some ing, the effect of a payroll tax on employment is wage differentials can arise as a result of sex, eth- identical to an increase in the legal minimum nic, or race discrimination and can be corrected wage. only through education and social and cultural change. Other differentials may be due to mini- PUBLIC SECTOR WAGE POLICIES. The public sec- mum wage laws, payroll taxes, and the hiring tor's leading role as employer (see Figure 7.3) practices of the public sector. makes it an important force in the determination of wages. Because governments usually wish to be WAGE REGULATION. Achieving greater equity and model employers, pay scales for unskilled workers promoting social justice have been important goals in the public sector are generally higher than in the in many developing countries. To achieve these private sector, and they are usually unresponsive objectives, governments have intervened in labor to labor market conditions. These pay scales often markets to protect the real wages of particular extend to public industrial enterprises, where groups of workers. The most common method, managers usually do not have the same discretion minimum wage legislation, has been an important as their private sector counterparts in dealing with influence on real wages in manufacturing, but its their staff (see Box 7.5). The consequent loss in significance has declined gradually over the past competitiveness can be transmitted to the rest of three decades. In the 1950s and 1960s several Afri- the industrial sector, particularly if the output of can governments raised wages in regulated sectors public industrial enterprises is used as inputs by temporarily faster than the growth of labor pro- the rest of the industrial sector. ductivity. In East Asia, market forces played a more important role. During the early 1980s, mini- JOB SECURITY. Sometimes governments limit the mum wage policies began to recede, and real freedom of employers to lay off workers. Even wages declined substantially as a result. But in a where reductions in the work force are allowed, few Latin American countries with high inflation, employers are sometimes required by law to pro- wage indexation is a well-entrenched government vide severance payments based on wage and policy. In these countries, minimum wages, in length of service. These legal provisions can make conjunction with the indexation mechanism, con- it difficult to respond to changes in demand and tinue to exert an influence on the level and struc- production requirements. They raise the effective ture of wages in manufacturing. cost of labor and lead managers to substitute capi- 123 force to stagnant incomes. Average wages should Figure 7.3 The share of the public sector in rise as workers shift from low-wage, low- total employment in selected developing productivity jobs to higher paying jobs in high- countries productivity industries. In the Republic of Korea, (percent) for example, five to seven years after the shift from an import substitution strategy to an export- oriented one in the early 1960s, wages rose rapidly despite the absence of government intervention. \ 22 The functioning of labor markets also has impor- tant implications for trade liberalization. As Chap- ter 6 noted, trade liberalization involves a realloca- tion of resources from the nontradables sector to 100 the tradables sector. Efficient labor markets help in two ways. First, a devaluation of the exchange rate can shift incentives in favor of tradables only if real 80 wage rates are flexible downward. And, second, the production of tradables can expand only if la- bor moves out of the nontradables sector as real 60 wages fall. Factor prices 40 Virtually all the policies discussed in this Report influence the relative price of labor and capital. What is the net effect? As Chapter 5 showed, 20 inward-oriented trade strategies tend to protect capital-intensive industries at the expense of labor- intensive industries; this increases the demand for capital relative to labor and raises the rental on capital relative to the price of labor. But, at the Share of nonagricultural labor employed in: same time, inward-oriented trade strategies may fl state-owned enterprises have effects that work in the opposite direction. government Overvaluation of the exchange rate, common in inward-oriented economies, reduces the cost of Source: Heller arid Tait 1983. imported capital goods and therefore raises wages in relation to the rental on capital (see Box 7.6). (Import tariffs may offset some of the effects of exchange rate overvaluation on the domestic price of capital goods, but since many imported capital goods are either subject to low tariffs or exempted tal for labor. And legally guaranteed job security from tariffs altogether, this offsetting factor is prob- reduces the incentives of workers and managers to ably insignificant.) increase their productivity. Interest rate controls cut the cost of capital to Panama introduced a labor code in 1972 that re- some firms; so do tax holidays, tax discounts, and stricted layoffs of workers with more than two accelerated depreciation. Minimum wage legisla- years of employment. A decline in private sector tion, payroll taxation, and high public sector pay investment followed, and over the next few years scales raise the cost of labor. Thus, policies on fi- employment fell much faster than output. Eventu- nance, labor, and taxes tend to work in the same ally, firms began to discharge workers before they direction: they raise wages relative to the cost of had two years of seniority. capital and therefore depress employment. A study based on a seventy-country sample showed The evidence suggests that if governments re- that if the level of wages increased by, say, 10 per- duced their labor market interventions, their econ- cent relative to the rental rate of capital, the pro- omies would grow faster. Repealing minimum portion of labor employed would fall on average wage laws would not condemn the urban labor by 10 percent relative to the amount of capital em- 124 Box 7.5 Performance of state-owned enterprises and wage and employment policies in Egypt State-owned enterprises (SOEs) occupy a central posi- the level of formal education. Promotions and annual tion in the Egyptian economy. They absorb about 45 salary increments were based on seniority. Apart from percent of total fixed investment, account for 40 per- the basic wage, there were provisions for bonuses, cent of GDP, and generate about 83 percent of total overtime pay, and special merit awards. These were, in exports of goods and services. Egypt's development principle, designed to reward outstanding perfor- prospects, therefore, depend in large part on the per- mance but, in practice, were applied uniformly. Fur- formance of its SOEs. But taken as a group, SOEs have thermore, public sector wages for skilled workers were not been efficient in their use of resources. Most suffer well below the pay for equivalent labor in the private a large and growing overall deficit, a low rate of capac- sector. ity utilization, and an inadequate and weakening fi- The absence of a link between performance and re- nancial rate of return. As a result, they impose a heavy ward, lower wages for skilled workers in the public burden on the budget. About a third of the national sector than in the private sector, and the guarantee of fiscal deficit can be attributed to SOEs, and more than job securityall these combined to reduce productivity three-quarters of this can be found in the industrial and lower morale. Most specialized skilled workers left sector. the public sector for either the private sector or other The poor financial performance of SOEs stems from Arab countries. Those who stayed were not sufficiently many factors, of which wage and employment policies motivated to raise productivity because of the uniform- can be regarded as important. Following large-scale na- ity of bonuses and allowances. At the same time, low- tionalization in 1961-62, Egypt embarked on a deliber- skilled workers were encouraged to remain in public ate policy to increase employment in the public sector. employment because of the guarantees of job security. This policy included a reduction of work hours from Consequently, state-owned industries had fewer spe- forty-eight a week to forty-two a week, the hiring of cialized and skilled workers (engineers, technicians, new employees beyond the immediate needs of indi- and so forth) and an abundance of underemployed vidual enterprises, and employment guarantees for workers with few skills. graduates and military conscripts. Subsequently, be- Mandatory employment policies are no longer en- tween 1974 and 1982, other laws were enacted that forced in Egypt, but public sector wage policies con- restricted the ability of the management to hire and lay tinue to impede management flexibility in SOEs. In off workers. In addition, prior to the Public Sector Re- particular, wages continue to be tied to education, not form Law of 1983, transferring labor from one company job content; promotion and incentives are not linked to to another was rarely possible. performance and productivity improvements; and Managers of SOEs also had little discretion over management still has little flexibility in dealing with wages and salaries. Basic wages were determined by labor-related issues. The government is beginning to the central government and required cabinet approval. focus on the problem and is preparing a reform pro- The chief criterion used in fixing the basic wage was gram to improve public sector performance. ployed. Other studies of twenty-five individual capital by as much as they did in two of the countries indicate that the fall in the proportion of inward-oriented economiesPakistan and Tunisia. labor would range between 6 percent and 20 per- But no single pattern emerges of the contribution cent. of different policies to factor price distortion. Systematic studies of the effects of government Among the inward-oriented economies in the sam- policy on the choice of technology and the employ- ple of countries studied, trade policies were more ment of labor and capital are rare. One such study important than financial market policies in reduc- indicates that distortions in the relative cost of la- ing capital costs in Tunisia, but the reverse was bor and capital can be large, particularly in coun- true in Argentina and Pakistan. Similarly, in Ar- tries following inward-oriented trade strategies gentina, Brazil, Côte d'Ivoire, and Tunisia, distor- (see Table 7.4). tions arising from labor market policies have been Trade and domestic policies in the outward- more important than distortions from financial oriented economiesBrazil, Côte d'Ivoire, Hong market policies, whereas the opposite was true in Kong, and the Republic of Koreadid not influ- Korea and Pakistan. ence the level of wages relative to the rental rate of The study also examined the potential effects on 125. employment of liberalizing trade and domestic ducing trade distortions had a smaller effect, and policies. Most of the increase in employment per in Argentina it actually lowered the labor coeff i- unit of output came from removing factor market cient. Nevertheless, to the extent that export in- interventions, except in Tunisia (see Table 7.5). Re- dustries are more labor-intensive than import- Box 7.6 Peru's factor market distortions During the government of Velasco Alvarado (1968-75), formal sector. Furthermore, the effect of these distor- Peru introduced several policies that significantly dis- tions on employment should also take into account lost torted the price of productive factors. Despite efforts to opportunities for exports of labor-intensive products. reverse them, many were still in force during the early High labor costs reduced Peru's natural comparative 1980s. They have had a pervasive effect on the Peru- advantage in these commodities. The government tried vian industrial sector in at least two important ways: to alleviate the problem by providing export subsidies. Increased capital intensity and reduced employment. But international rules of trade forbid the rebate of di- The measures included taxes on wages, interest rate rect taxes, so Peru's exports have faced high counter- subsidies, fiscal incentives for investment, exemptions vailing duties on several occasions. from import duties, and, at times, currency overvalua- Reduced factor mobility. The policies also reduced tion. All tended to increase wage costs and reduce the factor mobility. Government-supervised land reform price of capital goods, so that firms had an incentive to enterprises eliminated markets for the most productive invest in relatively capital-intensive techniques and to land. The government also allocated credit directly and reduce their demand for labor. introduced a stringent job security law. These interven- Capital goods were exempted from payment of im- tions reduced Peru's ability to adapt to structural port duties. This, plus an overvalued exchange rate, changeone reason, arguably, why Peru's attempt at lowered the relative price of imported capital goods by trade liberalization failed in the early 1980s. Trade liber- 42 percent. All told, the price of labor rose by 102 per- alization exposed Peru's protected manufacturing sec- cent relative to the price of capital. tor to foreign competition, but labor market rigidities Estimates indicate that if factor prices had been un- prevented firms from shedding labor to increase effi- distorted, employment in the formal sector could have ciency and improve cost competitiveness. Import pene- been 39 percent higher. This is probably an underesti- tration was increased by an overvalued exchange rate mate. Other policiessuch as minimum wages, tax and expansionary fiscal policies. Meanwhile, protected concessions to investors, and concessionary credit entrepreneurs mounted a campaign against trade liber- policiesincreased distortions in the price of labor rela- alization. Eventually, trade liberalization was reversed. tive to capital and further reduced employment in the Table 7.4 Policy effects on labor and capital costs in selected developing economies (percent) Reduction in Source of reduction Increase in capital costs as in capital costs the wage-rental Increase in a result of ratio as a labor costs as a trade, fiscal, Financial result of trade, Economy and result of labor and financial Trade Fiscal sector fiscal, and development market policies policies policies policies policies financial policies strategy Period (1) (2) (3) (4) (5) (6) Outward oriented Brazil 1968 27 4 0 4 31 Côte d'Ivoire 1971 23 15 0 12 3 45 Hong Kong 1973 0 0 0 0 0 0 Korea, Republic of 1969 0 10 0 2 8 11 Inward oriented Argentina 1973 15 17 8 9 38 Chile 1966-68 37 Pakistan 1961-64 0 76 38 10 53 316 Tunisia 1972 20 36 30 .. 6 87 Note: Column 6 is derived from columns I and 2. Source: Krueger 1983, table 7.1. 126 substituting industries, liberal trade policies allowed them to raise prices well above interna- should boost employment. tional levels. The barriers to entry caused by trade restrictions The competitive environment are sometimes reinforced by domestic policies. In- dustrial licensing, fiscal and financial incentives, Trade and other policies affect industrial efficiency interest rate controls, and credit rationing can all in another waythey help define the rules of com- help deter new entrants and allow monopolies and petition. This, in turn, affects industrial flexibility collusive oligopolies to earn excess profits. in the face of changing economic conditions. Many governments have used antitrust laws to discourage monopolies and collusive oligopolies. Entry barriers and corn petition In such cases, the evolution of the market structure hinges on the interpretation of these laws. In the In developing countries, regulatory barriers to United States, for example, the focus on price- trade are often a cause of high industrial concen- fixing arrangements after the first round of anti- tration. For example, when quantitative restric- trust legislation led to a wave of mergers. Indian tions are used in conjunction with import licens- antitrust laws, however, have restricted changes in ing, the flow of imports is controlled by a restricted the industrial structure by blocking the entry of group of importers. This gives them considerable large firms that could challenge the dominance of market power. In Bangladesh, for instance, the existing firms. government, until recently, granted sole importing Properly designed antitrust laws can encourage rights to public enterprises and "recognized indus- competitive behavior, but they are less appropriate trial units." The market power that this bestowed when efficiency calls for large plants with scale Table 7.5 Sources of potential increases in labor coefficients of production Potential percentage increase in the direct labor coefficient under different scenarios Equal effec- Observed No inter- No trade tive protec- Potential direct labor vention in policy tion across direct labor Country and coefficient factor markets distortions industries coefficient development strategy Period (1) (2) (3) (4) (5) Import-competing industries Outward oriented Brazil 1970 100 15 115 Côte d'Ivoire 1972 100 25 0 12 140 Korea, Republic of 1968 100 8 0 0 108 Inward oriented Argentina Chile 1973 1966-68 100 100 16 6 0 110 7 107 Pakistan 1969-70 100 271 0 371 Tunisia 1972 100 17 38 51 243 Export industries Outward oriented Brazil 1970 207 15 238 Côte d'Ivoire 1972 135 25 0 0 169 Korea, Republic of 1968 100 8 0 0 108 Inward oriented Argentina 1973 130 25 6 0 149 Chile 1966-68 80 7 68 144 Pakistan 1969-70 142 271 0 384 Tunisia 1972 128 17 38 0 198 Note: Column I gives an index expressing the actual labor required per unit of domestic value added in the countries listed for import-competing and export industries. The index for import-competing industries in each country is set at 100. Columns 2, 3, and 4 show the potential increases in labor coefficients attainable by eliminating: factor market distortions induced by domestic policies (column 2), the factor price effects of trade policies (column 3), and the factor price effects of different levels of protection afforded to import substitution and export industries (column 4). Column (5) indicates the potential labor coefficient obtainable by removing all distortions. Source: Krueger 1983, table 8.10, p. 177. 127 Box 7.7 Exit barriers and industrial adjustment in Portugal Portugal's industrial sector faces considerable uncer- The limited use of bankruptcy to provide an orderly tainty now that the country has entered the European method of writing down debt leaves the book value of Community. The abolition of quantitative restrictions net assets at levels that do not reflect their market and the harmonization of tariffs on third-country im- value. An active capital market is only just starting to ports may lead to the closure of many of Portugal's operate. Meanwhile, the high book value inhibits buy- low-productivity firms and to reorganization and ra- ers and sellers from transacting at realistic prices. The tionalization of many others. The costs and difficulties resulting immobility of capital and management in- of these adjustments are likely to be considerable be- creases the costs of adjustment. cause of rigidities in the capital and labor markets that Labor market rigidities hinder the exit of firms. The relatively high degree of labor market rigidity may The failure of bankruptcy mechanisms also impair the industrial sector's ability to adjust to the The low rate of corporate bankruptcies in Portugal may new incentive structure that has accompanied EC suggest a healthy industrial sector. But this is decep- membership. Until the early 1970s, Portugal relied tive. In fact, financial weakness is endemic in many heavily on emigration to keep real wages growing in parts of Portuguese industry. Regardless of the source the domestic economy. Waning emigration to OECD of their financial difficulties, Portuguese firms with countries and decolonization in the post-1974 period more than 100 employees rarely go out of business. changed this age-old custom; and decolonization also Troubled firms receive public assistance, which may led to a large inflow of returnees that needed to be mean a direct subsidy, concessional refinancing of absorbed in the domestic economy. overdue loans by public sector banks, or special pur- In response to these conditions, as well as to political chase programs by the public sector. Moreover, the fi- commitments following the 1974 revolution, the gov- nancial position of many banks has been weakened ernment introduced a comprehensive set of measures owing to a high share of nonperforming corporate designed to protect the interests of labor. These mea- loans. But banks have little incentive to resort to the sures have greatly restricted the mobility of labor both bankruptcy mechanism for three reasons. First, recov- within and between firms. Firms have little, if any, erable assets are usually low, especially after preferen- flexibility in reducing their labor force or indeed in tial creditors, employees, and tax and pension liabili- changing the tasks or workplace assigned to each indi- ties have been paid off. Second, the legal requirements vidual. By institutionalizing the overmanning of Portu- of the Portuguese bankruptcy mechanism are invari- guese industry, these laws have succeeded in slowing ably expensive to fulfill. Third, public sector national- industrial progress and are even less justifiable now ized banks, which account for more than 90 percent of that Portugal has gained entry into the EC. Although a the banking system, can count on an eventual govern- decade has gone by since the passage of these labor ment bailout. Thus the banks tend to collude with their laws, Portugal has yet to fashion a set of labor policies financially troubled clients and continue to lend with that is conducive to industrial growth and adjustment little hope of restoring their borrowers' financial while addressing the legitimate concerns of the labor health. force. economies. In such situations, lower entry barriers Exit barriers and resource mobility at least discourage large firms from exercising their market power for fear that this may stimulate new In some countries the costs of shutting down a firms to enter the industry. But lower entry barri- firm can be prohibitive. In many ways exit barriers ers alone cannot curtail monopoly behavior, partic- are barriers to entry as well, because they reduce ularly when a single firm capturing scale econo- the return on investment. They also tend to reduce mies can satisfy the entire domestic market. any improvements in efficiency stimulated by lib- Foreign competition may then be the best answer. eralization or technological change (see Box 7.7). As well as limiting monopoly power in domestic Perhaps the most forbidding exit barriers are re- markets, foreign competition promotes competi- strictions on labor retrenchment. (In one country tive behavior through rivalry in export markets. with particularly rigid rules on job security, pro- The opportunity to export makes room for larger ducers had to adopt ingenious methods for closing and more efficient producers in the domestic mar- plantsfor example, by paying bribes to ensure ket. If the economies of scale are substantial, ex- electricity blackouts or arranging strikes to bring port activities may raise industry's profits. about de facto closure.) Laws against mergers and 128 acquisitions also hinder the exit of firms. Through industrial estates, and promote subcontracting. mergers and acquisitions an industry may move Except perhaps in the notable case of India (see toward a more efficient structure. Governments in Box 7.8), such measures compensate only partially developing countries tend to oppose them because for the discrimination against small firms in econo- of their effect on industrial concentration. But the mies with import substitution strategies and inter- need for restrictive policies toward mergers dimin- est rate controls. Policies that are neutral between ishes when markets have low entry barriers or are industry and agriculture and between firms of dif- open to foreign competition. Finally, complex or ferent size probably do more to help small firms nonexistent bankruptcy procedures may make exit than direct intervention. Agricultural growth, for difficult. example, raises rural incomes and expands the markets for small industries. This is especially true Small-scale industries when the agricultural sector is made up primarily of smallholdings that use labor-intensive tech- Many studies suggest that trade, industrial, and niques of production. Agricultural growth also in- financial policies can interact to discriminate creases the supply of raw materials for small-scale against small firms. For example, trade policies in industries such as food processing and basket some countries protect large firms more than they weaving. Movement toward more open trade poli- do small firms. In Sierra Leone, large garment pro- cies and foreign exchange markets would also help ducers are granted fifteen times as much protec- reduce some of the bias against small firms. And tion as small garment producers. Similarly, small greater freedom for financial institutions would firms are often excluded from lucrative investment give small firms better access to credit. incentives. In fact, many of the capital goods used by small firms, such as sewing machines or out- Economic policy and technological board motors, are often classified as luxury goods development and taxed accordingly. Moreover, surveys indicate that less than 1 percent of small firms in develop- In the course of economic growth, gains in effi- ing countries obtain credit at controlled rates from ciency arising from changes in the allocation of formal financial institutions; the remainder rely on resources are complemented by productivity the informal sector. The combined net effect is to improvements as a result of technological develop- raise their capital costs and reduce their ability to ment. As Chapter 3 has noted, technological de- compete against large firms (see Table 7.6). velopment is central to industrialization. But some developing countries adopt special Technological development means more than programs to support small-scale industries. For ex- creating new technological knowledge or even ac- ample, they might provide working capital and in- quiring existing technological knowledge. It also vestment finance at preferential rates of interest involves developing the ability to assess, choose, through development banks or selected commer- and adapt such knowledge. Studies have found cial banks. In a few countries, governments have that the economic benefit from a new innovation is attempted to introduce management and voca- generally less than the cumulative benefits from tional training, provide infrastructural services and gradual improvements made after its introduction. Table 7.6 The relative cost of capital in large and small firms (percentage difference in capital costs of large firms relative to small firms) Source of difference in capital costs Interest Trade rate Fiscal Economy Period policy policy policy Total Brazil 1968 0 33 Ghana 1972 25 42 26 41 Hong Kong 1973 0 0 0 0 Korea, Republic of 1973 5 35 10 30 Sierra Leone 1976 25 60 20 65 Tunisia 1972 30 33 Note: A negative number implies that the capital costs of large firms are lower than the capital costs of small firms. Source: Haggblade, Liedholm, and Mead 1986. 129 Box 7.8 Is small always beautiful? Many developing countries promote small firms in the the ban on new looms in mills encouraged the use of belief that they use more labor per unit of capital than economically less profitable power looms. Although large firms, use capital more productively, and thus power looms are more labor-intensive than mills, eco- combine abundant labor with scarce capital more effi- nomic benefit-cost analysis indicates that these extra ciently. Recent studies, however, indicate that this may jobs have been "bought" too dearly. Similarly, in the not always be the case. First of all, small firms do not sugar industry, the government has restricted the ex- always produce the same products or serve the same pansion of sugar-refining mills to encourage the pro- markets as large firms. Making a direct comparison be- duction of semirefined sugar. But the production of tween small and large is therefore fraught with diffi- semirefined sugar is not only economically less profit- culty. But where careful comparisons have been made, able than the production of refined sugar, it is less size does not emerge as a good indicator of efficiency. labor-intensive as well. Finally, government restric- The efficiency of small firms appears to be influenced tions on the expansion of large engineering firms have by the same factors that influence efficiency in large fostered the rapid growth of small engineering firms firmsthe nature of the industry, the array of available that lack the technical capacity for producing high- technologies, the framework of prices and incentives, quality goods or adopting new technology. As a result, and the competitive environment. In most developing exports of light engineering goods, such as bicycles economies, the overall trade and industrial policy and diesel engines, have suffered. framework tends to discriminate in favor of large firms. Evidence from other countries also suggests that In such an environment, if small firms survive, they small may not always be beautiful. Small firms tend to tend to do so on account of their higher efficiency or be economically more efficient than large firms only in their superior ability in servicing a particular market. those industries in which the nature of the technology But where government policies are biased heavily in or the characteristics of the market put small firms at an favor of small firms, there is a substantial risk that this advantage over their larger competitors. In the Repub- may lead to the establishment of small firms that use lic of Korea, for example, small firms employing fewer resources inefficiently. than 50 workers were the most efficient in only 32 of India is a case in point. It has encouraged small firms 139 industries. In a study of the Colombian metal- probably more than any other country. The govern- working industry, the economic benefit-cost ratio was ment has encouraged village industries that use tradi- highest for the largest firms. In sharp contrast, a study tional techniques in the production of soap, cloth, and of large- and small-scale manufacturing enterprises in other items. In addition, more than 800 products, Sierra Leone revealed that in all six of the industrial mainly chemicals and light engineering goods, are al- subsectors studied, small firms were consistently more lowed to be produced by small firms only. These firms efficient than large firms. The Sierra Leone study also also get additional incentives, such as cheap credit, revealed that industrial and trade policies were biased tax breaks, and preferential treatment in government consistently against small firms. The firms that contin- tenders. ued to operate and compete against large firms tended Have the economic benefits of these measures ex- to be economically more efficient and had higher eco- ceeded their economic costs? Recent evidence suggests nomic benefit-cost ratios. not (Little 1987). In the textile industry, for example, The mastery of technology cannot be bought; it and was even able to sell technical assistance to must be learned. other steel producers in Brazil and neighboring The history of a Brazilian steel producer shows Latin American countries. how technological capabilities can develop. The Once acquired through production experience, steel producer's first plant was set up by Japanese technological capabilities can be extended gradu- steelmakers. Subsequently, through a series of ally to investment appraisal, design, and construc- capacity-stretching technological improvements tion. For example, efforts to extend capacity or re- over seven years, the plant's capacity was more move bottlenecks may increase knowledge of plant than doubled. This involved very little new invest- design. But firms need not wait for production ex- ment and no addition to the work force. As a result perience before acquiring these new capabilities. of the experience gained through these technologi- Many countries begin production in a new sector cal efforts, the firm was able to make further addi- by contracting for a turnkey plant. If domestic tions to its capacity without outside technical help firms involve local technical personnel in design 130 and implementation from the beginning, they can competition and freedom of entry and exit will absorb a substantial transfer of know-how. tend to foster technological development. In addi- As firms acquire a greater command over the tion, technological effort needs to be guided by technologies they use, modifications and improve- price signals that reflect scarcity; so it is impor- ments require more applied research. These efforts tant that domestic prices reflect international prices often lead to minor innovations that can have a and that factor markets are competitive. Policies cumulative effect on productivity greater than the that encourage trade and create a conducive envi- initial innovation. In its quest to increase produc- ronment for foreign direct investment will also tivity, a Mexican firm producing tableware with facilitate the inflow of new technologies from U.S. technology succeeded in developing an inno- other countries. Finally, the better educated the vation that doubled the speed of glass making. The labor force, the more rapid its mastery of new same technology was later sold to a Brazilian firm; technology. with further minor innovations the energy require- Chapter 4 noted that firms may expend less tech- ments of the process were cut by half. nological effort than desirable if they are unable to Firms starting up in new areas of production reap the benefits for themselves. Governments usually find it cheaper to acquire technology from have attempted to deal with this externality prob- abroad. The transfer of technology from abroad lem in several ways. One is to allow firms to regis- can come in a variety of forms. Sometimes it is ter patents. Another is to subsidize technological embodied in equipment, as in turnkey projects or effort. And a third approach is to promote special- imported capital goods. In other instances it is ized agents for technological development, usually packaged along with equipment, finance, and publicly supported research and development in- management, as in foreign direct investment. And stitutes. Experience suggests that in most cases in others, technology comes "unbundled," these institutes tend to have little contact with pro- through technical assistance or technology li- ducing firms and are not of much help in develop- censes. ing the kinds of technologies needed by pro- The benefits to be gained from foreign technol- ducers. ogy derive less from the method of its transfer than Technology information centers are another ap- from the details of implementation. The technolog- proach. Brazil and Mexico have such centers, ical benefits from a turnkey contract are likely to be which charge private users a small fee for access to much greater if local personnel participate at every their data banks. Finally, governments of many de- stage. Moreover, except for a few processes, there veloping countries intervene in the transfer of are always several sources of technology available, technology from abroad partly to protect local sup- and firms may benefit by negotiating for the best pliers and partly to check the market power of for- terms. Some inexpensive modes of technology eign suppliers. Carried to extremes, such mea- transfer are growing in importance. In particular, sures may prevent the inflow of new technology. the newly industrializing countries have found One study concluded that specific interventions that exporting firms receive valuable technical as- mattered less for technological development than sistance from foreign buyers. Concerned with the the general policy environment for industrial de- quality and competitiveness of the products they velopment. purchase, foreign buyers are keen to assist their suppliers in improving efficiency and quality con- Conclusion trol. They are also important sources of informa- tion on market trends in tastes and fashions and The experience of developing countries over the on legal product standards and market require- past three decades suggests that when direct con- ments in the purchasing country. trols replace market mechanisms, economies work Successful technological development ultimately less efficiently. An economy that imposes few bar- depends upon the desire of firms to improve effi- riers to trade and encourages domestic competi- ciency. To encourage this behavior, the policy envi- tion is likely to develop an industrial sector that is ronment needs to reward firms that lower their more efficient in its use of resources and more costs and to penalize those that do not. Given also competitive in international markets. Many gov- that technological change in developing countries ernments in developing countries, however, con- is mainly adaptive and incremental, small firms tinue to control a wide range of economic activi- can display just as much technological dynamism ties. Policy reform is therefore a vital step in as large firms. Therefore, policies that promote improving economic and industrial growth. 131 Domestic policy also interacts with trade policy. ment policies can aid flexibility by removing barri- The success of trade reforms hinges on the ability ers to resource reallocation and by encouraging of firms to expand export production and meet the competition in the domestic economy. Outward- challenge of increased import competition. The oriented trade strategies and government policies speed of that adjustment depends on the flexibility encouraging domestic competition are therefore of domestic product and factor markets. Govern- complementary. 132 The threat of protectionism More than twenty-five years of progressive liberal- porous: businessmen in the Republic of Korea and ization of trade, from 1947 to 1974, saw unprece- Hong Kong, for example, have to some extent dented growth in world prosperity. Then the eco- overcome the restrictive effects of NTBs, and their nomic climate changed for the worse. Currency exports of manufactures have continued to grow. crises, oil crises, debt crises, world recession, and But the latest Multifibre Arrangement (MFA) has high unemployment produced an atmosphere in broader coverage and tighter restrictions than its which demands for protection increased dramati- predecessors. New exporters will find its barriers cally. The success of Japanese exports, and then of harder to penetrate. If protection in the industrial exports from the newly industrializing countries nations increases still further, it will be hard for the (NICs), produced pressure for changes in the older developing countries to expand their exports. industrial nations. Such changes are painful when Although the developing countries have been unemployment is high. Attempts to avoid the pain able to avoid some of the effects of industrial coun- are the main cause of today's protectionism in the tries' protection, the industrial countries them- industrial countries. Trade in textiles was the first selves have not. Clearly the main costs of protec- victim, followed closely by trade in footwear, tion fall on the importing country. NTBs cause leather goods, steel, shipbuilding, cars, and con- higher prices for consumers, lost tariff revenue for sumer electronics. governments, inefficient resource allocation, and Instead of tariffs, which are now very low, the diminished competition. main instrument of recent protection has been the The pattern of trade cannot remain static. Since nontariff barrier (NTB). It contravenes widely ac- the early 1%Os developing countries have been in- cepted principles of nondiscrimination and trans- creasing their exports not only to industrial coun- parency in measures to restrict tradeprinciples tries but also to other developing countries. Today which remain sound. NTBs usually discriminate their exports account for nearly one-third of world against the lowest-cost sources of imports, so they exports to developing countries. They have also raise prices to consumers and keep inefficient in- expanded trade with the centrally planned econo- dustries in business. The costs to the country im- mies (CPEs), although these exports have stag- posing the NTB, and to the world as a whole, are nated in the past few years. But it remains unlikely higher than under an equivalent tariff. Moreover, that exports to these other countries will expand NTBs are unfair, because they do not treat ex- enough to lessen the importance of industrial porters equally. Often it is the exporters with the country markets or the significance of the threat of least bargaining power whose exports are most re- industrial country protectionism (see Boxes 8.1 duced. and 8.2). Although demands for protection have prolifer- The international trading system since World ated and the quantity of trade covered by nontariff War II has, at least in principle, been guided by the barriers has increased, the effects on trade are not rules and procedures agreed to by the signatories easy to quantify. Many trade barriers have proved to the General Agreement on Tariffs and Trade 133 Box 8.1 Trade options for the developing countries: trade with centrally planned economies If developing countries had to face increased protec- and now have sizable foreign debts. A study by tionism in the industrial market economies, could they Kaminski (background paper) shows that the CPEs expand their exports of manufactured products to Eu- with the highest debt have the lowest level of trade ropean centrally planned economies? At present, the with the developing countries. Kaminski estimates that CPEs (defined here as Bulgaria, Czechoslovakia, Ger- exports from the developing countries would have man Democratic Republic, Hungary, Poland, Romania, been 34 percent higher between 1982 and 1985 if the and the U.S.S.R.) import only 5 percent of developing indebted CPEs had not deliberately run surpluses by countries' exports, compared with 66 percent imported cutting imports from developing countries. Of course, by the industrial countries. But if increased protection- the CPEs with large foreign debts had to find some way ism in the industrial countries were to hinder develop- of generating trade surpluses to repay these debts. It is ing countries' exports, the CPEs would become much just an unfortunate result of these policies that this more important. significantly reduced their imports from developing The external trade contacts of the CPEs have always countries and seems likely to continue to do so. been limited. While imports from the developing coun- Third, among the CPEs, geographic and political tries have increased from 3.4 to 5.0 percent in the considerations are important in determining trading 1980s, they still lag far behind both developing and partners. Cuba, for example, accounts for one-third of industrial country trade. In addition, these imports all Soviet trade with developing countries. About one- consist almost entirely of primary goods and fuels. Pri- fourth of U.S.S.R. trade is with neighboring develop- mary goods and fuels account for 85 percent of Eastern ing countries. Europe's and 81 percent of the U.S.S.R. 's imports from Fourth, with a few recent exceptions, particularly developing countries. In contrast to a shift in favor of Hungary, CPEs have generally followed economic poli- manufactures in their exports to the EC, the share of cies which insulate domestic producers from both in- manufactures in developing countries' exports to the ternal and external competition. Their inconvertible CPEs fell during the period 1980-84. and overvalued exchange rates and other import sub- Several factors restrict trade between the CPEs and stitution policies are far more restrictive than any barri- the rest of the world. First, the U.S.S.R. is the CPEs' ers to trade erected in the industrial countries. main supplier of raw materials (with the exception of The lure of advanced Western technology is a motive food) and mineral fuels. Only when the U.S.S.R. is for increased trade between the CPEs and the indus- unable to supply the other CPEs' needs do they turn to trial countries. But the continued lack of emphasis on developing country sources. Romania, the only coun- comparative advantage in most CPEs means that they try not dependent on Soviet fuel supplies, has ex- have no incentive to increase their imports of manufac- panded its trade with the developing countries. Its im- tures from developing countries. An appropriate em- ports from developing countries form a larger share of phasis on comparative advantage could generate an its total imports than is the case for any other CPE. increase in exports to developing countries as easily as Second, most CPEs borrowed heavily in the 1970s it could an increase in imports. / (GAIT). The GATF is simply an agreement signed that the lowest tariff (or other trade barrier) applied by member nations which are admitted on the ba- by a signatory to the GAIT on a product must be sis of their willingness to accept the GAIT disci- applied to all signatories; third, the principle of plines; it provides rules governing trade between reciprocity, whereby trade barriers are lowered in the signatories, a forum for negotiations, and return for changes of rough equivalence by trading mechanisms for resolving disputes. As a legal doc- partners. (Box 9.1 in Chapter 9 gives the origins, ument it is detailed, complex, and in various areas objectives, and rules of the GAIT.) open to differing interpretations. But the main ob- The rise and fall of trade liberalization jectives are the reduction of trade barriers and the prevention of discrimination in trade. The means From the end of World War II until 1974, protec- by which these objectives have been pursued in tionism seemed to be in decline. Successive the GAIT include: first, successive rounds of trade rounds of negotiations in the GAIT had cut tariffs negotiations about tariffs, other barriers to trade, on trade in manufacturesfrom an average level of and specific disputes; second, the GAIT rule of 40 percent in 1947 to between 6 and 8 percent for most favored nation (MFN) treatment, which says most of the industrial countrieseven before the 134 Box 8.2 Trade options for the developing countries: intradeveloping country trade Trade among developing countries represents another their exporting to both industrial and developing coun- possible direction for expansion of trade. The share of tries. Such a policy would be preferable because it total developing country manufactured exports going would enable them to find markets for both high- and to other developing countries grew from the early low-skill products, attain "frontier" technology from 1960s to 1981 but fell slightly thereafter (see Box figure the industrial countries, and discourage those infant 8.2). industries which would never grow up to be interna- While the volume of trade in manufactures has been tionally competitive. Given the importance of indus- increasing, developing countries still trade more heav- trial country markets and the threat of protectionism in ily in commodities and raw materials. This is partially a them, for developing countries to liberalize within a result of trade among countries with different resource broader global context might serve both to reduce the endowments as well as trade between primary goods distortions of domestic trade policies which limit intra- exporters and resource-poor NICs. It is also a result of developing country trade and to gain more secure ac- protective policies in the developing countries. The cess to industrial country markets. high incidence of tariff escalation restricts trade in man- ufactures and processed agricultural goods. But it is the web of nontariff barriers_including foreign exchange licensing, special taxes on imports, import licensing and quotas, and health and safety regulations_which Box figure 8.2 Developing countries' exports of is the main constraint on intradeveloping country manufactures by destination, selected years, 1963-85 trade. While protection costs of NTBs cannot be mea- sured precisely, their effect on limiting trade is substan- tial and bears heavily on the types of manufactures Percentage of world exports of manufactures exported by other developing countries. 14 Proponents of increased intradeveloping country trade have suggested a system of special trade barrier reductions among developing countries called the Global System of Trade Preferences (GSTP). In addi- :0 tion to expanded total exports, supporters of the GSTP cite such benefits as increased efficiency from econo- mies of scale, more rapid industrialization through effi- cient use of resources, and stimulation of services con- nected with trade, including shipping, finance, and communications. A recent study has attempted an evaluation of the !!I!!!tII likely trade gains to developing countries from various levels of tariff reductions (Erzan, Laird, and Yeats 1986). With a 100 percent cut in tariffs the increase in intradeveloping country trade could be as much as $14 billion a year. But this would require that all significant NTBs also be abolished, that the elasticity of supply of 1963 1973 '79 '80 '81 '82 '83 '84 '85 exports be perfect, that bottlenecks in transport be- tween developing countries be overcome, and that O To developing countries equitable solutions be found for the asymmetric distri- 0 To industrial countries bution of the increases in trade (most would go to the NICs in Asia, whereas Africa would be likely to suffer a 0 To centrally planned economies terms of trade loss). Even though expanded trade among developing Source: GATT 1986b. countries certainly is beneficial, there is no conflict in last round of multilateral trade negotiations (the 6.0 percent in the European Community, 5.4 per- Tokyo Round, 1974-79) had taken place. Full im- cent in Japan, and 4.9 percent in the United States plementation of the Tokyo Round cuts would (see Table 8.1). In fact, Japan's recent tariff cuts mean that tariffs on manufactures would average have gone further than this. 135 Table 8.1 Tariff averages before and after the implementation of the Tokyo Round and percentage changes in tariffs in the major industrial countries Tariffs on imports from Tariffs on total imports developing countries of of finished and semifinished finished and semifinished manufactures manufactures Percentage Percentage Country or count ry group Pre-Tokyo Post-Tokyo change Pre-Tokyo Post-Tokyo change European Community Weighted 8.3 6.0 28 8.9 6.7 25 Simple 9.4 6.6 30 8.5 5.8 32 Japan Weighted 10.0 5.4 46 10.0 6.8 32 Simple 10.8 6.4 41 11.0 6.7 39 United States Weighted 7.0 4.9 30 11.4 8.7 24 Simple 11.6 6.6 43 12.0 6.7 44 Source: GAIl' 1980, p. 37. Box 8.3 The history of the Arrangement Regarding International Trade in Textiles, or the Multifibre Arrangement In 1935 the United States negotiated the first voluntary because the LTA placed quota restrictions on large ex- export quota on Japanese textile exports. This was de- porters such as Japan, smaller developing countries spite the fact that the U.S. textile industry was already had gained a progressively larger market share. highly protected by tariffs of 40 to 60 percent. Although Among the most rapidly growing were the Asian these tariff levels have been substantially reduced, the NICs. single voluntary export quota has been replaced by the The United States was willing to accept a fairly liber- Multifibre Arrangement (MFA), a worldwide system of al MFA because it wished to broaden the agreement managed trade in textiles and clothing. to include synthetic fibers. As a result, the United Managed trade in cotton textiles, 1961-73 States made concessions on quantitative restrictions. The MFA specified a minimum of 6 percent annual The precursor of the MFA, the Short Term Cotton Tex- growth in imports, more flexibility in negotiating the tile Arrangement, negotiated in 1961 under GATT aus- bilateral agreements in which quotas for each country pices at the request of the United States, was replaced in October 1962 by the Long Term Arrangement Re- were set, and the right of an exporting country to garding International Trade in Cotton Textiles (LTA), transfer quotas among categories of goods and which controlled cotton textile exports for the next ten between years. The Textile Surveillance Body was es- tablished by the GATT to supervise the implementation years. Although the LTA was a multilateral document, it essentially functioned as a set of bilateral agreements of the agreement and to arbitrate disputes arising which allowed importing countries to negotiate quotas from it. on a country-by-country basis and in some cases to MFA H, 1978Si impose unilateral quotas without penalty. The United Kingdom and France, which experienced a MFA I, 1974-77 21 percent increase in textile imports from 1973 to 1977, The LTA remained in place until 1974, when the MFA supported a more restrictive MFA in 1977. The failure took its place. Supporters deemed the new textile of the EC to negotiate quickly with its major suppliers, agreement necessary for several reasons. First, the use the worldwide recession, and increased productivity in of synthetic fibers which were not restricted under the the EC textile industry led to a 16 percent decrease in LTA had increased tremendously. Second, overall pro- textile employment from 1973 to 1977. ductivity in the textile industry had grown substan- MFA II reflected the strong protectionist sentiments tially during this period, which led to a decline in tex- of the EC. It allowed more restrictive quotas than did tile employment in the industrial countries. Third, MFA I. The EC negotiated bilateral agreements with all 136 This picture of a progressive liberalization of bers. This creates new trade flows between them. trade has to be qualified in several respects: But, on the other hand, the union now has a com- Agriculture. Agricultural trade is a clear excep- mon tariff which discriminates against external tion. Far from becoming freer, trade in agriculture suppliers. Goods which were formerly bought became progressively more distorted by the sup- from nonmembers would be replaced by more ex- port given to farmers in the industrial nations. pensively produced substitutes from other mem- Support took the form of severe barriers to im- bers of the union. ports, subsidized inputs, and subsidies to exports. Textiles. A third important exception to the The policies and their costs were analyzed in World general decline in trade barriers is textiles. The first Development Report 1986. international cotton textiles agreement was set up Economic integration. A second qualification in 1961. The Long Term Arrangement Regarding stems from the trend toward economic integration, International Trade in Cotton Textiles followed in which culminated in the enlarged European Com- October 1%2. Its claimed purpose was to control munity. The formation of free trade areas and cus- disruption in industrial countries' markets stem- toms unions has an ambiguous effect upon world ming from imports from low-wage developing trade and welfare. On the one hand, a customs countries. At the same time it was supposed to union abolishes barriers to trade among its mem- provide developing countries with growing access its major suppliers which reduced and in some cases "basket extractor," allows the EC to limit any textile or completely stopped the growth of imports. Although clothing import when it reaches a designated percent- the EC initiated measures to restrict import quotas se- age of the preceding year's total. verely, other industrial countries were quick to follow MFA IV, 1986-91 suit. For the first time, global ceilings were placed on certain categories of "sensitive products" and thereby Despite the severe limitations, textile and clothing ex- put an absolute limit on some types of imports. ports to the industrial countries have continued to grow. In response to this the latest agreement, signed MFA III, 1982-86 in July 1986, specifically adds silk, linen, ramie, and MFA III maintained the restrictions of earlier arrange- jute to the existing fibers in an attempt to finally control ments and added some additional constraints on large trade in all products. In effect, the new agreement will exporters and a "surge mechanism" which limited restrict additional tradeincluding (using 1985 figures) growth of medium-size exporters. Under MFA III, the $813 million of Hong Kong's exports, $368 million of United States negotiated forty-one bilateral agreements the Republic of Korea's exports, and $203 million of with its major suppliers, which covered the growth China's exports (Pelzman, background paper). rate of specific types of clothing and textile exports. MFA IV continues the historic tradition of including The United States also initiated a "call" system, which all conceivable fibers in the MFA and of plugging all the allows the restriction of exports not covered by any "leaks" which allowed imports of clothing and textiles specific bilateral agreement. to grow under the previous arrangements. With the The call system attempts to add a greater degree of inclusion of these natural fibers, the industrial coun- restrictiveness by limiting the export potential of new tries have at least temporarily eliminated the possibility entrants and is therefore particularly harmful to coun- of having trade diverted into non-MFA fibers. Despite tries which are starting at a very low export base. It its elaborate new extension, MFA IV still cannot pre- maintains the status quo in both the industrial and clude the possibility of increased uncontrolled indus- newly industrialized countries at the expense of the trial country exports. It will be through extending in- newer, and possibly more efficient, textile-exporting creasingly restrictive bilateral agreements to every countries. textile producer, as well as the call and basket extractor Under MFA lIthe EC had developed a similar device systems, that the industrial countries will continue to for restricting imports which are not directly covered exert protectionist pressures on developing country ex- by any bilateral agreement. This device, known as the porters. 137 to these markets. In due course, the agreement fected the types of products which developing evolved into the MFA (see Box 8.3). Far from prov- countries traditionally exported. As shown in Ta- ing temporary, the MFA's successively tougher ble 8.1, even after the Tokyo Round reductions, versions have acquired an air of permanence. the average tariffs facing developing countries' ex- The trade of developing countries. Against the ports remained higher than those facing the ex- broad trend of trade liberalization, many develop- ports of industrial countries. ing countries have retained or increased their own Tariff escalation. A particular problem facing de- import barriers; these remain considerably higher veloping countries that would like to expand their than those of industrial countries. But developing manufacturing base by exporting processed ver- countries' exports gained significantly less from sions of their raw materials is tariff escalation. tariff reductions in the GAiT rounds than did ex- Most countries levy higher tariffs on manufactures ports from the industrial nations. This was mainly than on the raw materials used to make them. As because relatively few of the MFN tariff cuts af- explained in Chapter 5, this means that the effec- Table 8.2 Pre- and post-Tokyo Round tariffs for twelve processing chains Stage of Tariff rate processing Product description Pre-Tokyo Post-Tokyo 1 Fish, crustaceans, and mollusks 4.3 3.5 2 Fish, crustaceans, and mollusks, prepared 6.1 5.5 I Vegetables, fresh or dried 13.3 8.9 2 Vegetables, prepared 18.8 12.4 I Fruit, fresh or dried 6.0 4.8 2 Fruit, provisionally preserved 14.5 12.2 3 Fruit, prepared 19.5 16.6 I Coffee 10.0 6.8 2 Processed coffee 13.3 9.4 I Cocoa beans 4.2 2.6 2 Processed cocoa 6.7 4.3 3 Chocolate products 15.0 11.8 1 Oilseeds and flour 2.7 2.7 2 Fixed vegetable oils 8.5 8.1 I Unmanufactured tobacco 56.1 55.8 2 Manufactured tobacco 82.2 81.8 I Natural rubber 2.8 2.3 2 Semimanufactured rubber (unvulcanized) 4.6 2.9 3 Rubber articles 7.9 6.7 1 Rawhides and skins 1.4 0.0 2 Semimanufactured leather 4.2 4.2 3 Travel goods, handbags, and so on 8.5 8.5 4 Manufactured articles of leather 9.3 8.2 1 Vegetable textiles and yarns (excluding hemp) 4.0 2.9 2 Twine, rope, and articles; sacks and bags 5.6 4.7 3 Jute fabrics 9.1 8.3 I Silk yarn, but not for retail sale 2.6 2.6 2 Silk fabric 5.6 5.3 I Semimanufactured wood 2.6 1.8 2 Wood panels 10.8 9.2 3 Wood articles 6.9 4.1 4 Furniture 8.1 6.6 Note: Rates are the unweighted average of the tariffs actually facing developing country exports (under the Generalized System of Preferences, the most favored nation rule, other special preferential arrangements, and so forth) in the EC; Austria, Finland, Norway, Sweden, Switzerland; Australia, New Zealand, and Japan; and Canada and the United States. Source: Balassa and Michalopoulos 1985. 138 tive protection, or protection given to domestic these factors were also present in the period after value added, is much higher than the nominal tar- World War I without any similar expansion of iff. This discriminates against processing in devel- trade and growth.) During this great liberalization oping countries. The Tokyo Round did little or of trade, unemployment was not a serious prob- nothing to reduce tariff escalation. As can be seen lem in the industrial market economies. For the from Table 8.2, it remains a distinctive feature of industrial nations as a group it never exceeded 3.3 protection for products in the twelve processing percent up until the 1973 oil crisis. Indeed, one chains displayed there. motive for creating the GATT was the view that the Despite these exceptions, the general trend up to protectionism of the 1930s had hastened the the early 1970s was one of liberalization of the spread of unemployment from one nation to an- more rapidly growing areas of international trade, other and had deepened the recession (see Box particularly manufactures. Trade did not just grow 8.4). quickly, it grew more quickly than world output. Liberal trade policies were not the only reason for The increase in protectionist measures this. There were other factors: buoyant demand, postwar reconstruction, a catching-up process in From the end of World War II until 1974 the United Europe and Japan on American industrial know- States was a force for trade liberalization. It how, and favorable demographics. (But several of adopted special measures of protection for manu- Box 8.4 "Beggar thy neighbor" icies in the 1930s Inappropriate monetary policies in the United States from idle productive capacity and low prices. The in- and Europe and the subsequent boom and crash of the creased domestic demand for U.S. farm products pro- U.S. stock market are commonly held responsible for tected by high tariffs, for example, was more than off- the Great Depression of the 1930s. Other factors, most set by the loss of export markets. Exports of U.S. notably the U.S. Smoot-Hawley tariff of 1930 and the agricultural products dropped 66 percent from 1929 to retaliation which followed, also contributed to the 1932 (Brunner 1981). This aggravated the decline in worldwide depression. farm prices, which in turn contributed to rural bank Some policymakers in the late 1920s understood the failures. threat to world and national welfare posed by the use Some economists disagree with this assessment of of high retaliatory tariffs. In 1927 and again in 1930 the retaliatory tariffs during the 1930s. They argue that, World Economic Conference met to consider a tariff although tariff levels were substantially raised, they truce. But it was already too late. The Smoot-Hawley made little difference to the volume or direction of tariff was signed into law on June 17, 1930. It raised the trade. They argue that the reason for the drop in the effective rate of tariffs in the United States by almost 50 volume of trade in manufactures during the Depres- percent between 1929 and 1932 and triggered retalia- sion was not beggar thy neighbor policies, but the fall tory tariffs. Spain passed the Wais tariff in July in reac- in the demand for primary commodities. The failure of tion to tariffs on grapes, oranges, cork, and onions. international financial markets and the lack of credit, Switzerland, objecting to new tariffs on watches, em- rather than tariffs, crippled trade. broideries, and shoes, boycotted U.S. exports. Italy re- While a consensus on the causes of the Depression is taliated against tariffs on hats and olive oil with high yet to be reached, it is probable that the beggar thy tariffs on U.S. and French automobiles in June 1930. neighbor trade policies at least added to the severity of Canada reacted to high duties on many food products, the Depression and contributed to the breakdown of logs, and timber by raising tariffs threefold in August international trade. It was the intention of the framers 1932. Australia, Cuba, France, Mexico, and New of the postwar economic order to disallow a repetition Zealand also joined in the tariff wars (Kindleberger of 1930s-style trade policies. Thus the General Agree- 1973). ment on Tariffs and Trade supports tariff liberalization Other "beggar thy neighbor" policies, including cur- and specifies the use of nondiscriminatory, bound tar- rency depreciations and foreign exchange controls, iffs as the only acceptable form of protection except in were used in attempts to improve domestic economies extraordinary circumstances. Despite the rise of the at the expense of foreign countries. The attempt by all new protectionism, it is likely that the memories of the countries to run a trade surplus by cutting imports led Depression have played a role in checking the increas- to a breakdown of the entire system of trade. ing calls for protection. As a result of these policies, all countries suffered 139 the exports of other industrial countries. Only Bra- Figure 8.1 The incidence of export restraint zil and Korea are significant exporters of steel and arrangements on manufactures, 1984-86 automobiles; several other developing countries are affected by NTBs on consumer electronics. The barriers which most affect many developing Number of restrictions' 0 10 20 30 40 countries are the NTBs against textiles and cloth- ing. The manufacture of these products seemed 1984 suitable for many developing countries because, at Automobiles 1985 least until quite recently, the technologies were 1986 simple and relatively labor-intensive. Textiles and 1984 clothing represent approximately 25 percent of de- Electronics 1985 1986 veloping countries' manufactured exports. Each successive version of the MFA has been more re- 1984 Footwear 1985 strictive and has covered more products and ex- 1986 porters (Box 8.3). Machine 1984 A detailed analysis of the extent of NTBs has 1985 been carried out by staff of the World Bank using tools 1986 the UNCTAD/Worid Bank data base on trade mea- 1984 U Steel 1985 sures. It showed that about 17 percent of industrial 1986 countries' imports in 1986 were subject to "hard- 1984 1j[J core" NTBs. Table 8.3 shows the extent of these Textiles' 1985 L F I NTBs for the main industrial regions. It gives no 1986 L _J_J indication of the restrictiveness of the measures; Other 1984 1985 the data simply show the presence or absence of 1986 some measures which may restrain trade. In addition to the formal restrictions shown in the table, many countries make use of other de- The number of restrictions in effect in: vices to protect domestic interests. France, for ex- European Community ample, used an administrative measure to restrict United States the imports of videocassette recorders (see Box O Other industrial countries 8.5). The study also showed that NTBs bear more The number of restrictions for each year is the total of all heavily on the major exports of developing coun- restraint arrangements in effect for that year. Does not include agreements under the Multifibre Arrange- tries than on similar exports from industrial market ment. Excludes restrictions in the United States and in the EC as a economies, mainly because of the much greater group, but includes restraints in effect in individual members of importance of textiles and clothing in the exports the EC and other OECD countries. of developing countries (see Table 8.4). Nontariff Source: GAT1. measures increased significantly between 1981 and 1986, particularly in Canada, the EC, and the United States (see Table 8.5). Some $230 billion of 1981 imports would have been covered by one or facturing in only two instances, apart from the cot- more of the selected NTBs as they applied in 1983. ton textiles arrangement. These, for canned tuna Post-Tokyo Round tariffs are now so low on most in 1951 and carbon steel in 1969, involved only a goods that they represent relatively minor barriers tiny fraction of total U.S. imports. Since 1974, to trade. Even where they remain high, as on tex- however, there have been many more such mea- tiles and garments, the binding constraint on trade sures. Most of them are concentrated on textiles is normally bilateral quotas and voluntary export and clothing, steel, cars, motorcycles, nonrubber restraints (VERs) under the MFA. footwear, color televilions, and citizens band ra- dios. As Figure 8.1 shows, this is generally true of Explanations for the growth of protectionism all industrial countries' restrictions on imports of manufactures. Agricultural and fuel imports are Why has the movement toward a more liberal trad- also subject to NTBs in most industrial countries. ing environment stalled? Is the new protectionism Barriers against goods such as these mainly affect a temporary response to the current crisis or the 140 Box 8.5 The Poitiers effect" The "new protectionism" usually refers to the use of As planned, the "Poitiers effect" severely limited nontariff barriers such as VERs and orderly marketing VCR imports into France. Before the use of Poitiers, arrangements. But it only takes a little ingenuity to more than 64,000 VCRs, mostly from Japan, entered introduce an administrative regulation which can be an France each month for the first ten months of 1981. effective barrier to trade. Afterward, less than 10,000 VCRs cleared the customs In October 1982, citing a "Japanese invasion" in con- point at Poitiers each month, while the rest of the sup- sumer electronics, the French government decreed that ply waited in bonded warehouses throughout the all imports of videocassette recorders (VCRs) would town. Exporters did not passively concede to the have to pass through Poitiers. Although not the most French barriers. Denmark, the Federal Republic of Ger- obvious point of entry, Poitiers could hardly be better many, and the Netherlands, which also export VCRs to suited to the purpose. It is a town hundreds of miles France, filed a complaint with the EC Executive Com- inland from France's northern ports where the VCRs mittee in Brussels, which in turn brought charges are landed. It has a tiny customs crew that is obviously against France at the European Court of Justice for inadequate to the task of clearing hundreds of thou- breach of EC free trade rules. Japan brought its com- sands of VCR imports. As the town where the French plaint to the GATT and then suspended or curbed VCR repelled an earlier invader, the Moors, Poitiers seemed shipments to France. an apt choice. It is not clear what the French hoped to gain from the Moreover, a particularly long and tedious set of cus- use of the Poitiers weapon. The French electronics firm toms regulations were strictly enforced at Poitiers. All Thomas-Brandt did not make its own VCRs, but sold the accompanying documents were thoroughly exam- Japanese VCRs under its own label. It experienced a ined and each container opened. A large number of shortage of these when the government required all VCRs were taken out of their boxes by the customs the imports to go through Poitiers. Shortly after the inspectors, who carefully checked their serial numbers establishment of Poitiers, the EC Commission negoti- and made sure that instructions were written in ated a VER limiting Japan's exports to the entire Euro- French. Finally, a number of VCRs were dismantled to pean Community. This was followed by an agreement make sure that they were actually built in their re- between Thomas-Brandt and Japan's JVC to manufac- ported country of origin. The regional customs director ture component parts in France and later the lifting of responsible for Poitiers said of the new regulations: the Poitiers restrictions. It is likely that several complex "Before the new policy, it took a morning to clear a issues concerning intragovernment and government- lorry-load of video recorders. Now it takes two to three industry relations played a role in the Poitiers scheme. months. We are still clearing consignments that arrived Yet, although the motives remain somewhat obscure, here [three months agol when the policy went into the protective effect of it is clear. effect" (Lewis 1982). beginning of a new trend brought about by a lack rations and international subcontracting may be of faith in an open trading system? If the former, undermining such alliances to some extent). Three the tide of protectionism may ebb with economic factors seem likely to have stimulated such domes- recovery. But if major countries no longer feel that tic interest groups to demand protection in recent their interests are served by the GAiT rules, then years: an open trading system is indeed in peril. Structural changes in trade. Japan's dependence on imports of energy and raw materials forced it to The demand for protection become an even more aggressive exporter of man- ufactures in response to the oil crises and a slow- Protection is demanded by groups who see their down in growth. Since 1978 it has consistently had interests damaged by imports and is supplied by a trade surplus. The rise in Japan's share of im- governments that see their interests served by giv- ports of manufactures from other members of the ing way to these demands. Economic arguments Organisation for Economic Co-operation and De- play a role, but probably a minor one. The demand velopment (OECD) coincided with an increase in for protection has usually involved an alliance of the NICs' share from 1980 onward; the pressure owners and workers (although the international- on some OECD countries' import-competing in- ization of production through multinational corpo- dustries was great (see Figure 8.2). 141 The growth in intra-OECD trade in the 1960s and though the overall balance of trade with the NICs 1970s was largely in intraindustry trade. This is positive, certain OECD industries are under in- meant there was less need to adjust. No industries tense pressure from the NICs' highly competitive needed to shrink to accommodate imports because exports; the labor displaced may not be easily reab- they were able to expand exports. But the exports sorbed by exports. As Table 8.6 shows, the OECD of the NICs tend to be labor-intensive and concen- countries' imports from developing countries have trated on a few products: textiles, clothing, foot- a higher direct labor content than their imports wear, leather, and sporting goods. They import from other OECD countries. The ratios imply that machinery and sophisticated manufactures. Even a billion dollar increase in OECD exports would not create enough jobs to absorb the labor dis- placed by a billion dollar increase in developing Table 8.3 Industrial country imports subject to "hard-core" NTBs, 1981 and 1986 country imports. (But, if such a matched expan- (percent) sion of trade did occur, real incomes would rise, demand would increase, and jobs would be cre- Source of imports ated in other OECD industries.) Industrial Developing countries countries The new markets created in the NICs for OECD Importer exports are intensely competitive. There are no 1981 1986 1981 1986 brand loyalties, and costs of entry are low. This EC 10 13 22 23 has led OECD exporters to demand help from their Japan 29 29 22 22 United States 9 15 14 17 governments. The help could be subsidized loans, All industrial countries 13 16 19 21 measures to tie trade to aid projects, or other forms Note: "Hard-core" NTBs represent a subgroup of all possible NTBs. of concealed assistance to exporters. They are the ones most likely to have significant restrictive effects. Reduced flexibility. As pointed out in Chapter 2, Hard-core NTBs include import prohibitions, quantitative restric- labor markets in Britain and some other European tions, voluntary export restraints, variable levies, MFA restrictions, and nonautomatic licensing. Examples of other NTBs which are ex- nations have changed in ways which have made cluded include technical barriers (including health and safety restric- labor less mobile between occupations and re- tions and standards), minimum pricing regulations, and the use of price investigations (for example, for countervailing and antidump- gions. Because the impact of NIC exports is mainly ing purposes) and price surveillance. Percentage of imports subject to NTB5 measures the sum of the value of a country's import group on industries which tend to be labor-intensive and affected by NTBs, divided by the total value of its imports of that concentrated in regions of high unemployment group. Data on imports affected in 1986 are based on 1981 trade (textiles, clothing, and leather goods), labor mar- weights. Variations between 1981 and 1986 can therefore occur only if NTB5 affect a different set of products or trading partners. ket rigidities cause demands for protection. Table 8.4 Import coverage ratios of a subgroup of NTBs applied by selected industrial market economies, 1981 and 1986 Source of imports Industrial Developing World countries countries CPEs Product coverage 1981 1986 1981 1986 1981 1986 1981 1986 Ore and metals (27, 28, 67, and 68) 12.7 24.7 13.1 29.4 8.6 12.8 26.2 30.0 Iron and steel (67) 29.0 64.2 26.8 65.2 24.8 54.6 58.1 68.2 Nonferrous metals (68) 3.8 6.4 1.9 6.0 6,1 6.4 7.9 8.0 Chemicals (5) 13,2 12.7 13.8 12.9 11.4 12.6 10.5 13.5 Manufactures, not chemicals (6 and 8, less 67 and 68) 18,6 20.5 15.4 17.8 31.3 31.0 41,3 43.0 Leather (61) 8.2 13.9 5.5 17.9 9.9 9.9 3.9 8.5 Textile yarn and fabrics (65) 37.3 39.6 18.6 21,2 57.6 61,4 74.3 75,6 Clothing (84) 67.3 67.4 40.2 38,9 77.1 77.9 74.8 74.9 Footwear (85) 71.3 32.5 65.1 24.1 71.0 27.0 81.5 62.4 Note: The figures in the table are to be regarded as preliminary and subject to revision. Numbers in parentheses refer to SITC codes. The import coverage ratios (the sum of the value of a country's import groups affected by NTBs divided by the total value of its imports of thesegroups) have been computed using 1981 import trade weights. Computations have been made at the tariff-line level and results aggregated to relevant product group levels. The data cover a broad range of NTBs, including pars-tariff measures (for example, variable levies, seasonal tariffs, and countervail- ing and antidumping duties), quantitative restrictions (including prohibitions, quotas, nonautomatic licensing, state monopolies, voluntary export restraints, and restraints under MFA and similar textile arrangements), import surveillance (including automatic licensing), and price control measures. Standards to comply with health and technical regulations as well as excise taxes are not included because the data base information coverage is not even for all countries. The industrial market economies covered are Austria, Canada, EC (excluding Portugal and Spain), Finland, Japan, New Zealand, Norway, Switzerland, and the United States. Source: UNClAD 1987. 142 Effects of recession and instability in the interna- Table 8.6 Ratio of labor content of manufactured tional economy, Slowly growing economies find ad- imports to labor content of manufactured exports justment more difficult and painful than econo- for selected OECD countries, 1980 mies which are growing rapidly. They lack the Trade with Trade with expansion of new activities to absorb the labor dis- OECD developing Country countries countries placed from their "twilight" industries. High aver- age levels of unemployment increase the net costs Belgium 1.06 1.28 France 1.02 1.32 of losing a job and make governments more sensi- Germany, Federal Republic of 1.06 1.31 tive to unemployment caused by imports. All this Italy 0.88 1.15 reinforces demands for protection. Japan 1.08 1.38 Misaligned exchange rates. In the 1980s, in both Netherlands 1.05 1.16 Britain and the United States, appreciating ex- United Kingdom 0.98 1.19 United States 0.94 1.41 change rates meant that import-competing and ex- port industries suffered a severe loss of competi- Note: Imports and exports are valued at 1977 prices. Source: OECD 1985, p. 189. tiveness. Producers and politicians responded with louder demands for protection. Unfortu- nately, the recent depreciation of the dollar has pays no attention to the unintended effects of the failed to stifle these demands. protection on other industries, if the protected in- dustry is a source of inputs to other industries, Recent arguments used to justify special protection then tariffs or controls on imports wifi raise costs and reduce employment in the industries which Those who demand protection offer several eco- use the protected materials. Their job losses may nomic arguments in support. For the most part, exceed those temporarily saved in the protected these are merely variants on the traditional case for industries. protection (Chapter 5). But as advanced by the in- Moreover, if the exchange rate is flexible, an in- dustrial countries, some take on a different slant. crease in protection which reduces expenditure on imports will, if nothing else changes, cause the MAINTAINING EMPLOYMENT. If a rise in imports exchange rate to appreciate. This will reduce causes the sales of an industry to contract, protect- profits in both exporting and import-substituting ing that industry can, at least in the short run, help to maintain jobs. But this neglects the effect of the resulting price increase on demand, focuses too narrowly on the directly affected industry, and Figure 8.2 Share of manufactures imported by the OECD from Japan and the NICs, 1965-85 Table 8.5 Import coverage index of a subgroup Share of total (percent) of NTBs applied by selected industrial market economies, 1981-86 (1981 = 100) NTBs' rom Japan ar d the NICs Importer 1982 1983 1984 1985 1986 Austria 100.0 100.0 100.0 100.0 99.3 Canada 108.6 106.0 108.4 112.1 121.3 ECb 105.7 110.9 113.9 120.8 118.3 Finland 102.5 102.5 102.5 101.0 101.0 Japan 99.2 99.2 99.2 99.2 98.6 New Zealand 100.0 100.0 100.0 92.6 86.1 / Norway 101.1 96.4 94.4 86.6 85.3 the NICs Switzerland 100.4 100.4 100.8 100.8 100.8 United States 105.5 105.6 112.1 119.2 123.0 All 104.6 107.1 110.2 115.3 115.8 1965 1970 1975 1980 1985 Note: The figures in the table are to be regarded as preliminary and subject to revision. The data cover all products other than fuels. Note: The NICs are Brazil and Mexico and the newly industrializ- See note to Table 8.4. ing countries of East Asia. Excluding Portugal and Spain. Source: UNCTAD 1987. 143 industries, which would cause employment to fall through subsidies, not tariffs or import controls. in all tradable goods industries apart from those Subsidies do not raise prices, hurt consumers, or given the increased protection. If, in addition, raise costs to users. But the precedents are omi- trading partners react to the protection by increas- nous. Subsidies often get out of hand and play ing their own trade barriers, the protection to save havoc with budgets. jobs would be not only self-defeating but poten- Some industries are claimed to be essential for tially disastrous. economic reasons. It is not clear why a country What at first seems self-evidentthat protecting should need its own aircraft industry or computer an industry against a surge in imports will save industry if it can buy more cheaply from foreign jobsturns out to be a risky proposition. suppliers. But one extension of this argument may be defensible. If allowing these domestic pro- SLOWING THE PACE OF ADJUSTMENT. A modifica- ducers to collapse meant the creation of a world- tion of the employment argument carries more wide monopoly, which could then raise prices to weight. The idea is to use temporary controls to very high levels, a case for subsidies to preserve allow a slower pace of adjustment on the grounds some competition could be made. But this would that resources may not be very mobile and that be a special and somewhat speculative case. time may be required to retrain labor and allow new investment to take place. The need to slow SUPPORTING NEW (HIGH TECHNOLOGY) INDUSTRIES. down adjustment is acknowledged by the inclu- One variant of the infant industry argument sion of safeguard provisions in most trade treaties (Chapter 4) cites the need to assist new industries such as the GAIT and the Treaty of Rome. The through the learning period (when the local indus- argument is valid, but it can be used to justify pro- try cannot compete with already established for- tection which is far from temporary and in situa- eign firms). Another variant relies on external ben- tions where no effort is made to shift resources efits such as technical spin-offs as a justification for from the area in which comparative advantage has protection. The learning period argument is sub- been lost. ject to the standard criticism that it implies a failure in the capital market. Otherwise, if an industry PRESERVING THE INCOMES OF CERTAIN GROUPS. cannot attract adequate capital to see it through This is one of the main arguments used for the this learning period, investors evidently cannot be protection of agriculture in industrial nations. As convinced that it offers a competitive rate of re- World Development Report 1986 showed, the main turn. It is implausible that the capital markets of effect of such a policy is to push up the price of the industrial nations suffer from such weak- land, which benefits only landowners. Direct in- nesses. True, because of misinformation or inade- come support would be more successful in pre- quate information investors can make mistakes, serving wages in farming at a much lower real cost but why should that be any less true of govern- to the community. In other industries, where there ments, whose economic vision may be clouded by is no factor of production in fixed supply, such as political requirements? land, there is no reason in principle why incomes External economies are another matter. In this could not be supported by protecting the industry, case governments, provided they are well in- but direct income transfers would still be far less formed and pursue the public well-being in a dis- costly. interested way, are necessarily superior to markets because market prices cannot capture genuine ex- PRESERVING KEY INDUSTRIES. Protection for agri- ternalities (Chapter 4). culture, steel, and automobiles is frequently but- tressed with the idea that these industries have USING PROTECTION AS A LEVER TO OPEN MARKETS. strategic importance. One industrial country has Recently, some industrial countries have used the argued that its clothing industry is essential for threat of protection as a lever to open other coun- defense because it produces uniforms for the tries' markets. At first glance this seems an almost army. This shows the lengths to which the argu- benign strategy, opening markets to trade rather ment has been pushed. For many products stock- than closing markets by protection. But it is yet piling is a cheaper way to preserve supplies for another step down the road to managed trade. emergencies than protecting the industry. If an in- Each individual bilateral trade deal may seem in- dustry really is essential, the question is how best significant, but it invites further political action of to preserve it. The orthodox economic answer is the same kind and undermines the system of rules 144 Box 8.6 Reciprocity and fair trade The CAT!' incorporates the principle of first-difference plus is taken to be adequate evidence that it is not reciprocity: mutual and balanced concessions charac- granting equal reciprocal market access. terize tariff negotiations among contracting parties Such demands violate the canons of good economics. other than developing countries. First-difference reci- They lead to unwarranted inferences of unfair trade by procity is thus reciprocity at the margin, reciprocity of rivals and strengthen protectionist forces in conse- changes in trade restrictiveness. First-difference reci- quence. procity has been the principal technique for liberaliz- For export markets, the result has been a tendency to ing trade under successive CATT rounds since World judge openness of markets not by rules, but by quan- War II. tity outcomes for one's exports. Pressures are brought By contrast, full reciprocity implies mutuality and to show "results" and to sign trade pacts to ensure a balance of total market access and of overall tariff and specific market share for one's exports in the other's nontariff restrictions between trading partners. This is domestic market. Voluntary export restrictions are then what is commonly meant by "a level playing field," or matched by voluntary import expansions (VIEs), creat- fair trade. ing a new form of "export protectionism" (Bhagwati Interestingly, the terms reciprocity and free trade, 1987). each arrogating to its advocates the benefit of unassail- For imports, the deleterious effect of the focus on fair able virtue, were in vogue also in nineteenth-century trade lies in the contribution it makes toward turning Britain. Organizations such as the National Fair Trade the twin measures of countervailing and antidumping League and the Reciprocity Free Trade Association had duties, designed to maintain fair competition, into de arisen in the 1870s and 1880s (Bhagwati and Irwin facto protection. When protectionist statements are al- 1987). At the time, they were a response to the erosion lied with notions of fair trade, there is a strong likeli- of economic leadership as Britain confronted the rise of hood that these means will be used by protectionists to Germany and the United States. Now there has been a harass successful foreign rivals. In fact, in both the similar response as the United States and the EC face United States, where countervailing duties are more the rise of the Far Eastern economies. fashionable, and the EC, where antidumping duties Full reciprocity, however, poses a threat to the main- are favored, a trend toward rapid escalation of such tenance of an open trading system. Thus full reciproc- actions, often as a prelude to VERs and VIEs, has been ity has recently been demanded within individual sec- observed. tors (cars, construction, computer chips). This would Given procedures where these actions are often de- deny the flexibility of tradeoffs between sectors that is cided upon by national bodies rather than impartial politically necessary in negotiating reductions in trade arbitrators and no costs are levied against unsuccess- barriers. ful petitioners, the possibility of petitions designed to Again, in recent attempts at trade legislation, reci- harass foreign rivals is always a real one. The probabil- procity has been taken to imply bilateral trade bal- ity of this perverse outcome increases as fair trade sen- ances. The simple fact that a rival enjoys a trade sur- timents gather strength, as in recent years. governing trade in the GATF. Such arrangements trade should take place on "a level playing field" may in any case backfire, as happened with the sometimes go beyond the question of unfair prac- U.S.-Japan accord on trade in semiconductors. tices and attack the very basis of tradedifferences U.S. firms suffered rather than gained from the in comparative advantage. For example, in plead- protection. The failures of the accord seem to have ing for stiffer protection of the garment industry, a sown the seeds of further conflict. labor union representative in the United States put forward a common view: "Apparel produced in COMBATING UNFAIR TRADE. There have been in- countries with abysmally low living standards and creasing demands in industrial countries for "fair virtually no workers' rights threatens living stan- trade" rather than free trade (see Box 8.6). Nor- dards in this country and destroys badly needed mally, unfair trade practices mean such things as employment opportunities for our low-skilled nontariff barriers, covert means to restrict imports, workers" (U.S. Congress, House Committee on government subsidies (direct or indirect) to ex- Energy and Commerce 1985, p. 81). But protecting ports, and dumping (selling to export markets be- U.S. garment production will, at best, preserve low the price in domestic markets). Demands that jobs and incomes for garment workers only at the 145 cost of jobs and incomes elsewhere in the economy Table 8.7 Value and destination of exports and wifi make it more difficult for workers in de- of manufactures by developing and industrial veloping countries to raise their "abysmally low" countries, 1963, 1973, 1979, and 1980-85 (billions of dollars) living standards. Importer The supply of protection Industrial Developing Exporter countries countries CPEs World A combination of domestic and international fac- Developing countries tors seems likely to influence the readiness of gov- 1963 2 1 0 3 ernments to be persuaded by such arguments and 1973 16 7 1 24 1979 53 31 2 86 to accede to demands for protection. Policymakers 1980 63 40 3 106 are influenced by the relative power and persua- 1981 67 45 4 116 siveness of different interest groups in the econ- 1982 67 43 4 114 omy. On the side of protection are the injured 1983 77 42 4 123 1984 96 45 6 147 import-competing industries. On the other side 1985 97 43 9 149 are users of imported products: consumers; retail- Industrial countries ers; industries, including multinational corpora- 1963 48 17 2 67 tions which use the products as inputs; and ex- 1973 222 54 13 289 porting firms. In the past, opponents of protection 1979 552 187 38 777 1980 624 230 42 896 have found it hard to organize effective lobbying 1981 592 251 38 881 against it. The costs of protection seem too small 1982 572 235 36 843 and too diffuse to arouse public opinion, whereas 1983 585 211 37 833 the benefits, such as jobs saved directly in the 1984 648 206 39 893 threatened industries, have appealed to public 1985 696 197 50 943 sentiment. Note: Industrial Countries include Australia, Japan, New Zealand, North America, South Africa, and Western Europe. Developing countries include Africa (excluding South Africa), Asia (excluding DOMESTIC FACTORS. The wfflingness of policy- China and other centrally planned economies), Latin America, and makers to respond to demands for trade barriers the Middle East. CPEs include China and other Asian centrally planned economies, Eastern Europe, and the U.S.S.R. depends partly on the alternatives at their dis- Source: GATF 1986b. posal. For most of the postwar era, governments have responded to rising unemployment with ex- pansionary policies to create new jobs or with re- Table 8.8 Shares of domestic consumption: North Atlantic industrial countries combined gional policies to switch investment to new activi- (percent) ties in the area where unemployment had risen. In Shares of home demand France, Italy, and the United Kingdom, regional policies were used vigorously in the 1950s and Commodity and source 1975 1983 Change 1975-83 1960s. By creating new jobs in the electrical goods Textiles and other light manufacturing industries, they Domestic 83.9 80.6 -3.3 probably helped to cope with some of the labor NAICs 14.8 16.0 1.2 displaced by competition from textile imports and Rest of world 1.3 3.4 2.1 the loss of shipbuilding orders to Japan and Swe- Clothing den. (Whether regional policies brought net gains Domestic 78.6 69.3 -9.3 to these economies is a subject of considerable con- NAICs 12.0 13.0 1.0 troversy.) The much tighter fiscal restraints im- Rest of world 9.4 17.7 8.3 posed upon governments by the need to control Footwear inflation and reduce tax burdens in the 1970s and Domestic 73.1 56.1 -17.0 1980s have reduced their ability to use fiscal poli- NAICs 18.5 23.9 5.4 cies to expand demand and to increase subsidies. Rest of world 8.4 20.0 11.6 In the United States, the policies to assist adjust- Steel ment which were introduced in the trade act that Domestic 85.0 84.5 -0.5 preceded the Kennedy Round have provoked con- NAICs 13.8 14.4 0.6 siderable disillusionment, although the United Rest of world 1.2 1.1 -0.1 States still favors the principle. Other countries, Note: North Atlantic industrial countries (NAIC5) include Canada, European OECD members, and the United States. such as the Netherlands, have experimented with Source: Hamilton (background paper). 146 special assistance for import-displaced workers; they too have been less than satisfied. As their Figure 8.3 World exports of manufactures, policy options have narrowed, governments have 1963 and 1985 been more willing to concede to demands for pro- (percentage shares) tection. Developing countries Centrally planned economies INTERNATIONAL FACTORS. Risk of retaliation also influences governments. The United States and the EC are important customers for each other's exports. Both sides have used retaliation, or the threat of it, to attack barriers against their exports. Most of the developing countries import relatively few manufactures for consumption. The goods they import from OECD nations tend to be neces- 1963 sary inputs into their own production. This makes it difficult for them to produce a credible retaliatory threat. The inability to retaliate may be one reason the developing countries now face the tough bilat- eral constraints of the MFA in textiles and other NTBs in agriculture, footwear, and leather goods. The combination of increasing demands for pro- tection and governments' diminishing will to resist 1985 accounts for the rise of the new protectionism in the 1970s and 1980s. The current multilateral nego- Note: See Table 8.7 for the definition of the country groups. tiations in the Uruguay Round are an opportunity Source: GATr 1986b. to check this trend, but that can happen only if governments make a determined effort. Has protectionism retarded trade? ones instead. The developing countries' share of domestic consumption could, therefore, continue Some analysts maintain that recent protectionism to increase. (Of course, the share could grow still has been more talk than action. The rate of growth faster in the absence of NIBs.) of world exports of manufactures has slowed, but Table 8.8 shows the share of domestic consump- this is adequately explained by recession. If any- tion in North Atlantic industrial countries (NAICs) thing, the exports of developing countries, which which is supplied by domestic producers, pro- have often been the target of protectionist talk and ducers in other NAICs, and the rest of the world. It actions, have grown faster than the industrial shows that in spite of NIBs on textiles, clothing, countries' exports (see Table 8.7 and Figure 8.3). footwear, and steel, home producers' shares of If the increase in protection were in the form of their domestic markets fell in all four categories tariffs, it would be simple to show that they had between 1975 and 1983. This implies that the NIBs retarded trade. But it is nearly impossible to esti- have been porous, which has allowed imports mate the combined effect of NTBs on the quantity from developing countries to rise. But intra-NAIC or value of a country's imports. Many studies have trade also increased as a result of trade diversion. been able, however, to make reasonable estimates Trade in textiles, tightly controlled by the MFA, of the costs of NTBs for individual commodities (or and trade in footwear, also subject to many NIBs, groups) for particular areas. provide good examples of the ways in which de- NIBs should, it seems, reduce the share of con- veloping countries have mitigated the effects of trolled imports in domestic consumption. But the NTBs on their exports. barriers may be porous. Enterprising exporters can increase the value of their exports by improving TEXTILES AND CLOTHING. There was a rapid in- their quality, and hence their value, or by switch- crease in U.S. imports of textiles and clothing from ing from restrained categories of goods to ones not industrial countries in the 1980s (see Table 8.9). In yet subject to NTBs. For example, an exporter can spite of the MFA, imports from developing coun- avoid an NIB on cotton blouses by producing silk tries also grew substantially, albeit less rapidly. A 147 Table 8.9 U.S. textile and clothing imports, 1980 and 1985 (billions of standard yard equivalents) Percentage Increase increase Source of imports 1980 1985 1980-85 1980-85 OECD countries (excluding Japan) 546 2,014 1,468 269 Restricted suppliers 4,339 8,831 4,492 104 China 325 977 652 201 East Asian NICs 2,210 3,784 1,574 71 Japan 461 716 255 55 "New starters" 279 470 191 68 Others 1,064 2,886 1,822 171 All exporters (total) 4,884 10,845 5,961 122 Source: Hamilton (background paper). U.S. government study concluded that these im- slows the development of new ones. It diverts en- ports were in categories of products and fibers not ergies to rent seeking (Chapter 4). covered by existing quotas and from countries not covered by quotas under the MFA. Also, when Estimating the effects MFA III was negotiated, aggregate ceilings on Few studies exist of the costs of protection to de- wider product groups were removed in exchange veloping countries. And they measure only one for cutbacks in quotas. These allowed countries to aspect of the costs: the increase in export earnings diversify rapidly into nonrestricted products. which would arise from reduced tariffs and NTBs. Studies by the World Bank, the IMF, and the Com- FOOTWEAR. The effect of the U.S. voluntary ex- monwealth Secretariat show that the result would port restraint (1977-81) on the Republic of Korea's be substantial export gainsworth several billion exports of nonrubber footwear provides another dollars a year. example of the tactic of switching to unrestricted There have been more detailed studies for indi- product categories and unrestricted suppliers. By vidual countries such as Korea. Restrictions on Ko- switching to rubber-sole shoes, Korea was able to rean exports of carbon steel cut sales to the United increase the volume of footwear exports to the States by $207 million, or 24 percent; but Korea United States by 115 percent during the first year had offsetting gains in the form of higher prices of restrictions. Meanwhile, exporters from nonre- and increased sales to other markets, and the end stricted countries increased their share of U.S. con- result may have been a small net gain. sumption from 4 to 15 percent from 1977 to 1981. Hong Kong faces quantitative restrictions on When the restrictions were lifted in 1981, Korea many of its exports. It seems unique in permitting and other previously restrained exporters in- firms to trade their quota rights. The prices offered creased their share to more than 40 percent of U.S. for these are a good indicator of the rent which consumption. But this was at the expense of do- firms expect to earn from the right to export their mestic suppliers (whose share fell from 49 percent permitted share. This, together with information in 1981 to 29 percent in 1983), not the other devel- on import and export unit values, enables esti- oping country exporters. mates to be made of both the quota rents and the import tariff equivalents of the restrictions. The Net costs to developing countries rents are shown in Table 8.10. They show gainsof of industrial countries' protection $724.6 million over the two years 1982-83 equivalent to 1.4 percent of Hong Kong's GDP. The fact that the industrial countries' NTBs have Such large gains are unusual. Hong Kong is a been porous does not mean that they have done small economy with a high ratio of manufactured no economic harm. Clearly, they have forced de- exports to income. For other economies the rents veloping country exporters to adopt stratagems would be much less significant. And the quota which they would not choose in either a free trade rents are not pure gain. They arise from restric- environment or one in which trade restrictions are tions on exports, so although profits may rise, jobs nondiscriminatory. Protection frustrates compara- and wages in these labor-intensive industries are tive advantage. It shores up dying industries and likely to contract. 148 Losses from voluntary export restraints which are too capital- and technology-intensive for their present resource endowments. Even if VERs brought quota rents sufficient to VERs also divert sales to other exporters. A compensate for lower export volumes, these gains switch from Korean- to Italian-made clothes does could be small in relation to the growth in exports nothing for developing countries, but a switch to which trade restrictions may have frustrated. clothes made in Bangladesh, Malaysia, or Thailand Firms which could have expanded output face a would. Together with Mauritius and Macao, these shriveled market. For many industries that means countries have benefited from Hong Kong firms lost economies of scale, If quota shares are allo- that have set up factories overseas to evade the cated on the basis of historic shares of exports (the restrictions on their exports. These countries gain usual method), the pattern of production would be increased exports and some transfers of invest- frozen and entry by new firms prevented. If gov- ment and technology. But where trade is managed ernments use more discretionary means to allocate through an institution such as the MFA, with its quotas, they immediately create uncertainty and patchwork of increasingly restrictive bilateral powerful incentives for lobbying and corruption. deals, the gains to these new countries could be Entrepreneurs' energies are diverted from man- short-lived. agement to rent seeking. The desire of industrial countries to block loop- Other responses to quotas involve economic holes in their barriers to textile and clothing im- costs. Upgrading quality to increase the profit per ports is likely to limit newcomers to minimal quo- unit exported is common. The evidence is clear tas (despite a special provision for new suppliers) from sales of Japanese cars in the United States in MFA IV. Evading restrictions by upgrading or by and Britain and from developing countries' ex- product diversification is likely to become harder. ports of clothing and footwear. Diversification into This may deter newcomers from their first, and new markets and new products is another fre- most natural, step up the ladder of comparative quent response. But, on the face of it, both product advantage: exporting textiles and clothing. What upgrading and diversification seem likely to be does this imply for the future? Should developing costly; otherwise the firms would have adopted countries be more wary of following outward- these procedures without the spur of the VER. In oriented strategies in a world of slower growth and other words, VERs seem likely to push countries perhaps continually rising protection? up the ladder of comparative advantage faster than Such a response would be unfortunate. As market forces would take them into products Chapter 5 pointed out, recent revival of export pes- Table 8.10 Estimates of rent income to Hong Kong from voluntary export restraints on clothing, 1981-83 (millions of 1984 dollars) Total Country 1981 1982 1983 1982-83 European Community Denmark 4.3 3.2 3.1 6.3 France 3.3 2.3 1.4 3.7 Germany 86.9 19.9 39.0 58.9 Italy 0.4 .. United Kingdom 71.9 36.4 26.2 62.6 Belgium-Luxembourg' 2.1 0.6 0.6 1.2 Netherlands' 10.1 4.4 4.7 9.7 European Free Trade Association Austria 0.9 .. Finland . 0.1 0.2 0.3 Sweden 24.3 24.7 21.8 46.5 Switzerland 0.0 0.0 0.0 0.0 Total Europe 202.9 92.9 97.6 190.5 United States 124.9 409.2 534.1 Total Europe and United States 217.8 506.8 724.6 a. Derived from the weighted average tariff equivalent of the other EC countries. Source: Hamilton 1986. 149 simism has been an exaggerated response to the Retaliation is an easier policy to understand than threat of protectionism. But if the worst were to liberalizationespecially when resources are happen and the industrial nations were to increase stretched. protection, how should developing countries re- act? The best response is flexibilitythat is, the Net costs to industrial countries of their ability to shift resources rapidly from an export own protection where sales are proving difficult to an export or import substitute where profit opportunities are OECD governments seem to recognize the merits now superior. This seems more likely to be done of free trade. Every act of special protection tends successfully where managers in developing coun- to be accompanied by a claim that its advocates are tries are faced with international prices and the against protectionism. Each proposal for protec- requirement to make profits than where they are tion has a specific objective, and specffic argu- sheltered by protection. Their decisions should ments are advanced for it. These are based on the take account of different levels of risk in different view that benefits from achieving the objective will activities in exporting or replacing imports. But, of exceed the costs of the protective measures. But course, this is politically a difficult line of action to the governments may be wrong in that assess- follow. The instinctive reaction to increased pro- ment, or the objectives may be attainable at lower tection, encouraged by the idea of reciprocity, is to cost. For example, the injury to workers whose respond with increased protection of one's own. jobs are lost as a result of import penetration may Table 8.11 Some estimates of the costs to consumers of protection in selected sectors (millions of dollars) Sector and country Year and source Cost Clothing United States 1984 8,500-12,000 (Hickok 1985) United States 1984 18,000 (Hufbauer, Berliner, and Elliott 1986) Textiles United States 1980 3,160' (Munger 1984) United States 1981 2,000-4,000' (Wolf 1982) Textiles and clothing United States 1980 18,400 (Consumers for World Trade 1984) Steel United States 1980 7,250 (Consumers for World Trade 1984) United States 1984 2,000 (Hickok 1985) Specialty steel United States 1984 520 (Hufbauer, Berliner, and Elliott 1986) Automobiles United States 1983 1,109 (Tarr and Morkre 1984) United Kingdom 1983 265 (Greenaway and Hindley 1985) Videocassette recorders United Kingdom 1983 121 (Greenaway and Hindley 1985) EC 1984 459 (Kalantzopoulos 1986) Note: Values in dollars for costs in the United Kingdom are based on average market exchange rates for the period as reported in IMF, International Financial Statistics. Sources are referenced in full in the Selected bibliography. Tariffs only. Quotas only. 150 Table 8.12 Some estimates of the welfare costs of protection in selected sectors (millions of dollars) Sector and country Year and source Cost Clothing Canada 1979 92 (Jenkins 1980) EC 1980 1,409 (Kalantzopoulos 1986) United States 1980 1,509 (Kalantzopoulos 1986) Textiles and clothing United States 1984 6,650 (Hufbauer, Berliner, and Elliott 1986) Steel United States 1985 1,992 (Kalantzopoulos 1986) Specialty steel United States 1984 80 (Hufbauer, Berliner, and Elliott 1986) Automobiles United States 1981 327 (Feenstra 1984) United States 1983 2,192 (Kalantzopoulos 1986) United States 1983 994 (Tarr and Morkre 1984) Videocassette recorders EC 1984 422 (Kalantzopoulos 1986) Note: Values in dollars for costs in Canada are based on average market exchange rates for the period as reported in IMF, International Financial Statistics. Sources are referenced in full in the Selected bibliography. be compensated more cheaply by a combination of protection is removed. But these are normally financial compensation, retraining, and new job short-run, once-and-for-all costs whereas the gains creation than by protection of the contracting in- from trade go on indefinitely. dustry. Often, normal retirements and reduced re- cruitment are sufficient to reduce employment, COSTS TO CONSUMERS. Table 8.11 sets out esti- without the need for dismissals. Protection, for mates of the costs to consumers of protection in reasons argued below, may not even succeed in various industries in the European Community, preserving threatened jobs. Textiles, clothing, and the United Kingdom, and the United States. For steel have been the most heavily protected indus- textiles and clothing, all of the estimates for the tries, but between 1973 and 1984 the numbers of United States amounted to many billions of dol- workers employed in North America and the EC lars. The same is true for standard grades of steel. declined inexorably, by 54 percent for U.S. iron For cars the estimates are just over $1 billion for the and steel and by 46 percent for EC textiles. United States and $265 million for the United Kingdom. For the EC the cost of protecting video- Evidence on the costs of protection cassette recorders is estimated at nearly half a bil- lion dollars. The costs of protection are complex. Most analysts have contented themselves with measuring only WELFARE COSTS. Table 8.12 shows estimates of the simplest ones, and these are difficult enough. the broader welfare costs. This concept recognizes Estimates generally ignore the effects of competi- that what matters is the extra cost to the economy tion on managerial efficiency, or of trade on the as a whole of producing more of the goods domes- acquisition of new techniques, on economies of tically rather than importing them. It is a net cost, scale, on saving, and on investment. As a result, because the extra price paid by consumers goes most estimates are probably too low. Most, how- partly to local producers whose production ex- ever, also omit the adjustment costs incurred when pands to replace imports and partly to the govern- 151 $40,000 and $108,500 a year. Looked at another Figure 8.4 The cost to consumers of preserving way, in the United Kingdom the cost to consumers a job in selected industries, 1983 of preserving one worker in car production was equivalent to four workers earning the average in- Industry Thousands of dollars dustrial wage in other industries. In the U.S. car industry, the equivalent cost would be the wages U.K. cars of six ordinary industrial workers (see Figure 8.4). VERs in the U.S. steel industry cost consumers $114,000 per protected job each year. For every dol- lar paid to steelworkers who would have lost their U.S. cars jobs, consumers lost $35 and the U.S. economy as a whole lost $25. ARE JOBS REALLY SAVED? It is of course question- U.K. videocassette able whether protection can do any more than recorders temporarily preserve some jobs in the protected industry at the expense of jobs in other industries in the economy. The extra cash spent on steel and U.S. steel VCRs implies less cash to spend on other goods and services and therefore fewer jobs in produc- tion of these other goods and services. Even in the protected sector the effects of protection on saving 0 50 100 jobs are usually small. British and American VERs on Japanese car ex- Note: Each the average industrial wage in the relevant ports stimulated imports of similar cars from the country. Thus, for example, the cost of preserving the job of one British carworker is equivalent to the wages of four British indus- rest of Europe. Much of the effect of the MFA was trial workers. Average industrial wages are based on the earn- to divert trade from some developing country sup- ings of male manual workers in the United Kingdom and the earnings of nonsupervisory industrial workers in the United pliers to others and to other OECD suppliers. The States. textile industry has invested heavily in capital- Source: For U.K. cars and VCRs: Greenaway and Hindley 1985; for U.S. steel: Tarr and Morkre 1984; for U.S. cars: Kalantzo- intensive production methods, because of controls poulos 1986. on imports which yielded economic rents to do- mestic producers and (in many countries) because of subsidies for new capital equipment. The indus- try's new technology has displaced workers at a much higher rate than imports. In the United ment in revenue from the tariff. (Where protection States, the new jobs in textiles have been located in is by quotas, importers will usually gain at the ex- the South rather than in New England and are for pense of consumers. Where it is by VERs, foreign a type of labor different from before. Geographic suppliers will normally capture the benefit of the and skill barriers have meant that protecting tex- increased price.) Normally, the welfare cost will be tiles did little to save jobs or reduce costs of adjust- considerably less than the consumer cost ment. Even when protection has a positive effect particularly for tariffs or quotas (Chapter 5). Even on output in the domestic industry, it tends to be so, the estimates for textiles and clothing range small in relation to macroeconomic change. For ex- from $1.4 billion to $6.6 billion in the EC and the ample, the 1982 United States-Japan VER on cars United States, and for steel in the United States is estimated to have increased demand for domes- the estimate is approximately $2 billion. tic production by 100,000 units, less than 1 percent of industry sales. By contrast, stagnation and high THE COST OF PRESERVING A JOB. The striking fact interest rates in the U.S. economy reduced de- about protection to preserve jobs is that each job mand by about 4 million units in 1982 compared often ends up costing consumers more than the with 1978. worker's salary. For example, each job preserved Protection has not been particularly successful in in the car industry in Britain is estimated to have maintaining jobs or reducing adjustment costs cost consumers between $19,000 and $48,000 a even in the protected industry. For the economy as year. In the United States the cost was between a whole, because of the intersectoral and macroec- 152 onomic effects, it probably lowered employment. exporters to OECD suppliers. The response of the Few jobs have been saved, and the costs have been developing countries has not been costless. inordinate. The industrial countries bear the main costs of their own protection. Estimates of the costs seem Conclusion small in relation to GNP, but they are probably underestimates. Moreover, the appropriate test is Protectionism has been growing since the mid- not to compare the costs with GNP. As with any 1970s. Measures such as VERs and orderly market- economic policy, protection should be evaluated ing arrangements have been porous. The NICs on the balance of costs and benefits. On that basis and some other developing countries have been protection should win few friends. ingenious in finding ways to penetrate these mea- Traditionally, pressure for protection eases when sures or to turn them to their advantage. Never- a new round of trade negotiations is in the offing. theless, the measures have had adverse effects. This reinforces the need to make a success of the The increased coverage and tighter administration new multilateral trade negotiations. The best way of the MFA and increased vigilance in administer- to overcome protectionism is to renew the momen- ing NTBs may mean worse to come. As it is, pro- tum of progress toward multilateral liberalization tection has diverted trade from developing country of trade. This is the subject of Chapter 9. 153 Toward a more open trading system An open trading system is a key to sustained in- mine the drive toward outward-looking policies dustrial expansion. With trade, enterprises are not and turn many developing countries back toward limited to narrow domestic markets, but can ex- autarky, which would damage their prospects of pand to sell their goods and services around the improved efficiency and growth. world, Open trade, in turn, requires a framework Further erosion of the GATF rules would deprive of rules. Since 1948 such a system has existed in governments of a useful appeal to external author- the articles and codes of the General Agreement ity. Although the GAiT has no direct sanctions to on Tariffs and Trade. Ninety-three countries are use against nations that break its rules, it provides full signatories; in all, about 122 countries follow a forum for dispute settlement. It also derives the GATF rules in principle and receive GATIT moral authority from its contractual nature. Gov- treatment from the signatories. About 80 percent ernments can cite their obligations to GAIT rules of the world's trade is affected by, although not when resisting pressures for protection. This necessarily in conformity with, the GATT rules. makes strengthening and, where necessary, re- As Chapter 8 showed, the share of trade that is forming the GATT vital to all nations, especially transparent and nondiscriminatory is shrinking. the weaker ones. The international economic order has shown signs Developing countries have powerful reasons for of weakening under the strains of stagnating taking a more active part in the latest round of growth and the need to adjust to international in- multilateral trade negotiations (MTN) than they debtedness and structural change. The symptoms have in the past. In previous rounds, few offered of growing disorder show in the increased de- to reduce their trade barriers. They relied upon the mands for protection, the shift from tariffs to dis- most favored nation rule to bring tariff cuts as a by- criminatory restrictions on trade, and the move- product of negotiations among the industrial na- ment from transparent to opaque protective tions, and they also relied on "special and differ- measures such as quotas, voluntary export re- ential" treatment accorded them in the GAiT to straints, and subsidies. The dangers in these gain additional tariff concessions. This may not trends are that protection will increase and have been the best strategywitness their rela- that the fundamental principles of the GAIT tively small gains from the Generalized System of nondiscrimination in trade and transparency in Preferences (GSP) and other preferential schemes methods of protectionwill be abandoned. for developing countries, the fact that tariffs on Such a breakdown in the "rule of law" is against manufactures have fallen less on products of spe- the interests of all trading nations, but the devel- cial interest to developing countries, and the in- oping countries would stand to lose most. In a crease in the breadth and severity of the nontariff world where bilateral arrangements became the barriers that discriminate against them. norm, developing countries' lack of bargaining The new MTN, the Uruguay Round (so named chips would place them in a weak position. Fear of because the meeting of ministers which initiated losing access to adequate markets could under- the negotiations was held in Punta del Este), offers 154 developing countries the chance to take a more GAIT rules quantitative restrictions are permissi- active approach. That may involve identifying in- ble, but only on a strictly temporary basis, to deal terests which they share with other developing or with a balance of payments deficit or as an emer- industrial countries, forming coalitions, and pur- gency safeguard action under GATT Article XIX. suing a common objective. Recently such coali- Another requirement is that they be nondiscrimi- tions have formed: one coalition of agricultural ex- natory. Most of the quantitative restrictions intro- porters, both industrial and developing countries, duced in recent years have breached this principle. did so and showed it had the ability to bargain. They have generally taken the form of selective Another group had an impact on the way in which restraints which have discriminated between im- the services issue is being handled in the Uruguay ports from different countries. Round. For the developing countries this is sanctioned In the GAiT the process of negotiating reduc- by the GATF on the grounds that their circum- tions in trade barriers is based on the principle of stances are special and that most developing coun- reciprocity. Nations reduce their tariffs in the tries tend to have chronic balance of trade deficits. knowledge that other countries are making equiva- But the industrial nations are either in breach of lent cuts in theirs. This has clear political advan- the GAIT (for example, when they pay subsidies) tages: it seems fair and attracts the support of ex- or outside the GAIT (for example, when they set porting industries. But the developing countries voluntary export restraints or orderly marketing which sought and obtained special and differential arrangements). The Multifibre Arrangement has treatment within the GAIT are exempt from mak- an ambiguous position. Legally it is a separate in- ing reciprocal tariff cuts. strument, but it was negotiated under GATF aus- The combination of reciprocity for industrial pices and is administered by the GATE Despite countries and special and differential treatment for this, it is clearly inconsistent with the GAIT princi- developing countries has meant that negotiations ples (see Box 9.1). have focused mainly on items of interest to the A major failure of the GATF negotiations has industrial countries. When developing countries' been lack of progress toward liberalizing trade in markets for imports were small they had, in any agriculture. The industrial nations, for reasons dis- case, little to offer. Now some developing coun- cussed at length in World Development Report 1986, tries' domestic markets are big and getting bigger. have kept and even increased their restrictions on For them at least, some reduction and binding of imports and their subsidies to production and ex- their tariffs or other trade barriers could gain recip- ports of agricultural products. rocal concessions from the industrial countries. If From the start, the GAiT rules exempted cus- they do not deal multilaterally through the GATT toms unions and free trade areas from the MFN negotiations, some developing countries wifi find rule. Members of these groups are permitted to that industrial nations wifi press less advantageous reduce or eliminate trade barriers against each oth- bilateral deals upon them. Instances of this have er's exports, so long as they meet certain criteria already occurred. (for example, they must not increase trade barriers Most developing countries would benefit by re- against the rest of the world and should progress ducing their own levels of protection. But the costs fairly rapidly toward substantially free 'trade within of adjustment would be less, and the benefits even the group). Since 1979 the GAIT has also allowed greater, if they could gain greater access for their developing countries to receive special preferences exports to the markets of industrial countries. In- or to extend them to each other. The degree to deed, to achieve faster growth they need access. which customs unions, free trade areas, and other This requires that trade barriers not increase and, exceptions to the MFN rule have been exploited preferably, that they decline. For developing coun- may not have been envisaged by the founders. tries, significant gains from the Uruguay Round Trade in services and trade between the subsid- will require their full and active participation. iaries of multinational corporations are also out- side the GAIT rules. The rapid growth of multina- Problems with the trading system tional corporations means that intrafirm transactions are now a large and expanding share The main success of the GAIT since 1948 has been of world trade. The trend has implications for taxa- the dramatic reduction in tariffs on trade in manu- tion and foreign exchange control which are caus- factures. Quantitative restrictions, however, have ing concern to many members of the GAIT. An- returned in new forms since the 1970s. Under other development which has allowed a large 155 Box 9.1 Origins and objectives of the GATT The foundation of today's international economic sys- what kind of barriers they would face at the border and tem was laid in 1944 at the Bretton Woods Conference so were discouraged from exporting. Consequently, when the World Bank, the IMF, and the International the GATT emphasized the use of bound tariffs over less Trade Organization (ITO) were initiated. Together transparent forms of protection such as quotas. these institutions were intended to ensure a recon- Third, the GATT adopted reciprocal reductions in tar- structed Europe, stable international monetary rela- iff barriers as a means of mobilizing political support tions, and an open and orderly trading system. for reducing the worldwide level of protection. Coun- Because of objections that its enforcement provisions tries could have some assurance that their exports as would interfere with the autonomy of domestic policy- well as their imports would increase without causing a making, the ITO charter was never ratified. Instead, worsening of their terms of trade. The tariff cuts in turn the GATT, which had been drawn up only as an interim were applied to all GATT signatories because of MFN agreement to fill the gap until the ITO was ratified, treatment. became the framework for the international trading GATT regulations allow countries to use protective system in 1948. Today there is a small GATT secretariat, measures in case of balance of payments difficulties or which is responsible for overseeing the settlement of as a safeguard against a sudden surge of imports which trade disputes, serving committees on special trade is- threatens a domestic industry (see Box 9.4). These mea- sues, and monitoring compliance with GATT regula- sures, however, are supposed to be temporary, to con- tions. The GATT's membership has grown from form to GATT provisions on nondiscrimination, and to twenty-three nations in 1948 to ninety-three full signa- be subject to compensation or retaliation by injured tories today. exporters. The GATT also permits the use of selective The main objectives of the GATT reflect the desire of duties in cases where exporters are found to be subsi- the founding members to prevent a recurrence of the dizing exports or dumping. In these cases the importer protectionism of the 1930s, which they believed deep- can raise the tariff on the individual exporter's product ened the Great Depression and helped give rise to by an amount equivalent to the subsidy or to the differ- World War II. First, the GATT embraced nondiscrimi- ence between the exporter's home- and foreign-market nation or most favored nation (MFN) treatment to pre- prices (see Box 9.5). vent the cycle of selective retaliations and countermea- Because the international economic environment is sures fostered by discriminatory trade. This means, for no longer the same as it was in the 1940s and countries example, that footwear from Canada and footwear have adopted new protectionist instruments, the GATT from Brazil or from any other signatory should face an often seems inadequate for the task of promoting an identical tariff when imported into France. Because open trading system. The GATT explicitly disallows MFN rules prevent an importing country from using many of the discriminatory quota restrictions and other tariffs selectively, the country is less likely to raise its trade barriers in common use by its signatories today. protective barriers and risk retaliation. As with all organizations, especially those with no en- Second, uncertainty and lack of transparency in forcement power, the GATT can only be as effective as trade policies in the prewar period created tension be- its members allow it to be. tween countries. Foreign producers could not be sure volume of trade to bypass the GATF rules is the conforms to GAiT rules is shrinking steadily. A set growth of countertrade, in which goods are bar- of laws which is more breached than obeyed is tered for goods in bilateral arrangements. Long likely to lose all capacity to command respect. normal in the trading relationships of the centrally Since the GAiT was founded the players on the planned economies, the practice has now spread international scene have changed. In 1948 only the to many other countries. Western industrial countries were important in in- The effect of these developmentscontinued ternational trade. Since then Japan has become a protection in agriculture; the management of trade major trading nation. Developing countries' share in textiles, clothing, and steel and similar tenden- of world trade has increased. New trading blocs cies in footwear, cars, and electronics; the spread have appeared, of which the European Commu- of special trading relationships, the growing im- nity is by far the most important. Most of these portance of multinational corporations; and the blocs conform to the GAiT articles, but they do growth of barteris that the share of trade which mean that a large volume of trade is not subject to 156 the most favored nation rule. The Generalized At first sight this is surprising. VERs are particu- System of Preferences, which grants developing larly costly to the country that uses them to restrict countries some tariff preferences in industrial imports. Not only does a VER inflict the same costs countries, and other preferential arrangements for as a quota, by raising prices to consumers and developing countries, such as the Lomé Conven- switching resources from more efficient to less effi- tion, also conform to the GATF. But they too in- cient uses, it also transfers rents to foreigners by volve discrimination in trade (see Box 9.2). allowing them to raise their prices (Chapter 5). Of- One cause of increased strain in trade relations ten it has the additional effect of reducing the vol- has been the growth of government involvement ume of cheap, lower-quality imports as exporters in the management of the national economy. Gov- raise the quality of their products and their profits ernments have accepted responsibility for main- per unit in the restricted market. taining full employment and regional equity and Despite these disadvantages governments for meeting other social objectives. Various indus- clearly prefer VERs to legitimate GATT instru- tries were nationalized in many of the European ments. Indeed, GATT statistics show that since nations. The growth of the public sector has in- 1978 VERs have outnumbered Article XIX safe- creased the importance of government procure- guard actions by more than 3 to 1. (By value of ment. Such activities have been the breeding trade affected, this actually understates the growth ground of nontariff barriers. Government procure- of VERs.) The reasons are largely political. Con- ment typically favors local suppliers. Nationalized sider the pros and cons, as perceived by govern- industries attract subsidies and protection. Re- ments, of invoking Article XIX compared with ne- gional subsidies intended to attract new industries gotiating a VER if a domestic industry demands to areas of high unemployment can also affect the protection. relative costs of exports or import substitutes and Under Article XIX the importing country's gov- thus risk running afoul of GATT rules. A good deal ernment has to claim that the increase in imports is of trade friction among the European nations, Ja- causing or threatening serious injury to its domes- pan, and the United States has arisen over such tic industry (see Box 9.3). If the government is sat- matters. Some developing countries have also at- isfied on this count, it can apply a tariff or quota to tracted attention for their alleged subsidies to ex- this type of import. But it must apply the restric- ports. tion to all the nations which export to its market, On top of these mounting tensions has come the not merely the offending country. This is a deter- shock of recessions, monetary instability, interna- rent to the use of Article XIX not only because tional debt, slow growth, and extremely high lev- the restriction could harm the export interests of els of unemployment in many industrial nations. powerful nations, but also because nations which In these circumstances, adjustment to surges of see their interests harmed can demand compensa- imports or to a rapid decline in certain industries' tion in the form of the removal of restrictions on an comparative advantage is difficult. The difficulties equivalent amount of other imports. If they are not are particularly great in economies which may compensated, they are entitled to retaliate in a re- have ossffied as a result of past protection, govern- ciprocal manner for the injury done to them. ment assistance, and lack of labor mobility. Clearly, there will be many cases in which a gov- ernment will hesitate before embarking on this The attraction of nontariff barriers dangerous route. How much better to call in the representatives of the "offending" exporter for a Countries can restrict imports in many ways apart quiet discussion of the need for restraint on their from tariffsfor example, by using quotas, volun- "overenthusiastic" penetration of the domestic tary export restraints, and orderly marketing ar- market. rangements. Antidumping or countervailing duty actions, surveillance, and health and safety stan- Targets for reform dards can be used to create uncertainty and harass foreign exporters. In GATT parlance most of these The weaknesses in the original GATT framework are "gray area" measures, meaning that they are and major changes in the postwar international en- "either inconsistent with countries' obligations to vironment have undermined the liberal interna- the GATT or are of uncertain consistency with the tional trading system. The GATT faces a barrage of GAIT" Of these, the most frequently used today disputes. Without a new commitment to the prin- is the voluntary export restraint. ciples of the GATT, the trading system will see an 157 Box 9.2 The Lomé Convention The most important regional agreement providing spe- Box table 9.2A EC trade arrangements with the devel- cial and differential treatment is the Lomé Convention. oping countries in order of preferential treatment Signed in 1975 and renewed in 1979 and 1984, it gives a Country Trade agreement group 'of sixty-six African, Caribbean, and Pacific ACP: African, Caribbean, (ACP) countries preferential access to EC markets. The and Pacific countries Lomé Convention Lomé accord differs from the Generalized System of Maghreb countries: Algeria, Preferential trade and Preferences in that it encompasses more than simple Morocco, Tunisia cooperation agreements tariff reductions. It includes the relaxation of some Mashreq countries: Egypt, Preferential trade and nontariff barriers, less stringent enforcement of some Jordan, Lebanon, Syria cooperation agreements trade regulations, and exemptions from certain multi- Israel, Yugoslavia Preferential trade and lateral trade agreements such as the MFA. Like the cooperation agreements GSP, however, the Lomé accord is subject to regula- with each country tions which severely limit "free access" for beneficia- Cyprus, Malta, Turkey Association agreements ries' exports, including a safeguard clause which al- lows the EC to suspend any concession unilaterally. Other developing countries Generalized System of Preferences One problem with all such preferential trade schemes is that they amount to a "zero-sum game": Bangladesh, India, Pakistan, Nonpreferential corn- Sri Lanka mercial cooperation preferential treatment for one country or group of agreements with each countries is gained at the expense of others. Chris- country topher Stevens describes special and differential treat- Association of South East Regional framework ment as a "pyramid of privilege" where "those at the Asian Nations (ASEAN): agreement top receive more favorable treatment than those at the Indonesia, Malaysia, Philip- base" and where all those in the pyramid do better pines, Singapore, Thailand than other countries (see Box table 9.2A). The pyramid Argentina, Brazil, Nonpreferential corn- is in fact a shifting one. As one country or group ad- Mexico, Uruguay mercial cooperation vances toward the top, it necessarily pushes others agreements with each down. Portugal, for instance, was once near the base. country After joining the EC it moved to the top, above all non- Central America Regional framework EC members. agreement 1986 One would assume that the Lomé Convention, in China, Romania Nonpreferential trade granting preferential tariff rates and exemption from agreements with each the MFA, would have to be beneficial to the ACP coun- country tries. On the contrary, empirical evidence shows that Son rce Stevens (background paper) 1986, I Box 9.3 Reform of the emergency safeguard code: GATT Article XIX The existing provisions may be injured, and if they are not satisfied (for exam- Unforeseen emergencies can always arise, so most ple, by compensation such as cuts in tariffs on other trade treaties make some provision for releasing a products which they export to the country), they can country from its obligations if damage to an industry retaliate with the withdrawal of an equivalent conces- may result from a surge in imports. The GATT is no sion. exception, and Article XIX is its emergency safeguard code. A country may impose a tariff or a quota to re- Proposed reforms strain imports which "cause or threaten serious in- Two extreme positions can be held on reform of Article jury" to domestic producers, provided that: XIX. First there is the view that it is too easily abused. The development was unforeseen at the time of It does not define "serious injury," and including the tariff cuts. "threat of injury" makes it much too easy to claim an The country warns major suppliers and notifies emergency. It allows either a tariff or a quota to be the GATT. placed on the injurious imports. There is no time limit The country maintains the import restraint for on the duration of the restriction. Supposedly tempo- only as long as "necessary to prevent or remedy the rary protection too often seems to become permanent. injury." Finally, nations may find it difficult to make compensa- The country seeks agreement from suppliers who tory cuts in protection on other imports from the coun- 158 there has actually been a decrease in trade between special and differential treatment. Perhaps, in the face ACP countries and the EC. In the pre-Lomé period of rising protectionism in the industrial countries, the 1970-75, the ACP share of EC imports from the devel- very existence of an accord which promotes trade pro- oping countries was 20.5 percent. In 1975-84 the ACP vides policymakers with a lever against future protec- share dropped to 16.6 percent. When oil exports are tionist demands in the EC. discounted, no significant change is found in the growth of trade between the ACP countries and the EC (see Box table 9.2B). Although the ACP countries as a group have not done better under the Lomé, there have been gains at the margin. Among those countries which were "non- associated" with EC members before the convention, there was an increase in ACP imports. Box table 9.2B Trade shares: the EC and the ACP Analysis of the ACP exports by commodity shows countries some trade-creating effects. From 1975 to 1980, eleven (percent) ACP countries increased exports of manufactures and Time period processed agricultural and temperate agricultural goods. These exports covered seventy-five product cat- Pre-Lomé, Lomé I, Lomé II, Share 1970-75 1975-79 1979-84 Average egories. Up until 1984, this process of diversification had continued: ACP exports were recorded in 128 cate- EC share of ACP exports 45.6 38.7 36.7 37.7 gories. It is important to note that these diversifying countries included both middle- and low-income mem- EC share of non- bers of the ACP, for example, Benin, Central African oil ACP exports 46.3 47.1 41.9 44.5 Republic, Ethiopia, Mali, Tanzania, and Zaire. Just ACP share of over half of the sixty-six countries diversified into at total EC imports least four new products. Yet, one cannot be certain if from developing this diversification was due to preferential treatment of countries 20.5 16.4 16.9 16.6 certain goods or to developing countries' attempts to ACP share of skirt trade barriers by diversifying into "free" prod- total EC imports ucts. from non-oil- What then has been the net effect of the special and exporting devel- differential treatment of the ACP countries? It is diffi- oping countries 27.3 22.8 20.1 21.5 cult to state categorically where they would be without Source: Stevens (background paper). tries whose export is restrained by the Article XIX re- conforms to the rules. striction. The second view is represented by those (mainly the On this view, recommendations for reform are as European Community) who argue against applying follows: the MFN requirement. They see no reason to injure There should be a time limit on the application of exporters who are causing them no problems when the import restraint. there is a need to deal with one country whose exports The restraint should be progressively relaxed are disrupting their domestic industry. They want to (made degressive over time). be free to take selective safeguard action against the The restraint should be a tariff; a quota should be disrupter. They buttress their argument with the point permissible only in urgent cases. that the MFN requirement is the main reason for the The restraint should be nondiscriminatory to con- drift to VERs. If the MFN requirement were abolished, form with the general MFN rule of the GATT. the VERs would largely disappear, nations' safeguard Compensation, certainly in its current form, actions would be brought back within the GATT, and should be abandoned, although other forms of com- the "rule of law" would be restored. This is rather like pensation could be considered. solving the drug problem by legalizing cocaine. Retaliation by exporters should not be permitted so long as the country which invokes the safeguard 159 Box 9.4 The Multifibre Arrangement and a new exporter: Bangladesh Article 13 of MFA IV reads in part: "The participating country share of clothing exports to the industrial countries (are) conscious of the problems posed by re- countries. The four biggest Asian NIC exporters held straints on exports of new entrants and small suppliers 60 percent. In the United States, Bangladesh's market They agree that restraints shall not normally be share was 0.32 percent while the "superexporters" imposed on exports from small suppliers, new entrants held 66.7 percent. Bangladesh hardly posed a serious and the least industrial countries." threat to the U.S. industry. There can be no question that Bangladesh fits this The bilateral agreement signed between Bangladesh description. With a 1984 per capita income of $140, it is and the United States allowed a mere 6 percent year- one of the poorest countries in the world. In 1978, ly growth rate in MFA imports. Between 1981 and when it began building a textile and clothing industry 1983-84 Bangladesh had an unrestrained growth rate with the help of the Republic of Korea, there were less of 386 percent. Moreover, the agreement was extremely than a dozen textile manufacturers in Bangladesh. By detailed: it restricted exports down to seven-digit SITC 1985 the number had grown to about 450 operational categories. This meant, for example, that Bangladesh companies; these employed a total of 140,000 people had a quota not only on shirts but also on shirts made and produced more than 300 million pieces a year. from dyed yarn in particular sizes. So detailed an ar- With 300 more companies ready to start up, Bangla- rangement would make diversification into uncon- desh has the potential to produce and export much trolled goods well nigh impossible. Because of it, more, although it will remain a tiny supplier compared Bangladesh stopped expanding its textile industry and with such textile giants as China, Hong Kong, and for a time had operational facilities standing idle. Since Korea. the most recent bilateral arrangement, the situation has Despite the agreement not to restrain exports from eased somewhat. But quotas are still detailed, and countries like Bangladesh, France and the United King- Bangladesh has already (in May 1987) reached the ceil- dom imposed quotas as early as 1984. The United ing on quotas for major categories. It is possible for States initiated an arrangement in February 1986 which Bangladesh to borrow, within limits, from other cate- restricted Bangladesh's textile exports through January gories underused quotas from the previous year or the 31, 1988. Although the industrial countries are allowed succeeding year's quota. But these complications cre- under the MFA to limit imports in the case of a sudden ate uncertainty, and the administration of the quotas surge of imports and market disruption, there is no absorbs scarce managerial ability and discourages in- apparent justification for such limits on Bangladesh. In vestment in a subsector in which Bangladesh clearly 1984, even after achieving spectacular growth, Bangla- has a comparative advantage. desh still held only 0.25 percent of the developing increase in bilateralism, a further spread of non- tries have to compete with subsidized exports from tariff barriers, more trade managed on the MFA industrial countries. Sugar, for example, is highly model, and greater use of domestic trade laws to protected in the domestic markets of the EC and obstruct imports. the United States; these countries then sell their surpluses at subsidized prices. Agriculture Reduced barriers to trade in agriculture would also bring benefits to manufacturing in developing From its inception, the GATT has imposed little countries. As pointed out in World Development Re- discipline on trade in agricultural products port 1986, a prosperous agricultural sector fostçrs reflecting the sensitivity of agricultural issues in success in manufacturing. It creates demand for domestic politics. The costs of protection in agri- manufactures, generates savings, and earns for- culture fall most heavily on the industrial countries eign exchange. themselves, but they also fall on some of the devel- GAiT signatories have recognized that trade in oping countries. Despite an increase in their man- agriculture is a primary concern and needs to be ufactured exports, most developing countries still incorporated properly into the GAIT The GAIT export mainly raw materials and agricultural prod- Committee on Agricultural Trade was established ucts. They get some relief from preferential trade with that aim in 1982. In 1984 and 1985 it proposed agreements, but still face severe problems. Access reducing export subsidies and requiring a level of to the industrial countries is limited by import re- minimum access for exports to highly protected strictions; in other markets the developing coun- markets. This may be a modest start, but there are 160 some other encouraging signs. The recent coalition sectors but to introduce new technology and more between several major developing and industrial capital-intensive methods to try to regain market country exporters, such as Argentina and Austra- share. Higher prices give some exporters a reason lia, and the high and rising budgetary costs of agri- to support the scheme. The MFA was intended as cultural support in industrial countries point to the a temporary measure, but instead has increased in possibility of a better outcome for agriculture in the scope and magnitude and become institutional- new GATT round. ized. The expanding system of managed trade in steel seems to be following the same path. Eventu- The Multifibre Arrangement ally, the members of the GATT must grasp this nettle if the spread of managed trade is to be Trade in textiles and clothing has become the para- halted. digm of managed trade. Its use of discriminatory quota restrictions, negotiated bilaterally, violates Safeguards the most basic rule of the GATT. The history of the MFA has shown increasing coverage and strin- Safeguard actions under GATT Article XIX permit gency, and it has recently been renegotiated (in the use of either a tariff or a quota for temporary July 1986). protection. The quota has been the instrument of The importing nations and most developing choice (see Table 9.1). The trouble with safeguard countries have much to gain from dismantling the actions, however, is that most of them are taken MFA. The past success of the newly industrializing outside the GATT. countries in beating this system has been based Developing countries are particularly vulnerable mainly on their ability to diversify into new fibers to industrial country safeguards. Their most suc- and products which were not covered by the MFA. cessful exports are likely to be those that are pro- As each successive MFA plugs the leaks in the ear- duced by labor-intensive industries such as foot- lier version, however, it will become increasingly wear and other low-skill manufactures. These are difficult to diversify into non-MFA products and. to sensitive industries because of the social problems maintain export growth (Chapter 8). Under these which their collapse can cause. conditions, it is likely that all developing country Developing countries are also quite unable to exporters will feel the effect of textile and clothing pose a realistic retaliatory threat, because of the restrictions. The major Asian exporters wifi find all relatively small size of their markets and their reli- their exports bound by quotas, and relative new- ance on capital goods imports. Only a few of the comers may be held to tiny market shares despite larger developing countriesBrazil, China, India, the special provision for small suppliers in the new and Indonesiamay be able to threaten to cut MFA (see Box 9.4). some import and thereby inflict damage on an in- Moreover, a system of managed trade in textiles dustrial nation. and clothing bodes ill for free trade in other indus- Changes in comparative advantage mean the de- tries where industrial country producers are cline of older industries in the industrial countries. threatened by the exports of developing countries. Safeguard actions against the developing countries The legitimacy of MFA protection for textiles sets a will continue. The GATT needs a new and precedent. And, once established, such systems strengthened safeguard code which allows tempo- tend to become permanent. Protected industries rary protection in the industrial countries, but en- use the help they receive not to move to other courages adjustment and stops the use of "illegal" and discriminatory barriers against exporters (Box 9.3). The Tokyo Round failed to achieve an accep- Table 9.1 Frequency of use of tariffs and quotas table solution. Assuring access for developing under Article XIX country exports to industrial countries' markets Ratio of will depend on the ability of the participants to quantitative amend and strengthen Article XIX in the Uruguay Tariff Quantitative restrictions Period measures restrictions Total to total Round. 1949-58 13 3 16 19 1959-68 20 16 36 Countervailing and antidum ping measures 1969-78 15 28 43 65 1979-86 17 25 42 60 The countervailing and antidumping policies of Source: Frank 1981; Anjaria, Kirmani, and Peterson 1985; GAiT. the industrial countries are closely linked to the 161 Box 9.5 Antidumping and countervailing duties and subsidies in the GATT The existing provisions agricultural exports so as to gain "more than an equita- The provisions on antidumping and countervailing du- ble share of world export trade." They also agreed not ties (CVDs) are contained in GATT Articles VI and XVI to use domestic production subsidies which would se- and a subsidies code added in the Tokyo Round. riously harm the trade of other countries. Finally, they 'Dumping" is defined as exporting a product at a pledged to abide by GATT Article VI, which states that price below its normal value or below the comparable CVDs are to be used only when the imported goods price of a similar product sold in the exporting country. are causing or threaten to cause material injury to a An importing country can offset or prevent dumping domestic industry. A GAIT committee was established by levying an antidumping duty not greater than the under the code to deal with the settlement of disputes difference between the price of the exported good and arising from the use of subsidies and CVDs as well the price of a similar good in the exporter's domestic as to monitor the application of the code by the sig- market. natories. A government subsidy on the manufacture, produc- tion, or export of any merchandise which operates di- Proposed reforms rectly or indirectly to increase exports or to reduce im- The subsidies code negotiated in the Tokyo Round ports may be subject to CVDs. A countervailing duty is proved little better than the original articles. The num- levied by the importing country to offset the exporter's ber of disputes continues to rise. Indeed, the record subsidy and cannot exceed the amount of this subsidy. shows a strong upward trend in countervailing actions The use of antidumping and countervailing duties is against developing countries. Recently, most of the limited to situations in which the import is causing CVD and antidumping actions have been initiated by or threatens to cause material injury to a domestic the United States and the European Community industry. against developing country exporters (see Box tables The code on subsidies and CVDs was negotiated 9.5A and 9.5B). during the Tokyo Round with the aim of ensuring that Two approaches to the reform of countervailing duty subsidies would not harm the interests of trading part- and subsidy practices have emerged. The first views ners and that countervailing duty procedures would developing countries which subsidize exports as sim- not unjustifiably impede international trade. The sig- ply damaging their long-run development. Subsidies natories made a renewed agreement not to subsidize then become the target for reform, not the countervail- Box table 9.5A The frequency of U.S. countervailing actions, 1970-85 Final outcome of action Number of Average Year Exporter initiations Affirmative Negative Pending CVD rate 1970-74 Industrial countries 9 8 1 Developing countries 2 2 - 1975-79 Industrial countries 59 20 39 Developing countries 45 18 27 1980-85 Industrial countries 63 30 (19) 25 8 10.5 Developing countries 108 69 (26) 30 9 11.5 Note: Numbers in parentheses represent cases considered affirmative although they were withdrawn from CVD actions and settled through alternative arrangements between the exporting and importing countries. Source: Nam 1986a. issue of safeguards. An importing country im- countries' policies, countervailing duties and anti- poses countervailing duties if the exporting coun- dumping actions can be taken only if the exporter try's government is subsidizing its exports. It takes is engaging in one of these two forms of "unfair" antidumping measures when an exporter sells a trade (see Box 9.5). product abroad at less than its domestic price or As indicated in Chapter 8, countervailing duties cost of production. Whereas safeguard actions and antidumping policies may be abused so as to taken under Article XIX can be imposed by the become just another form of protection. They can importing country regardless of the exporting inflict additional costs on exporters through the 162 impose a disproportionate cost on developing country exporters. This is due, in part, to the ad- ministrative procedures involved. Firms and gov- ernments in the developing countries often lack ing duty. From this viewpoint, CVDs are a means to the trained staff to deal with these procedures. induce developing countries to abandon subsidies and to adopt other means, such as exchange rate devalua- They often have to hire foreign specialists, and the tions, to promote exports. expense can be great. UNCTAD estimates that the A related solution is for the GAIT to approach the cost of a fairly routine antidumping proceeding in problem not through an international code, but the United States can easily exceed $100,000. This through direct negotiations among participants on dis- may have to be borne by a single exporting firm. mantling subsidies. This is likely to be the approach for Many new producers are willing to forgo some dealing with agricultural subsidies. export profit (by selling the export at a lower price The second approach is based on the belief that CVD actions are simply a way to protect declining industries than they would domestically) to gain market in the industrial countries against developing country share. This standard business practice makes them exporters. CVD procedures deter exports because of liable to be charged with dumping. Moreover, the the direct costs to exporters of the investigations. If methods used to justify subsidies and dumping that is their purpose, the requirements for starting tend to ignore the differences between developing CVD actions could be tightened so as to reduce their and industrial country markets. Often the high use as substitutes for safeguard actions. The signato- ries could also be required to have a greater regard for trade barriers which prevail in developing coun- the situation of developing countries when applying tries wifi raise the domestic price of exportable CVD measures. Another suggestion is that there goods. But the protection will also cause the ex- should be a program of technical assistance to help change rate to be overvalued. The overvalued developing countries defend their interests in CVD exchange rate reduces the price in local currency of cases. goods exported, which lowers the incentive to ex- port (Chapter 6). A developing country may feel it is quite legitimate to offset this by an export sub- sidy of some type. But the price will now be lower Box table 9.5B Frequency of antidumping cases, 1980-85 than the protection-induced price in the home market and may be treated as subsidized or Number Number dumped in the industrial country, even though it Initiated by of cases Against of cases is a result of distortions in the exporter's domestic Australia 393 EC 276 economy. United States 280 United States 105 EC 254 Japan 96 Canada 219 Korea, Republic of 71 "UNFAIR" TRADE AND THE CENTRALLY PLANNED Sweden 4 China 58 ECONOMIES. Distinctions between fair and unfair Finland 3 Spain 43 Austria trade are often difficult to establish even in market 1 Brazil 39 Spain 1 Czechoslovakia 34 economies. In centrally planned economies, where Canada 32 the government plays the central role in produc- Sweden 16 tion, the distinction is even more obscure. How Austria 11 Finland can a country determine if exports from a CPE are 9 Others (44) 398 subsidized if all prices are set without regard to Source: Finger and Nogues 1986. supply and demand? Dumping can be hard to identify for the same reason. If the CPE is produc- ing only for export, it is impossible even to try to compare the export price and the domestic selling price; the importing country must try to determine use of investigations, legal proceedings, and com- the cost of production in the CPE. This is done (at plicated tariff formulas. These procedures can slow least for legal purposes) by examining the cost of down exports or convince an exporter that a nego- production of a similar product in a market tiated VER is better than "unfair" trade proceed- economya cumbersome and dubious procedure ings. (see Box 9.6). "UNFAIR" TRADE AND THE DEVELOPING COUN- The Uruguay Round should examine whether TRIES. Countervailing and antidumping policies countervailing and antidumping procedures can 163 Box 9.6 Antidumping actions: the golf cart case Imports from centrally planned economies which are charged Pezetel with dumping. Duties were assessed sold at less than the full market price are often targets until 1976, when the sole Canadian producer went out of antidumping actions in industrial countries. Yet it is of business. Because no third country produced similar extremely difficult to determine if a CPE supplier has golf carts at that time, fair value could not be obtained dumped, because official exchange rates, domestic by looking at another producer's prices. The United prices, and production costs often bear little resem- States therefore determined the constructed value by blance to market-determined ones. A case involving choosing a market economy, Spain, with a level of de- golf carts imported from Poland is a vivid example of velopment similar to Poland's and estimating what it the extraordinarily complex techniques the United would have cost a Spanish producer to make golf carts. States and the EC have had to adopt in investigating When the cost was converted into dollars, it was deter- antidumping actions against CPEs. mined that the Polish golf carts were not being sold at Since 1972, Poland has been exporting several thou- less than fair value, and in 1980 the earlier dumping sand golf carts to the United States each year. In 1975, finding was revoked. antidumping charges were brought against Pezetel, This method can hardly be considered foolproof. the Polish foreign trade organization, for selling golf Even if a "surrogate" country had identical factor pro- carts at less than "fair value." Because Poland made portions and prices, there is still no reason to assume golf carts for export only and sold them only to the its products would be equally competitive. Moreover, United States, fair value could not be determined by studies have shown that there is little correlation be- the domestic market price or the price of the export to a tween the level of development as measured by GDP third country. The United States used the "con- and relative prices. Although this investigation ended structed value" approach to approximate the fair value happily for the Polish golf cart industry, it could easily of Polish golf carts. Using a value based on the costs to have turned out otherwise. a Canadian golf cart manufacturer, the United States be further refined and whether the industrial coun- in Chapter 8, has shown a similar trend in the use tries are using these procedures legitimately or as of nontariff barriers. A much higher level of effec- yet another means of safeguarding domestic in- tive protection for copper wire than for crude cop- dustry from import competition. per or for instant coffee than for coffee beans handicaps processing in developing countries. Escalation of trade barriers Possession of a raw material, such as bauxite, does not necessarily give a comparative advantage in Tariff escalation has long been a grievance of the producing an intermediate good, such as alumi- developing countries. Recent research, as reported num, where cheap energy and capital are more Box 9.7 Barriers to trade in services The GATT does not cover services, which in many constructing oil-drilling platforms in the United King- countries are highly protected. For example, Colom- dom. Movie and television exporters, especially those bian imports can be insured only by Colombian com- from the United States, are hampered by a variety of panies, no foreign insurance firms are allowed to oper- barriers. In Indonesia they must use local dubbing fa- ate in India, and those applying for licenses in Turkey cilities; in Venezuela they must process 60 percent of are told to wait until a new insurance law is passed. all 35-millimeter prints in local laboratories. Pakistani Belgium, Italy, and the Netherlands effectively bar for- theaters are required to devote 15 percent of playing eign communications firms from providing enhanced time to local films. Britain limits foreign productions to communications services by prohibiting their use of 14 percent of air time on independent television sta- government-owned lines. Foreign construction firms tions. In short, few countries seem prepared to allow are restricted in their ability to provide technical ser- foreigners to compete on an equal footing with locals vices in Brazil and are excluded from designing and in the provision of services. 164 important costsbut it can be crucial for some Italy requires the hiring of local actors and film products. The Tokyo Round of the MTN was sup- crews for commercials. Argentina, Mexico, Peru, posed to deal with this problem, but in fact tariff and Venezuela insist that local accountants super- escalation slightly increased (Chapter 8). This vise foreign auditors (see Box 9.7). source of trade distortion wifi have to be taken up Developing countries fear that many of their again in the current MTN. own service industries are insufficiently developed to withstand foreign competition. They have also Trade in services felt that the reforms hinted at so far, in return for opening their markets to service transactions, are The United States and the EC, on the one side, and unsatisfactory. The services in which developing a group of developing countries led by Brazil and countries have a comparative advantage seem to India, on the other, disagreed over whether to in- be excluded by being labeled "immigration." De- clude services in the Uruguay Round. Important veloping countries think it unfair that access to issues are at stake in this. Trade in services might their service markets should be made a condition be considered the same as trade in goods. After all, for reductions in ifiegal, or at least gray area, pro- to buy a good is simply to buy something which tection. So the developing countries have insisted yields services. From that point of view it makes upon separate negotiations on services. obvious sense to include rules on trade in services within the GATT, perhaps merely by adding "and DEVELOPING COUNTRY INTERESTS. Now that ser- services" wherever goods are mentioned in the vices have been brought within the Uruguay agreement. The problem is not so simple. Round, albeit on "a parallel track," developing countries have to consider where the balance of THE NEED FOR PHYSICAL PRESENCE. Some services advantage lies for them in the negotiations. Some can be provided without physical proximity be- developing countries already have considerable tween provider and user. These "long-distance" exports of services such as tourism, shipping, and services include, for instance, wireless transmis- construction services. There may be a case for in- sion of concerts. But more services are "em- fant industry assistance to some sectors of ser- bodied"; they need a physical presence for their vices. But if developing countries protect more ex- delivery. For example, a construction engineer pensive or lower quality services produced by local needs to be on site to provide engineering services; firms, they run the risk of handicapping their ex- a doctor or a dentist has to visit or be visited. A ports of goods: many services are upstream or bank or a legal firm may not need to be on the spot downstream services to producers. In the indus- to provide many of its services, but efficiency is trial countries large companies often internalize likely to be much higher if clients have easy access. many servicesresearch, marketing, financial What this implies for trade in many types of ser- analysis, and so forth. Small to medium compa- vices is that staff and possibly full branches of the nies usually have easy access to specialist firms business need to be established in the importing which supply such services. In developing coun- country. (Such services are somewhat inelegantly tries this is seldom the case. known as "temporary-factor-relocation-requiring" Access at reasonable cost to quality services can services, as distinct from long-distance services.) make the difference between success or failure in The right of establishment is crucial for multina- exporting. In many developing countries, the need tional service companies such as American Express for such services argues for at least selective liber- and Morgan Grenfell; construction companies alization. If this encouraged the multinational cor- need permits to bring in engineers, managers, and porations of the industrial countries to provide essential workers. So service transactions are qual- these services to developing countries, it would itatively different from trade in goods. This sug- help developing countries' exports of manufac- gests that careful analysis is needed before decid- tures in three ways. First, it would lower their ing how to amend the GATF rules. costs and help them to develop markets. Second, it would encourage the multinational corporations to PROTECTION IN SERVICES. Countries have several move away from goods in favor of producing more devices for protecting domestic suppliers of ser- services. Third, if industrial nations can sell more vices from foreign competition. These include visa services, they may be more willing to lower pro- requirements, investment regulations, restrictions tective barriers elsewhere. on the ability to repatriate earnings, and so on. Developing countries are likely to have compara- 165 tive advantage in labor-intensive services such as gain if they reduce their trade barriers and liberal- tourism and construction. Countries in the Carib- ize their own economies. But they would find such bean, Latin America, and the Mediterranean have policies much easier in an environment of more successfully developed tourist industries; India liberal and expanding world trade. This gives de- and the Republic of Korea have successfully ex- veloping countries a keen interest in a successful ported construction services. Activities like key- outcome from the MTN. punching for the computer software industry are What, more precisely, do they hope to get out of also moving to some developing countries. it? Developing countries want greater access to the Those developing countries which have invested markets of the industrial nations. Most want an heavily in education may earn returns in such ar- end to VERs and selective quotas, and they want a eas as computer software and research and devel- safeguard code which ensures that restrictions im- opment services. Other developing countries have posed under Article XIX are limited, temporary, the capacity to export legal and accounting ser- degressive, and nondiscriminatory. But they also vices. For the most part, however, the industrial waUt to retain their special and differential status. countries will have a comparative advantage in Several of them are opposed to negotiations in the skill- and capital-intensive services, such as bank- GATT on services and trade-related investment ing, insurance, and passenger and freight trans- and would prefer that any discussions on these port, for some time to come. matters be handled in UNClAD. India, Korea, and probably several other devel- In fact the agenda for the Uruguay Round oping countries are likely to have a keen interest in broadly meet their wishes. The subjects for nego- how the issue of "the right to establish" is settled. tiation include tariffs, nontariff measures, safe- The industrial countries have suggested rules guards, tropical products, and products based on which provide not merely for a branch office but natural resources. Negotiations on textiles and also for the right to employ foreign personnel in it. clothing (the MFA) are included, but in language The construction industry may need to go further. which is so hedged as to provide few grounds for It may wish to bring in not only managers and hope of significant improvement. The developing technicians but also supervisors, skilled workers, countries' desire to retain special and differential and even laborers. For countries where compara- treatment seems to be fully met in sections B(IV) tive advantage in constructing a road or a bridge and (V) of the General Principles Governing Nego- may rest mainly on disciplined, and relatively low- tiations. These preserve "differential and more fa- paid, teams of construction workersKorea, for vorable treatment" and state that industrial coun- exampleit would be important to be able to bring tries will not expect "reciprocity" for concessions in whole work crews on temporary permits. Once to developing countries. Section B(VI) repeats the the right to bring in foreign employees is estab- GATT's usual formula for recognizing the gradua- lished, it is difficult to see how the right of the tion principle: the "less developed contracting par- construction firm to bring in its whole team can be ties expect that their capacity to make contribu- excluded. tions or negotiated concessions. . . would improve A final reason for developing countries to pursue with the progressive development of their econo- negotiations on a multilateral basis is that the alter- mies . . and they would accordingly expect to native is likely to be bilateral or regional negotia- participate more fully in the framework of rights tions. That would result in inefficient and discrimi- and obligations under the General Agreement." natory freeing of some service transactions, in Developing countries clearly have to consider ways that would not necessarily be in the interests whether their interests lie in preserving or in nego- of the developing countries. tiating away some of their special and differential status. The industrial countries have long argued The stake of the developing countries that the more successful economies should grad- in the Uruguay Round uate from the Generalized System of Preferences and take on most of the responsibilities of full The argument of the preceding chapters is that the GATIT membership. Unable to incorporate "gradu- gains from trade for developing countries are sub- ation" officially into the GSP itself, the industrial stantial. Both economic theory and the empirical countries have unilaterally incorporated aspects of evidence show that fuller participation in world it into their own trade laws. trade should increase their efficiency and growth. As a result of the limitations adopted by most This suggests that developing countries ought to industrial countries, the developing countries have 166 gained little from the GSP. In 1981, for example, strictions in the industrial countries. The uncer- the United States imported $120.3 billion of goods tainty can also adversely affect firms' plans to in- from the developing countries. From GSP benefi- vest in export industries. Bound MFN tariffs in the ciaries the total was $68.5 billion, and of this oniy a GAU are much more secure than unbound GSP meager $8.4 billion, or 12.3 percent, actually en- preferences. tered duty free. Studies of the GSP in the Euro- Part 1V of the GAIT allows developing countries pean Community show that imports from non- access to MFN or GSP tariffs without the need to beneficiaries were growing at a faster rate than make reciprocal cuts in their own trade barriers. As those from countries covered by the GSP. Yet the a result, few developing countries have lowered developing countries continue their strong sup- their trade barriers significantly. High barriers in port for special and differential treatment and re- the developing countries, whose exports are of ject graduation. They may have underestimated growing importance in world trade, are an increas- both the potential benefits of negotiating for recip- ing source of irritation in many industrial coun- rocal reduction of trade barriers in the multilateral tries. Some of the more advanced developing trade negotiations and the costs associated with countries run the risk of having reciprocal restric- continued dependence on the GSP. tions placed on their exportsor of being forced by In most countries the GSP excludes such crucial such a threat into making concessions bilaterally. items as textiles, clothing, steel, and footwear. It has been suggested that by accepting special Normally the highest protection is on the products and differential treatment the developing countries most likely to be exported by the developing coun- have struck a Faustian bargain. In exchange for tries. GSP treatment carries no long-term guaran- preferences, which brought them limited and risky tee. Because preferences are unilaterally granted to gains, they have given up a voice in reciprocal the developing countries by the industrial country trade negotiations and left themselves open to at- "benefactors," tariff and quota levels are not tack by protectionists in the industrial countries, bound: they can be withdrawn or altered. The un- who accuse them of unfair trade. The most mature certainty this creates leads the larger exporters to developing countries, at least, should ask them- restrain exports for fear of triggering import re- selves whether this bargain still makes sense. 167 Industrialization and the world economy: a policy agenda Industrialization results from the interaction of and the current account surpluses of Japan and the technological change, specialization, and trade. Federal Republic of Germany are the main source Good transport, efficient communications, and an of international imbalance. They reflect the fiscal educated labor force help to promote the rapid de- deficit of the United States and an excess of sav- velopment of industries. Well-defined rules reduce ings over investment in the other two countries. the costs of transactions as specialization increases Because of the large role of the United States in the and economies become more complex. When gov- world economy, any slowing down of its growth ernments seek to improve the working of markets without compensating policies of expansion in the rather than replace them, the economy generally surplus countries would act as a drag on the works better. growth of the world economy. The required ad- This Report has stressed policies that facilitate justment means that the countries which previ- change, overcome constraints imposed by initial ously relied on export demand for output growth conditions, and use natural resources and infra- may need to remove some of their restraints on structure efficiently. Policies that increase interna- domestic demand and ease access to their domes- tional competitiveness and mobilize domestic and tic markets. Adjustment will be less painful if the foreign resources are crucial for successful indus- countries on both sides of the imbalance make a trialization. contribution to the process. A policy agenda for industrial countries Structural rigidities Because of the weight of the industrial countries' Macroeconomic policies can be the first step back share in world output, trade, and capital flows, to international equilibrium, but microeconomic sustained growth in the world economy as a whole policies are essential to reinforce them. Industrial depends on their policies. countries need to remove their structural economic rigidities. Resistance to changes in comparative ad- Payments imbalances vantage, technology, and demography has inhib- ited the movement of labor and capital from old to Sustainable growth in the world economy calls for new activities. These rigidities have limited policies to reduce the growing payments im- growth, caused higher unemployment, and re- balances between the major industrial countries. If tarded industrial development. these imbalances continue, the threat of protec- Three areas of policy are particularly important. tionism might become a reality. That would cripple First, the reduction of trade barriers in protected world markets, aggravate the debt problem, and sectors such as agriculture, steel, textiles, clothing, thwart the developing countries in their efforts to footwear, leather, and shipbuilding would go a adjust. long way to increase competition and promote The current account deficit of the United States flexibility. Simply shifting the form of protection 168 from quantitative restrictionssuch as VERs and a useful first step. It lets firms operate in a less orderly market arrangementstoward tariffs restrictive environment, allows them to buy im- would help to restore the influence of prices. ported inputs more easily, and removes the incen- Moreover, a reciprocal reduction of trade barriers tives for unproductive activities. The next step is to in the context of the Uruguay Round will ease po- lower the level and variation of rates of protection. litical resistance by expanding the exports of in- The simpler the scheme, the better. Getting off to a dustrial countries. bold start seems to strengthen the credibility of The second area of policy concerns labor reform. marketsparticularly those in Europe. The lack of flexibility in these markets has significantly added Macroeconomic policies to Europe's unemployment problems. The ten- dency to set wages at the level of the most prosper- In many developing countries, expansionary fiscal ous regions, geographical and occupational immo- policies have led to inflation, which in turn has bility, the high costs of dismissing labor, and high distorted relative prices, raised nominal interest payroll taxes have all inhibited the efficient work- rates and the real exchange rate, discouraged sav- ing of labor markets. High unemployment is, in ings, and stimulated capital flight. All too often in turn, an obstacle to the removal of trade restric- such circumstances, trade barriers are quickly rein- tions, because it fuels anxiety over job losses. Par- troduced. Experience suggests that macroeco- tial remedies include abolishing unnecessary labor nomic stability is a precondition for successful lib- market regulations and providing financial help for eralization of financial markets. But seeking education, training, and job-related relocations. macroeconomic stability by cutting government Third, industrial regulation and subsidies in agri- expenditure requires care to protect essential culture distort goods markets. A gradual with- spending on health, education, and the mainte- drawal of agricultural subsidies, together with as- nance of infrastructure. Improving the efficiency of sistance for industries that need to restructure, public enterprises so as to reduce the need to sub- would improve flexibility. Alongside reduced pro- sidize them should also help to cut the budget defi- tection and more efficient labor markets, these cit and aid stability. measures would provide more room for expansion without inflation. Complementary policies A policy agenda for developing countries For efficiency in resource allocation, prices should reflect the true costs of production. So price con- Growth in the world economy wifi help the devel- trols should be reduced as quickly as possible and oping countries to industrialize, but for efficient in- eliminated altogether over the medium term. In dustrialization their own domestic policies are many developing countries private investment is much more important. channeled to specific activities. Direct investment by foreigners is usually controlled even more strin- Trade policies gently. If, as far as possible, governments offer similar incentives to all investors, they will in- Trade policy reform is a top priority. The funda- crease competition, promote efficiency, and help mental goal should be to increase competitiveness businesses select technology that fits the country's in world markets. This Report has shown that the resource endowments. Minimum wage regula- countries which adopted outward-oriented trade tions have been introduced in many developing strategies have outperformed those that followed countries to protect the wages of particular groups in ward-oriented trade strategiesin income of workers. Reforming these regulations so that growth, export growth, employment, and savings. they act as a safety net for only the lowest-paid An outward-oriented trade strategy means lower- workers will meet equity objectives while reducing ing trade barriers, replacing quantitative restric- the distortionary effects. tions with tariffs, and adopting realistic exchange rates. The objectives are to improve resource allo- The international environment for trade cation, to force domestic firms to become more effi- and finance cient by having to compete with foreign firms, and to open the economy to new opportunities. Steady growth in the world economy would make Replacing quantitative restrictions with tariffs is it much easier for the industrial countries to tackle 169 their economic rigidities and for the developing policy alone cannot achieve much without infra- countries to adjust their trade policies while pursu- structure, new investment, and finance for educa- ing complementary reforms. At the same time, tion, health, and human resources. Reforms take such reforms would help the world economy to time to bring about increased output and exports. grow faster. The aim must be to prevent a vicious Besides, there are limits to how much consump- circle of stagnation and growing protection and es- tion can be cut in order to free the resources for tablish instead a virtuous circle of lower trade bar- increased investment. Additional funds will be im- riers and faster growth. perative for the highly indebted countries and for Sub-Saharan Africa. The highly indebted countries The Uruguay Round need to grow and to service debt at the same time, and without drastic cuts in consumption. They The agenda for the Uruguay Round negotiations have already made substantial adjustments; with- cover areas of great interest to developing coun- out fresh funds to sustain growth their efforts will tries: trade in agriculture, tropical products, and be in danger. A slowing down of their demand textiles and clothing are all included. The develop- would retard world trade, and their debt problems ing countries would also benefit from an end to could become intractable. This would put financial VERs and from the introduction of an effective stability in both debtor and creditor countries at safeguard code that would ensure that restrictions risk. Additional finance to support their adjust- are limited, temporary, degressive, and nondis- ment efforts should be a high priority for the inter- criminatory. The "standstill and rollback" provi- national community. sions of the Uruguay Round could increase devel- The need for concessional assistance for Sub- oping countries' access to markets in industrial Saharan African countries is clear. The need to re- countries and to the markets of other developing cover from a famine and restore income levels countries. poses a formidable challenge for these countries. The Uruguay Round provides a valuable oppor- Many have undertaken substantial policy reforms tunity to prevent domestic protectionist forces despite the handicaps of low commodity prices, from gaining further ground. The timing is oppor- inadequate domestic savings, poor infrastructure, tune. If trade can be liberalized, that wifi support and insufficient social expenditures. Policy reforms increased growth in the world economy, reduce in these countries need the backing of external fi- payments imbalances, allow countries to address nance for education, health, and institution build- debt repayment difficulties through increased ex- ing. ports, and provide an environment which makes In sum, to improve the world economic outlook long-term adjustment easier. and promote efficient industrialization in develop- ing countries, major policy reforms will be needed. Availability of new funds Their success will depend to a substantial degree on the commitment of all nations to make the Uru- If developing countries are to adopt the reforms guay Round a success and on the provision of fi- proposed, most will need increased external fi- nancial support for the adjustment efforts of the nance to sustain their adjustment efforts. Trade developing countries. 170 Statistical appendix The tables in this statistical appendix present data trade, and external debt. Readers should refer to for a sample panel of ninety developing countries, the technical notes to the World Development In- along with information for industrial countries and dicators for definitions and concepts used in these high-income oil exporters where available. The ta- tables. bles show data on population, national accounts, Table A.1 Population growth, 1965-85 and projected to 2000 1985 Average annual growth (percent) population Country crOUp (millions) 1965-73 1973 -8(1 1980-85 1985-90 1990-2000 Developing countries 3,451 2.5 2.1 2.0 2.0 1.8 Low-income countries 2,323 2.6 2.0 1.9 1.9 1.7 Middle-income countries 1,128 2.4 2.4 2.3 2.3 2.0 Oil exporters 461 2.5 2.6 2.6 2.7 2.8 Exporters of manufactures 2,048 2.5 1.9 1.7 1.6 1.4 Highly indebted countries 555 2.6 2.4 2.4 2.5 2.4 Sub-Saharan Africa 385 2.7 2.8 3.1 3.1 2.9 High-income oil exporters 19 4.6 5.5 4.4 4.2 3.2 Industrial countries 737 1.0 0.7 0.6 0.5 0.4 World5 4,207 2.2 1.9 1.8 1.8 1.6 a. Excludes South Africa. h. Excludes nonmarket industrial economies. Table A.2 Population and GNP per capita, 1980, and growth rates, 1965-86 l980GN1' 1980 1980 CNP Average annual gros 'tO of G NP per capita (percent) (billions population per ca pita Country group of dollars) (milliois) (dollars) 1965-73 1973-80 1982 1983 1984 1985 1986 Developing countries 2,078 3,123 670 4.0 3.1 -0.7 0.1 3.1 2.7 2.5 Low-income countries 565 2,118 270 2.9 2.6 3.5 5.9 6.9 7.0 4.3 Middle-income countries 1,513 1,005 1,500 4.6 3.1 -2.4 -2.5 1.1 0.5 1.4 Oil exporters 506 405 1,250 4.7 3.1 -3.6 -4.5 0.0 -0.2 -3.2 Exporters of manufactures 946 1,886 500 4.8 4.0 2.1 3.3 6.2 6.1 5.4 Highly indebted countries 868 492 1,770 4.4 2.8 -4.6 -5.9 -0.3 0.6 0.5 Sub-Saharan Africab 182 331 550 3.4 0.5 -4.3 -4.9 -4.8 -0.2 -2.3 High-income oil exporters 223 16 14,400 3.9 5.7 -6.7 -14.3 -2.4 -8.6 -1.0 Industrial market economies 7,613 716 10,630 3.7 2.1 -1.3 1.6 4.1 2.4 1.9 a. Preliminary, h. Excludes South Africa. 171 Table A.3 GDP, 1980, and growth rates, 1965-86 1980 GDP Average annual growth of GDP (pelvent) (billions Country group of dollars) 1965-73 1973-80 1982 1983 1984 1985' 1986' Developing countries 2,116 6.5 5.4 2.1 2.1 5.1 4.8 4.2 Low-mcome countries 564 5.5 4.6 5.6 7.7 8.9 9.1 6.5 Middle-income countries 1,552 7.0 5.7 0.8 0.0 3.6 2.8 3.2 Oil exporters 522 6.9 6.0 0.4 -1.9 2.3 2.2 -1.1 Exporters of manufactures 958 7.4 6.0 4.2 4.9 7.8 7.8 7.0 Highly indebted countries 890 6.9 5.4 -0.5 -3.2 2.0 3.1 2.5 Sub-SaharanAfricat' 187 6.4 3.2 -0.2 -1.5 -1.7 2.2 0.5 High-incomeoilexporters 216 8.3 7.9 -0.5 -6.9 1.2 -3.8 Industrialmarketeconomies 7,570 4.7 2.8 -0.5 2.2 4.6 2.8 2.5 Preliminary. Excludes South Africa. Table A.4 Population and composition of GDP, selected years, 1965-86 (billions of dollars, unless otherwise specified) Country group and indicator 1965 1973 1980 1982 1983 1984 1985' 1986 Developing countries GDP 338 755 2,116 2,160 2,073 2,107 2,098 2,186 Domestic absorptiont' 342 759 2,165 2,209 2,089 2,092 2,089 2,176 Net exports' -3 -5 -48 -50 -15 14 11 11 Population (millions) 2,207 2,691 3,123 3,255 3,320 3,385 3,451 3,519 Low-income countries GD? 147 259 564 556 584 582 587 609 Domestic absorptiont' 150 258 589 570 600 599 618 651 Net exports' -2 0 -21 -14 -16 -17 -30 -42 Population (millions) 1,504 1,839 2,118 2,203 2,243 2,283 2,323 2,366 Middle-income countries GD!' 190 496 1,552 1,604 1,490 1,525 1,511 1,578 Domestic absorptiont' 192 500 1,576 1,639 1,489 1,493 1,471 1,525 Net exports' -1 -5 -23 -36 -1 31 41 53 Population (millions) 703 852 1,005 1,053 1,077 1,102 1,128 1,153 Oil exporters GD? 50 135 522 529 493 517 531 451 Domestic absorptiont' 49 134 505 531 481 495 513 454 Net exports' 0 1 16 -2 9 22 18 -2 Population (millions) 276 337 405 426 437 449 461 473 Exporters of manufactures GD!' 166 368 958 990 940 951 969 1,094 Domestic absorptiont' 169 372 993 1,001 943 941 965 1,075 Net exports' -2 -5 -34 -11 -2 11 4 20 Population (mfflions) 1,363 1,657 1,886 1,954 1,985 2,016 2,048 2,080 Highly indebted countries GDP 116 288 890 893 770 786 779 775 Domestic absorptionb 115 287 898 900 748 750 745 734 Net exports' 2 1 -7 -7 22 36 35 40 Population (millions) 339 415 492 516 529 542 555 568 Sub-Saharan Africa' GDP 25 56 187 176 173 168 164 152 Domestic absorptionb 24 55 188 189 181 169 164 156 Net exports' 0 1 -2 -14 -8 -1 0 -4 Population (millions) 219 272 331 352 363 375 385 398 (continued) 172 Table A.4 (continued) Country group and indicator 1965 1973 1980 1982 1983 1984 1985' 1986' High-income oil exporters GDP 8 28 224 255 217 203 185 Domestic absorptiont' 4 14 161 200 199 Net exports' 3 14 63 55 18 Population (millions) 7 11 16 17 18 18 19 20 Industrial market economies GDP 1,368 3,225 7,570 7,580 7,831 8,173 8,575 9,900 Domestic absorptiont' 1,363 3,212 7,623 7,581 7,832 8,201 8,595 9,950 Net exportsc 5 12 -52 -1 -1 -28 -20 -50 Population (millions) 632 681 716 725 730 734 737 741 Note: Components may not add to totals due to rounding. a, Preliminary. Private consumption plus government consumption plus gross domestic investment. Includes goods and nonfactor services. Excludes South Africa. Table A.5 GDP structure of production, selected years, 1965-86 (percent of GDP) 1965 1973 1980 1983 1984 1985' 1986' Agri- Agri- Agri- Agri- Agri- Agri- Agri- cul- Indus- cul- Indus- cul- Indus- cul- Indus- cul- Indus- cul- Indus- cul- Indus- Country group ture try ture try ture try ture try ture try ture try ture try Developing countries 29 29 24 32 19 37 20 35 19 35 19 34 18 34 Low-income countries 41 27 38 32 33 35 35 32 34 33 32 33 32 33 Middle-income countries 20 30 16 33 13 37 13 36 14 36 14 35 13 34 Oil exporters 22 29 18 33 14 42 15 39 16 39 17 36 17 35 Exporters of manufactures 34 31 27 35 21 37 22 36 21 36 20 36 19 36 Highly indebted countries 18 32 14 34 12 37 14 35 14 35 15 33 14 32 Sub-Saharan Africat' 39 19 31 26 27 35 32 27 34 27 33 27 35 24 High-income oil exporters 4 54 2 62 1 64 2 54 2 49 2 58 2 56 Industrial market economies 5 40 5 38 3 36 3 35 3 35 3 36 3 36 a. Preliminary. b. Excludes South Africa. Table A.6 Sector growth rates, 1965-85 Agriculture Industry Sen.'ices Country group 1965-73 1973-80 1980-85 1965-73 1973-80 1980-85 1965-73 1973-80 1980-85 Developing countries 3.2 2.7 4.0 8.9 6.5 3.6 6.8 5.8 2.9 Low-income countries 3.0 2.4 6.0 8.7 7.2 9.3 6.3 4.4 6.3 Middle-income countries 3.4 3.0 2.1 8.9 6.3 1.4 7.0 6.1 2.0 Oil exporters 3.3 2.3 1.9 9.9 6.4 0.2 6.1 6.9 1.4 Exporters of manufactures 3.2 2.8 6.0 10.0 8.1 6.6 8.8 6.1 4.4 Highly indebted countries 3.2 2.7 1.9 8.3 5.7 -0.9 7.2 6.0 0.3 Sub-Saharan Africa' 2.7 0.4 0.9 13.8 4.5 -2.3 5.1 4.3 -0.4 High-income oil exporters 13.3 4.1 -9.1 Industrial market economies 1.7 0.9 1.5 5.0 2.4 2.5 4.7 3.2 2.0 a. Excludes South Africa. 173 Table A.7 Consumption, savings, and investment indicators, selected years, 1965-86 (percent of GDP) Country group and indicator 1965 1973 1980 1983 1984 1985k 1986 Developing countries Consumption 80.0 76.4 75.4 77.7 76.4 76.2 76.0 Investment 21.2 24.1 26.9 23.1 22.8 23.4 23.5 Savings 20.2 24.2 25.1 22.9 24.2 24.5 24.6 Low-income countries Consumption 81.1 75.9 78.4 78.3 77.8 76.3 78.5 Investment 20.5 23.9 26.0 24.4 25.0 28.9 28.5 Savings 19.8 24.6 22.3 22.5 22.9 24.4 22.2 Middle-income countries Consumption 79.2 76.6 74.3 77.4 75.9 76.1 75.1 Investment 21.7 24.3 27.2 22.6 22.0 21.3 21.6 Savings 20.6 24.0 26.1 23.1 24.7 24.6 25.6 Oil exporters Consumption 79.8 76.0 69.4 74.9 73.3 74.0 76.6 Investment 19.7 23.1 27.4 22.4 22.4 22.6 24.0 Savings 20.1 24.8 31.0 25.4 27.0 26.4 23.7 Exporters of manufactures Consumption 78.6 74.4 75.2 75.0 73.5 72.3 71.7 Investment 23.1 26.9 28.4 25.3 25.5 27.3 26.6 Savings 21.2 25.9 25.0 25.3 26.9 28.2 28.8 Highly indebted countries Consumption 77.2 76.4 75.2 78.6 77.4 78.2 76.9 Investment 22.3 23.2 25.7 18.5 18.0 17.5 17.8 Savings 20.8 23.7 24.9 21.5 22.7 21.9 23.2 Sub-Saharan Africab Consumption 81.6 77.0 78.3 88.2 86.8 86.6 88.4 Investment 15.7 20.1 22.2 16.0 13.5 13.1 14.2 Savings 12.5 24.7 23.0 13.6 14.9 15.2 13.8 Industrial market economies Consumption 76.8 74.9 77.9 80.3 79.2 79.4 83.0 Investment 22.9 24.7 22.8 19.8 21.1 20.8 22.0 Savings 23.3 24.8 21.4 19.2 20.3 20.6 17.0 Preliminary. Excludes South Africa. 174 Table A.8 Growth of exports, 1965-86 Average annual change in export volume (penent) Country group and commodity 1965-73 1973-80 1982 1983 1984 1985a 1986b Export volume, by commodity Developing countries 4.9 4.7 0.2 5.1 11.5 1.4 3.6 Manufactures 11.6 13.8 0.0 11.3 20.3 1.1 6.3 Food 2.9 4.3 -2.5 -1.1 4.6 3.5 -2.6 Nonfood 2.7 1.2 -2.0 0.9 5.9 4.4 0.1 Metalsandminerals 4.8 7.0 -0.9 -1.0 1.6 6.1 7.9 Fuels 4.0 -0.8 3.1 2.4 5.2 -1.2 2.4 Worldc 8.8 4.4 -3.2 0.7 9.5 3.5 3.2 Manufactures 10.7 6.1 -2.7 4.2 12.6 5.2 3.2 Food 5.0 6.6 0.1 -5.1 6.8 0.7 -4.7 Nonfood 3.1 1.0 -3.0 -0.5 7.3 7.8 0.0 Metals and minerals 6.8 8.7 -0.6 -1.5 7.7 3.9 2.4 Fuels 8.6 0.0 -7.0 -6.5 1.2 -2.3 10.2 Export volume, by country group Developing countries 4.9 4.7 0.2 5.1 1t5 1.4 3.6 Manufactures 11.6 13.8 0.0 11.3 20.3 1.1 6.3 Primary goods 3.7 1.2 0.4 0.8 4.7 1.6 1.2 Low-income countries 2.0 4.7 5.3 4.1 7.3 2.9 9.5 Manufactures 2.4 8.2 0.8 12.8 9.0 2.0 16.2 Primary goods 1.7 2.8 8.8 -2.1 6.0 3.6 3.9 Middle-income countries 5.3 4.8 -0.4 53 12.1 1.2 2.9 Manufactures 14.9 14.8 -0.1 11.1 22.0 1.0 5.0 Primary goods 3.9 1.1 -0.7 1.2 45 1.3 0.9 Oil exporters 4.1 -0.9 -3.5 4.6 4.8 -2.2 2.7 Manufactures 10.1 3.4 -9.9 57.5 46.1 0.5 11.8 Primary goods 4.0 -1.0 -3.2 2.1 1.8 -2.5 1.8 Exporters of manufactures 8.4 9.8 0.9 81 18.5 2.7 5.6 Manufactures 11.6 14.0 -1.2 10.4 21.8 1.8 7.5 Primary goods 5.5 3.4 5.6 3.1 10.9 5.0 0.9 Highlyindebtedcountries 3.1 1.1 -5.6 0.9 10.4 0.4 0.8 Manufactures 13.4 10.2 -10.7 6.8 29.7 -3.3 2.5 Primary goods 2.4 -0.4 -4.1 -0.7 4.7 1.8 0.0 SubSaharanAfricad 15.0 0.1 -11.0 -4.1 10.3 6.9 3.8 Manufactures 73 5.6 -1.8 8.4 1.8 8.6 7.1 Primary goods 15.3 -0.1 -12.0 -5.0 11.0 6.7 3.4 High-income oil exporters 12.8 -0.6 -21.3 -23.5 -7.0 -11.6 29.5 Industrial market economies 94 5.4 -1.8 1.9 10.2 53 1.7 a. Estimated. b. Projected. c. Excludes nonmarket industrial countries. d. Excludes South Africa. 175 Table A.9 Change in export prices and in terms of trade, 1965-86 (average annual percentage change) Country group 1965-73 1973-80 1981 1982 1983 1984 1985a 1986b Change in export prices Developing countries 6.4 14.0 0.5 -6.7 -2.4 -1.0 -3.1 -1.2 Manufactures 7.2 8.1 0.3 -3.3 -2.6 -1.3 0.7 19.3 Food 5.3 9.1 -8.1 -8.5 5.3 1.9 -9.5 8.2 Nonfood 4.5 10.3 -13.5 -8.6 5.5 -1.0 -14.5 0.7 Metals and minerals 2.5 4.7 -10.1 -10.4 2.1 -3.0 -5.5 -4.6 Fuels 8.0 27.1 12.5 -9.7 -9.0 -2.5 -3.0 -49.4 High-income oil exporters 7.6 26.9 12.0 -9.2 -8.8 -3.1 -3.1 -49.5 Industrial market economies Total 4.8 10.4 -4.9 -3.4 -3.0 -3.1 -1.6 15.3 Manufactures 4.6 10.8 -5.7 -1.5 -4.1 -3.3 -0.3 19.3 Change in terms of trade Developing countries 0.7 1.6 -0.9 -1.8 -0.0 0.7 -0.8 -4.3 Low-income countries 1.7 -2.5 -1.5 0.0 0.9 1.3 -0.6 0.6 Middle-income countries 0.6 2.2 -0.8 -2.0 -0.1 0.6 -1.0 -5.0 Oil exporters 0.0 10.0 8.1 -4.8 -5.2 0.1 -2.1 -41.5 Exporters of manufactures 1.8 -2.7 -1.1 3.1 0.3 0.4 1.2 9.6 Highly indebted countries 1.4 3.5 -0.1 -2.1 -0.1 1.0 -2.4 -13.6 Sub-Saharan Africa' -8.4 4.8 -1.4 -4.8 -0.1 1.8 -3.3 -26.3 High-income oil exporters 0.3 13.4 19.5 -5.4 -6.6 1.3 -1.3 -56.2 Industrialmarketeconomies -1.0 -3.0 -1.8 3.0 0.1 0.3 1.0 8.3 a. Estimated. b. Projected. c. Excludes South Africa. Table A.10 Growth of long-term debt of developing countries, 1970-86 (average annual percentage change, nominal) Country group 1970-73 1973 -80 1982 1983 1984 1985a,b 1986aC Developing countries Debt outstanding and disbursed 18.0 21.6 12.3 14.6 6.6 8.1 5.2 Official 15.4 17.4 10.6 12.0 7.0 13.7 5.5 Private 20.6 24.6 13.2 16.0 6.4 5.2 5.0 Low-income countries Debt outstanding and disbursed 12.4 14.9 10.5 9.5 5.6 16.6 8.8 Official 12.4 14.5 10.4 10.9 4.7 16.3 8.7 Private 12.2 17.0 10.7 3.4 9.6 18.0 9.0 Middle-income countries Debtoutstandingand disbursed 19.6 22.9 12.6 15.3 6.8 6.9 4.6 Official 17.2 18.9 10.7 12.5 7.9 12.6 4.2 Private 21.2 25.0 13.3 16.5 6.3 4.7 4.8 Oil exporters Debt outstanding and disbursed 21.7 25.9 9.5 20.1 7.2 4.5 6.5 Official 15.3 20.0 9.6 5.0 6.3 11.6 6.2 Private 26.8 29.0 9.5 25.7 7.5 2.4 6.7 Exporters of manufactures Debtoutstandinganddisbursed 22.4 19.5 11.3 10.5 6.8 7.8 1.5 Official 15.1 13.4 9.0 10.5 6.5 10.3 3.7 Private 31.3 23.7 12.3 10.4 6.9 6.7 0.4 Highly indebted countries Debt outstanding and disbursed 17.5 22.3 13.1 19.1 7.5 3.8 4.7 Official 13.3 14.8 11.8 19.4 11.0 14.4 4.8 Private 19.3 24.5 13.4 19.0 6.8 1.6 4.7 Sub-Saharan Africad Debt outstanding and disbursed 19.5 24.7 13.0 11.2 1.0 9.4 8.9 Official 17.8 23.2 12.4 16.0 7.1 13.1 9.1 Private 22.0 26.6 13.7 5.7 -6.7 3.9 8.5 The increase in debt outstanding and disbursed and the shift from private to official sources are due in part to the impact of rescheduling. Preliminary. c. Estimated. d. Excludes South Africa. 176 Table A.11 Savings, investment, and the current account balance, 1965-85 Gross domestic investment/GNP Gross national savingslGNP Current account balance/GNP Country 1965-73 1973-80 1980-85 1965-73 1973-80 1980-85 1965-73 1973-80 1980-85 Latin America and Caribbean *gentjna 19.8 21.8 16.3 19.7 21.2 11.3 0.0 -0.6 -5.0 25.4 24.9 16.0 25.2 18.2 6.9 -0.2 -6.7 -9.1 *Bril 26.1 26.2 20.4 24.3 21.7 16.9 -1.7 -4.5 -3.5 *Qile 14.4 17.4 17.5 12.9 12.2 6.9 -1.4 -5.2 -10.6 *Colombia 189 18.8 20.0 17.2 19.2 15.0 -1.8 0.4 -5.0 21.8 25.5 28.0 16.8 13.8 16.1 -5.0 -11.7 -11.8 *Eador 19.0 26.7 23.2 16.3 21.2 18.3 -2.7 -5.5 -4.9 Guatemala 13.3 18.7 13.5 12.9 16.4 9.9 -0.4 -2.3 -3.6 *Jamalca 32.1 20.3 21.6 25.4 12.6 9.6 -6.7 -7.7 -12.1 21.4 25.2 25.4 19.9 21.3 23.5 -1.5 -3.9 -1.9 *Pe 27.7 28.9 28.0 27.2 24.9 23.7 -0.5 -4.1 -4.3 *Uguay 12.0 15.7 13.9 11.7 11.3 10.0 -0.3 -4.4 -3.9 *Venezuela 29.3 32.6 19.9 30.0 34.5 24.9 0.7 1.9 5.0 Africa Cameroon 16.8 22.3 26.3 17.4 24.6 -4.9 -1.7 *CôtedIvofre 22.8 29.2 22.2 16.6 10.0 .. -12.6 -12.2 Ethiopia 12.8 9.5 10.7 12.6 6.6 3.6 -0.3 -2.9 -7.1 Ghana 12.3 8.7 5.7 12.1 6.9 -0.2 -0.2 -1.8 -5.8 Kenya 22.6 26.2 24.9 18.7 16.4 15.6 -4.0 -9.8 -9.3 Liberia 19.1 28.7 15.8 27.5 9.6 -1.2 -6.2 Malawi 20.0 29.7 20.7 13.3 9.2 -16.5 -11.5 Niger 9.7 23.8 20.2 .. 9.1 5.2 .. -14.7 -15.0 *Nigeria 21.0 26.5 18.7 19.4 28.3 16.4 -1.7 1.8 -2.3 Senegal 14.7 17.5 16.3 .. 4.1 -3.5 . - -13.4 -19.7 Sierra Leone 13.8 13.9 13.3 11.2 -1.2 1.0 -2.7 -15J -12.3 Sudan 11.9 16.4 13.7 1L2 12.7 5.3 -0.7 -3.6 -8.4 Tanzania 199 23.9 17.7 16.9 130 8.3 -3.1 10.9 -9.4 Zaire 13.7 15.0 14.6 9.8 8.8 7.2 -3.9 -6.2 -7.4 Zambia 31.9 28.5 18.3 30.2 19.9 4.6 1.7 -8.6 -13.7 South Asia India 18.4 22.6 24.4 17.9 22.3 22.6 -0.5 -0.3 -1.8 Pakistan 16.0 16.5 162 . . 109 12.5 . - -5.6 -3.7 Sri Lanka 15.8 20.6 28.9 14.6 13.5 17.1 -1.2 -7.2 -11.8 East Asia Indonesia 15.8 24.5 29.4 13.7 24.6 26.6 -2.2 0.1 -2.8 Korea, Republic of 25.1 31.8 30.7 21.5 26.4 26.9 -3.6 -5.3 -3.8 Malaysia 22.3 28.7 35.1 21.6 29.3 27.5 -0.7 0.6 -7.6 Papua New Guinea 27.8 22.1 28.6 .. 11.5 1.6 -10.5 -27.1 *Phffippines 20.6 29.1 25.8 20.6 24.3 20.0 0.0 -4.8 -5.9 Thailand 23.8 26.6 24.4 22.6 2t5 18.5 -1.1 -5.1 -5.9 Europe and North Africa Algeria 32.1 44.5 38.2 29.9 3&9 38.6 -2.2 -5.6 0.4 Egypt 14.0 29.8 31.4 10.9 19.6 200 -3.1 -10.3 -11.4 *Morco 15.0 25.6 23.3 14.5 16.4 12.6 -0.5 -9.1 -10.6 Portugal 26.6 29.7 32.1 .. 25.9 25.7 . - -3.8 -6.4 Tunisia 23.3 29.9 31.3 21.5 23.2 22.6 -1.8 -6.7 -8.7 Turkey 18.5 21.8 20.9 19.1 18.1 17.2 0.6 -3.7 -3.7 *yugoslavja 29.9 35.6 38.5 30.0 329 37.9 0.1 -2.7 -0.6 Note: Asterisk indicates a highly indebted country. a. Excludes net unrequited transfers. 177 Table A.12 Composition of debt outstanding, 1970-85 (percentage of total long-term debt) Debt from official sources Debt from private sources Debt at floating ratesa Country 1970-72 1980-82 1985 1970-72 1980-82 1985 1973 -75 1980-82 1985 Latin America and Caribbean *genfina 12.6 9.0 10.3 87.4 91.0 89.7 13.9 53.2 60.2 *Bolivia 58.4 52.7 65.7 41.6 47.3 34.3 7.5 35.6 26.4 *Bril 30.6 11.8 15.4 69.4 88.2 84.6 44.1 65.8 71.5 *Qlile 47.1 10.9 12.6 52.9 89.1 87.4 9.3 58.1 81.5 *Colombia 68.2 46.0 47.2 31.8 54.0 52.8 6.2 39.4 40.7 *Costa Rica 39.8 37.5 44.1 60.2 62.5 55.9 24.6 50.2 56.8 *Ecuador 51.8 29.3 27.3 48.2 70.7 72.7 12.7 50.9 71.7 Guatemala 47.5 71.0 60.1 52.5 29.0 39.9 5.2 6.8 36.9 *Jamaica 7.4 68.8 81.4 92.6 31.2 18.6 12.5 16.7 18.8 19.5 10.8 9.4 80.5 89.2 90.6 46.8 74.5 80.1 *Pe 15.6 40.6 40.3 84.4 59.4 59.7 31.0 28.3 40.3 *Uguay 48.5 21.1 15.9 51.5 78.9 84.1 11.6 33.5 64.3 *Venezuela 29.8 2.4 0.6 70.2 97.6 99.4 20.6 81.4 93.4 Africa Cameroon 82.2 57.0 66.6 17.8 43.0 33.4 2.0 12.5 5.3 *Côte d'Ivoire 51.6 23.4 36.9 48.4 76.6 63.1 20.5 43.6 47.6 Ethiopia 87.4 92.7 83.9 12.6 7.3 16.1 1.5 2.1 5.4 Ghana 57.6 82.7 87.7 42.4 17.3 12.3 0.0 0.0 0.0 Kenya 59.1 52.8 74.7 40.9 47.2 25.3 3.3 11.7 4.3 Liberia 81.1 75.1 80.5 18.9 24.9 19.5 0.0 15.7 13.5 Malawi 77.1 67.5 87.3 22.9 32.5 12.7 2.3 21.3 9.4 Niger 97.0 42.2 62.6 3.0 57.8 37.4 0.0 20.2 13.3 *Nigeria 68.7 14.9 17.1 31.3 85.1 82.9 0.8 58.8 41.7 Senegal 59.1 69.3 86.8 40.9 30.7 13.2 26.5 8.6 7.3 Sierra Leone 60.8 67.3 73.3 39.2 32.7 26.7 3.8 0.1 0.6 Sudan 86.2 74.6 82.0 13.8 25.4 18.0 2.2 10.2 2.0 Tanzania 60.3 76.2 80.7 39.7 23.8 19.3 0.4 0.2 0.1 Zaire 25.5 65.8 84.2 74.5 34.2 15.8 32.8 11.5 7.7 Zambia 21.9 70.6 78.4 78.1 29.4 21.6 22.9 10.0 17.9 South Asia India 95.2 91.8 78.0 4.8 8.2 22.0 0.0 3.0 8.4 Pakistan 90.8 92.4 92.9 9.2 7.6 7.1 0.0 3.4 4.9 Sri Lanka 81.6 80.6 74.4 18.4 19.4 25.6 0.0 11.9 11.4 East Asia Indonesia 72.1 51.8 49.1 27.9 48.2 50.9 6.3 18.0 21.7 Korea, Republic of 36.1 34.3 26.1 63.9 65.7 73.9 13.0 35.0 54.3 Malaysia 50.8 23.1 18.1 49.2 76.9 81.9 23.0 47.4 54.8 Papua New Guinea 6.2 25.6 23.8 93.8 74.4 76.2 0.0 37.4 37.7 *Phiippines 21.0 32.2 41.6 79.0 67.8 58.4 15.6 32.3 35.2 Thailand 40.1 40.1 43.3 59.9 59.9 56.7 0.9 30.7 32.6 Europe and North Africa Algeria 45.9 16.8 19.6 54.1 83.2 80.4 34.0 24.2 30.0 Egypt 66.5 82.9 80.0 33.5 17.1 20.0 3.1 3.2 2.3 *MorCo 79.3 52.0 62.8 20.7 48.0 37.2 2.7 31.7 36.3 Portugal 72.0 62.3 66.5 28.0 37.7 33.5 0.0 13.9 16.7 Tunisia 39.1 26.3 22.5 60.9 73.7 77.5 0.0 23.6 36.5 Turkey 92.4 65.1 69.0 7.6 34.9 31.0 0.8 23.1 29.1 *Yugoslavia 38.1 24.1 27.4 61.9 75.9 72.6 7.6 31.8 61.0 Note: Asterisk indicates a highly indebted country. a. Percentage of public long-term debt. 178 Bibliographical note This Report has drawn on a wide range of World from Ashley 1970; Cipolla 1973; Dawson 1904; Bank reports and numerous outside sources. Foreman-Peck 1983; Freeman, Clark, and Soete World Bank sources include ongoing economic 1982; Gerschenkron 1%2; Heckscher 1935; Hen- analysis and research, as well as project and sector derson 1954; Kemp 1978; Kindleberger 1973; work on individual countries. Outside sources in- Kuznets 1957; Lewis 1978; Maddison 1982; Maizels clude research publications and reports, published 1963; Rosenberg and Birdzell 1985; Takahashi 1%9; and unpublished, of other organizations working Taussig 1967; and the background paper by Rosen- on global economic and development issues. The berg. The discussion of the post-World War II pe- principal sources used in each chapter are briefly riod relies heavily on data from the Bank, GATI noted below. These and other sources are then ILO, IMF, OECD, United Nations, and U.S. Inter- listed alphabetically by author or organization in national Trade Commission, as well as the back- two groups: background papers and notes com- ground papers by Balasubramanyam and Murray. missioned for this Report and a selected bibliogra- In addition, Chenery, Robinson, and Syrquin phy. The background papers, some of which will 1986, Chenery and Syrquin 1975, and Dicken 1986 be made available through future publications, were consulted. Box 3.1 is based on the back- synthesize relevant literature and Bank work. The ground paper by Campbell; Box 3.3 on the back- views they express are not necessarily those of the ground paper by Nixson, UNIDO 1979, and World Bank or this Report. Chenery, Robinson, and Syrquin 1986; and Box 3.4 In addition to the sources listed, many persons on the background paper by Rosenberg. Figure 3.1 in and outside the World Bank helped prepare this is reprinted with permission of Harper & Row, Report by writing informal notes or providing ex- London: Dicken, P. (1986) Global Shift: Industrial tensive comments. Among these were Bela Ba- Change in a Turbulent World, Figure 9.9, p. 304, lassa, Jagdish Bhagwati, Max Corden, Sebastian Harper & Row, London. Taken from U.S. Depart- Edwards, Isaiah Frank, Anne 0. Krueger, Jacques ment of Transportation (1981) The LI. S. Automobile J. Polak, Richard Snape, Paul Streeten, and Martin Industry, 1980, Washington, D.C.: U.S. Govern- Wolf. ment Printing Office, p. 57. Chapter 2 Chapter 4 The data used in this chapter come from GAU, This chapter covers a broad range of economic top- IMF, and OECD publications as well as World ics, including microeconomics, institutional eco- Bank sources. The discussion of recent macroeco- nomics, and the new political economy. On trans- nomic issues relies on Feldstein 1986. The discus- actions costs and property rights it draws on North sion of debt and capital market issues relies in par- 1985; on the problems of public administration, the ticular on World Bank 1987 (World Debt Tables) and background paper by Gray; and on the new politi- Ardalan and Handjinicolaou 1986. The discussion cal economy, Srinivasan 1985. The discussion of of unemployment in industrial countries relies on the direct and indirect role of government in in- OECD 1986b. The discussion of adjustment pro- dustrialization relies on World Bank country and grams in developing countries is based on Micha- sector work, as well as on the background paper lopoulos 1987. Box 2.6 draws on the Commission by McMahon on education, by Khan on infrastruc- of the European Communities 1986. ture, and by Smith on infant industry. Evidence on the high costs of doing business comes from a vari- Chapter 3 ety of sources, some of them collected together in the background paper by Kimenyi. The principal The discussion of industrialization and trade from source for Box 4.2 is North 1986. Box 4.5 was pre- the eighteenth century up to World War II is drawn pared by Graeme Thompson (partly on the basis of 179 Rosenn 1984), Box 4.6 by Robert Litan, and Box 4.7 Dahiman, Ross-Larson, and Westphal 1985. The by Jagdish Bhagwati. material for two boxes came from individual con- tributors: Box 7.1 from William Steel and Box 7.6 Chapter 5 from Julio Nogues. Box 7.4 on the Chilean financial refoEms draws on the analysis in Galvez and Ty- The data used in this chapter are largely drawn bout 1985. Boxes 7.2, 7.5, and 7.7 on India, Egypt, from World Bank data files and country economic and Portugal, respectively, use material from reports, contributions from the Bank's operational World Bank studies. Box 7.8 is drawn from Little staff, and the background paper by Greenaway. 1987. The discussion of the relationship of trade strate- gies and economic growth and industrialization is Chapters 8 and 9 based largely on the following publications: Ba- lassa and Associates 1982; Bhagwati 1986a; The data used in these chapters come from GATT, Chenery, Robinson, and Syrquin 1986; and IMF, OECD, UNCTAD, and World Bank sources. Krueger 1983. Box 5.2 is based on Clements and The discussion of trade policies draws on three Sjaastad 1984 and Greenaway and Milner 1987. sources in particular: Balassa and Michalopoulos Box 5.4 draws on Pack 1987. 1985, GATT 1985, and OECD 1985. The back- ground paper by Hindley provides information on Chapter 6 the Generalized System of Preferences and the graduation issue. The discussion of the Multifibre A principal source for this chapter is a current Arrangement draws on the background paper by World Bank research project on "The Timing and Pelzman, and the discussion of the effect of non- Sequencing of a Trade Liberalization Policy" tariff barriers on the growth of trade draws on in- which compares the liberalization experiences of formation and data provided in the background nineteen countries (see Box 6.1 for the countries paper by Hamilton. The costs of protection come covered). The interim findings of this project are in from many sources, including Feenstra 1984; Papageorgiou, Michaely, and Choksi 1986. The Greenaway and Hindley 1985; Hufbauer, Berliner, chapter also draws on two further cross-country and Elliott 1986; Kalantzopoulos 1986; Tarr and studies of liberalization: a World Bank research Morkre 1984. Box 8.1 is based on the background project on "Liberalization with Stabilization in the paper by Kaminski. Box 8.6 was written by Jagdish Southern Cone" (see World Development 1985 and Bhagwati. Box 9.2 is based on the background pa- Corbo and de Melo 1986) and some of the reports per by Stevens, Box 9.6 on Holzman 1983 and U.S. from a Trade Policy Research Centre (London) International Trade Commission 1980a, and Box study program on "The Participation of Develop- 9.7 on U.S. Trade Representative 1986. ing Countries in the International Trading Sys- tem" (see Congdon 1985). Box 6.6 is based on the Background papers background paper by Cuthbertson. Balassa, Bela. "The Interaction of Domestic Distor- Chapter 7 tions with Development Strategies." Balasubramanyam, V. N. "Direct Foreign Invest- Chapter 7 is based on several background papers, ment and Industrialization in Developing Coun- a wide range of books and articles, and World tries." Bank reports and memorandums. The discussion Burkett, Paul. "Financial Sector Intermediation of regulatory policies is based on the background Policies and Industrial Development: Some Les- papers by Spiller and Balasubramanyam, and on sons from Developing Country Experiences." numerous World Bank reports. The section on fi- Campbell, Robert. "International Economic Rela- nancial markets relies partially on the background tions in the Soviet-Type Growth Model." paper by Burkett. The analysis of labor markets Cuthbertson, A. G. "Reducing Trade Distortions: uses the background paper by Gregory as well as Transitional Measures." Squire 1981. The discussion of small-scale indus- Donges, Juergen B., and Hans-Hinrich Glismann. tries benefited from the background paper by "Industrial Adjustment in Western EuropeA Elkan and from Haggblade, Liedhoim, and Meade Survey 01 uccesses and Failures." 1986. The presentation of technology issues is Elkan, Walter. 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Special issue. and Dean Spinanger. 1984. Costs of Protecting Jobs Yarrow, George. 1986. "Privatization in Theory in Textiles and Clothing. London: Trade Policy Re- and Practice." Economic Policy (April): 323-77. search Centre. 189 World Development Indicators Contents Key 196 Introduction 197 Maps 198 Table 1. Basic indicators 202 Population 0 Area 0 GNP per capita 0 Inflation 0 Life expectancy Table 2. Growth of production 204 GDP 0 Agriculture 0 Industry 0 Manufacturing 0 Services Table 3. Structure of production 206 GDP 0 Agriculture 0 Industry 0 Manufacturing 0 Services Table 4. Growth of consumption and investment 208 General government consumption 0 Private consumption 0 Gross domestic investment Table 5. Structure of demand 210 General government consumption 0 Private consumption 0 Gross domestic investment 0 Gross domestic savings 0 Exports of goods and nonf actor services 0 Resource balance Table 6. Agriculture and food 212 Value added 0 Cereal imports o Food aid 0 Fertilizer consumption 0 Food production per capita Table 7. Structure of manufacturing 214 Value added in manufacturing 0 Share of value added in food and agriculture 0 in textiles and clothing o in machinery and transport equipment 0 in chemicals 0 in other manufacturing Table 8. Manufacturing earnings and output 216 Growth rates of earnings per employee 0 Index of earnings per employee o Total earnings as percentage of value added 0 Gross output per employee Table 9. Commercial energy 218 Growth of energy production 0 Growth of energy consumption 0 Energy consumption per capita 0 Energy imports as percentage of merchandise exports 192 Table 10. Growth of merchandise trade 220 Export values 0 Import values 0 Growth of exports 0 Growth of imports 0 Terms of trade Table 11. Structure of merchandise exports 222 Fuels, minerals, and metals 0 Other primary commodities o Machinery and transport equipment 0 Other manufactures 0 Textiles and clothing Table 12. Structure of merchandise imports 224 Food 0 Fuels 0 Other primary commodities 0 Machinery and transport equipment 0 Other manufactures Table 13. Origin and destination of merchandise exports 226 Industrial market economies 0 Nonreporting nonmember economies 0 High-income oil exporters 0 Developing economies Table 14. Origin and destination of manufactured exports 228 Value of manufactured exports 0 Industrial market economies 0 Nonreporting nonmember economies 0 High-income oil exporters 0 Developing economies Table 15. Balance of payments and reserves 230 Current account balance 0 Receipts of workers' remittances 0 Net direct private investment 0 Gross international reserves 0 in months of import coverage Table 16. Total external debt 232 Long-term public and publicly guaranteed debt 0 Long-term private nonguaranteed debt 0 Use of IMF credit 0 Short-term debt 0 Total external debt Table 17. Flow of public and private external capital 234 Public and publicly guaranteed and private nonguaranteed long-term loans 0 disbursements 0 repayment of principal 0 net flow Table 18. Total external public and private debt and debt service ratios 236 Total long-term debt disbursed and outstanding 0 as percentage of GNP 0 Total interest payments on long-term debt 0 Total long-term debt service as percentage of GNP 0 as percentage of exports of goods and services Table 19. External public debt and debt service ratios 238 External public debt outstanding and disbursed 0 as percentage of GNP 0 Interest payments on external public debt 0 Debt service as percentage of GNP 0 as percentage of exports of goods and services Table 20. Terms of external public borrowing 240 Commitments 0 Average interest rate 0 Average maturity 0 Average grace period 0 Variable interest rates on public loans as percentage of public debt 193 Table 21. Official development assistance from OECD and OPEC members 242 Amount in dollars LI as percentage of donor GNP LI in national currencies LI Net bilateral flows to low-income economies as percentage of donor GNP Table 22. Official development assistance: receipts 244 Net disbursements LI per capita LI as percentage of GNP Table 23. Central government expenditure 246 Defense LI Education LI Health LI Housing and community amenities; social security and welfare LI Economic services LI Other LI Total expenditure as percentage of GNP LI Overall surplus/deficit as percentage of GNP Table 24. Central government current revenue 248 Tax revenue LI Nontax revenue Total current revenue as percentage of GNP Table 25. Money and interest rates 250 Monetary holdings, broadly defined LI Average annual inflation LI Nominal interest rates of banks Table 26. Income distribution 252 Percentage share of household income, by percentile groups of households Table 27. Population growth and projections 254 Population growth LI Population size LI Hypothetical size of stationary population LI Assumed year of reaching net reproduction rate of 1 LI Population momentum Table 28. Demography and fertility 256 Crude birth rate LI Crude death rate LI Total fertility rate LI Percentage of married women using contraception Table 29. Life expectancy and related indicators 258 Life expectancy LI Infant mortality rate LI Child death rate Table 30. Health-related indicators 260 Population per physician LI per nursing person LI Daily calorie supply per capita Table 31. Education 262 Number enrolled as percentage of age group LI in primary school LI in secondary school LI in higher education Table 32. Labor force 264 Population of working age LI Labor force in agriculture LI in industry LI in services LI Growth of labor force, past and projected 194 Table 33. Urbanization 266 Urban population as percentage of total population E Growth of urban population E Percentage in largest city in cities of over 500,000 persons Number of cities of over 500,000 persons Technical notes 268 Box A.1 Basic indicators for U.N. and World Bank member countries with populations of less than 1 million 269 Box A.2 Gross product per capita by ICP and Atlas methods 270 Bibliography 284 195 Key In each table, economies are listed in their Figures in the colored bands are Not available. group in ascending order of GNP per cap- summary measures for groups of ita except for those for which no GNP per economies. The letter wafter a summary (.) Less than half the unit shown. capita can be calculated. These are listed in measure indicates that it is a weighted Blank means not applicable. alphabetical order, in italics, at the end of average; m, a median value; t, a total. their group. The reference numbers below Figures in italics are for years or periods reflect the order in the tables. All growth rates are in real terms. other than those specified. Afghanistan 32 Haiti 24 Panama 83 Albania 120 Honduras 51 Papua New Guinea 49 Algeria 86 Hong Kong 91 Paraguay 59 Angola 121 Hungary 76 Peru 61 Argentina 84 India 17 Philippines 46 Australia 110 Indonesia 42 Poland 80 Austria 107 Iran, Islamic Republic of 94 Portugal 77 Bangladesh 2 Iraq 95 Romania 96 Belgium 105 Ireland 102 Rwanda 18 Benin 15 Israel 89 Saudi Arabia 98 Bhutan 5 Italy 103 Senegal 27 Bolivia 39 Jamaica 60 Sierra Leone 26 Botswana 58 Japan 114 Singapore 93 Brazil 74 Jordan 71 Somalia 19 Bulgaria 122 Kampuchea, Democratic 34 South Africa 79 Burkina Faso 3 Kenya 20 Spain 101 Burma 10 Korea, Democratic People's Sri Lanka 30 Burundi 11 Republic of 126 Sudan 22 Cameroon 56 Korea, Republic of 85 Sweden 115 Canada 116 Kuwait 99 Switzerland 118 Central African Republic 16 Lao People's Democratic Republic 35 Syrian Arab Republic 72 Chad 33 Lebanon 73 Tanzania 21 Chile 70 Lesotho 40 Thailand 55 China 23 Liberia 41 Togo 12 Colombia 69 Libya 97 Trinidad and Tobago 90 Congo, People's Republic of the 64 Madagascar 13 Tunisia 66 Costa Rica 68 Malawi 8 Turkey 62 Côte d'Ivoire 48 Malaysia 78 Uganda 36 Cuba 123 Mali 4 Union of Soviet Socialist Czechoslovakia 124 Mauritania 38 Republics 128 Denmark 113 Mauritius 63 United Arab Emirates 100 Dominican Republic 53 Mexico 82 United Kingdom 106 Ecuador 65 Mongolia 127 United States 119 Egypt, Arab Republic of 47 Morocco 45 Uruguay 75 El Salvador 57 Mozambique 6 Venezuela 87 Ethiopia 1 Nepal 7 Viet Nam 37 Finland 111 Netherlands 108 Yemen Arab Republic 44 France 109 New Zealand 104 Yemen, People's Democratic German Democratic Republic 125 Nicaragua 52 Republic of 43 Germany, Federal Republic of 112 Niger 14 Yugoslavia 81 Ghana 28 Nigeria 54 Zaire 9 Greece 88 Norway 117 Zambia 31 Guatemala 67 Oman 92 Zimbabwe 50 Guinea 25 Pakistan 29 Note: For U.N. and World Bank member countries with populations of less than 1 million, see Box Al. 196 Introduction The World Development Indicators provide infor- member governments by World Bank economic mation on the main features of social and eco- missions and are, in some instances, adjusted to nomic development. Most of the data collected by conform with international definitions and con- the World Bank are on its developing member cepts to provide better consistency. Data on exter- countries. Because comparable data for developed nal debt are reported to the Bank by member coun- market economies are readily available, these are tries through the Debtor Reporting System. Other also included in the indicators. National accounts data sets are drawn from the International Mone- data for economies that are not members of the tary Fund, the United Nations, and specialized World Bank are not included, because they are ei- agencies. ther not available or not in a comparable form. For ease of reference, ratios and rates of growth Every effort has been made to standardize the are shown; absolute values are reported in only a data. However, full comparability cannot be en- few instances. Most growth rates are calculated for sured, and care must be taken in interpreting the two periods, which have been changed this year to indicators. The statistics are drawn from sources 1965-80 and 1980-85. All growth rates related to thought to be most authoritative, but many of national accounts are in constant prices and are them are subject to considerable margins of error. computed, unless noted otherwise, by using the Variations in national statistical practices also re- least-squares method. Because this method takes duce the comparability of data which should thus all observations in a period into account, the re- be construed only as indicating trends and charac- sulting growth rates reflect general trends that are terizing major differences among economies, not unduly influenced by exceptional values, par- rather than taken as precise quantitative indica- ticularly at the end points. Table entries in italics tions of those differences. indicate that they are for years or periods other The indicators in Table 1 give a summary profile than those specifiedup to two years earlier for of economies. Data in the other tables fall into the economic indicators and up to three years on ei- following broad areas: national accounts, industry, ther side for social indicators. All dollar figures are agriculture, energy, external trade, external debt, U.S. dollars. The various methods used for con- aid flows, other external transactions, central gov- verting from national currency figures are de- ernment finances and income distribution, and po- scribed, where appropriate, in the technical notes. pulation, health, education, labor force, and ur- Some of the differences between figures shown banization indicators. Two new tables have been in this year's and those in last year's edition reflect added this yearone providing data on industrial not only updating but also revisions to historical output and earnings and the other introducing a series. number of monetary indicatorsmaking a total of As in the World Development Report itself, the 33 main tables. economies included in the World Development In- Countries with populations of less than 1 million dicators are grouped into several major categories. are not included in the main tables, but basic indi- These groupings are analytically useful for distin- cators for those that are members of the World guishing economies at different stages of develop- Bank or the U.N. are in a separate table on page ment. Many of the economies are further classified 269. by dominant characteristics; to distinguish ex- The national accounts data are obtained from porters, for instance. The major classifications 197 used in the tables this year are 37 low-income de- phabetical order at the end of each appropriate veloping economies with a per capita income of group. This order is used in all tables. The alpha- $400 or less in 1985, 59 middle-income developing betical list in the key shows the reference number economies with a per capita income of $401 or for each economy; italics indicate economies with more, 4 high-income oil exporters, 19 industrial no GNP per capita figures. market economies, and 9 nonreporting nonmem- In the colored bands are summary measures ber economies. This last is a new classification for a totals or weighted averagesthat are calculated for revised group of countries; because of the paucity economy groups if data are adequate. Because of data, the differences in method for computing China and India heavily influence the overall sum- national income, and difficulties of conversion, es- mary measures for the low-income economies, timates of GNP per capita for these economies are summary measures are shown for two subgroups: not included. China and India and other low-income economies. This The format of this edition follows that used in year, for analytical purposes, data for all develop- previous years. In each group, economies are ing economies have also been summarized in the listed in ascending order of income per capita ex- following overlapping groupings: oil exporters, ex- cept for those for which no GNP per capita figure porters of manufactures, highly indebted coun- can be calculated. These are listed in italics in al- tries, and Sub-Saharan Africa. Sub-Saharan Africa Groups of economies The colors on the map show what group a country has been placed in on the basis of its GNP per capita and, in some instances, its distinguishing eco- noniic characteristics. For example, all low-income economies, those with a GNP per capita of $400 and less (in 1985), are colored yellow. The groups are the same as those used in the 33 tables that follow, and they include only the 128 countries with a popula- tion of more than 1 million. Low-income economies Middle-income economies High-income oil exporters Industrial market economies Nonreporting nonmember economies Not included in the Indicators ToPula, {NZ VsIerr, hIhoanF Sanmo futuoa Anreri,an Samoa US French NmF NZi Polereca Dominican Toe Puerto Rico Viroin IslandS USI NolhnrlOndoonhilleo Irrerdad nod 500a50 198 includes all countries south of the Sahara, except the data sources, which contain comprehensive South Africa. For definitions and lists of countries definitions and descriptions of concepts used. in the other groups, see pages xi and xii. The report includes three world maps. The first The methodology used for computing the sum- map, below, shows country names and the main mary measures is described in the technical notes. groups in which economies have been placed. The For these numbers, w indicates that the summary maps on the following pages show population and measures are weighted averages, m, median val- the share of agriculture in gross domestic product ues, and t, totals. The coverage of economies is not (GDP). The Eckert IV projection has been used for uniform for all indicators, and the variation from these maps because it maintains correct areas for measures of central tendency can be large; there- all countries, although it slightly distorts shape, fore readers should exercise caution in comparing distance, and direction. The maps have been pre- the summary measures for different indicators, pared exclusively for the convenience of the read- groups, and years or periods. ers of this report; the denominations used and the The technical notes should be referred to in any use of boundaries shown do not imply on the part of the the data. These notes outline the methods, con- World Bank and its affiliates any judgment on the cepts, definitions, and data sources used in com- legal status of any territory or any endorsement or piling the tables. The bibliography gives details of acceptance of such boundaries. C bent loIn of Man fURl C No nnei Is lands IL NeidsrMnds selgIunr Luxembourg Red Rep of Germany Seorla Gibrulfar fUR LMM O/ Ate Pok isles rinpal Snores danpia °tlongK5nçfURI Verde us Peoples em Rep Dew Rep Philippinns Sedan jNnm Scam iLSi The Gambia Burkrea bern Sal nsa-S o sa 115001! Rernpupto Gain Cruet TbrnibO 15 of Rim Serra one Ethiopia Pacific islands Sn Lanka Central iSSi Afnioun Rep Moidroen Ron in Eguolurral Guinea SmgV 500 Tome end Priesrpn POToe ROn Go rn ins Solomon Islands Tuonbu Comonos Gaeualu-- Maurifruo Reunion ibri New Coisdenie land Nero Zeoiusd 199 Population 0-15 million The colors on the map show the general, of 128 countries; the technicnote to 15-50 million size of a country's population. For exam- that table gives data for 35 more coun- 50-100 million ple; countries with a population of less tries with a population of less than 1 than 15 million are colored yellow. Note million. 100 + million that Table I gives the population for each Data not available Fertility and mortality Total fertility Infant mortality Life expectancy Births per woman Deaths per 1,000 live births Years 8 150 80 100 60 50 Iii 0 1965 1985 2000 11111 1965 Ii 1975 Iii. 1985 ': 1965 1970 1975 1980 1985 - Low-income economies Middle-income economies Industrial market economies High-income oil exporters Nonreporting nonmember economies Note: For explanations of terms or methods, see the technical notes for Tables 28 and 29. 200 Size of GDP and sectoral shares IAgriculture Industrial market Industry economies [1 Services US$100 billion Middle-income economies Low-income economies N High-income i RI oil exporters 1965 1985 1965 1985 1965 1985 1965 1985 Note: For explanations of terms or methods, see the technical notes for Table 3. Share of agriculture in GDP 0-9 percent 10-19 percent The value added by a country's agricul- low. The shares say nothing about abso- tumi sector divided by the gross domes- lute values of production. For countries 20-39 percent tic product gives the share of agriculture with high levels of subsistence farming, 40 + percent in GDP. The map classifies countries by the share of agriculture in GDP is diffi- those shares. For example, countries cult to measure due to difficulties in as- Data not available whose shares of agriculture in GDP signing subsistence farming its appropri- range from 0 to 9 percent are colored yel- ate value. 201 Table 1. Basic indicators GNP per capita Life Area Average annual Average annual expectancy Population (thousands rate of inflation growth rate at birth (millions) of square Dollars (percent) (percent) (years) mid-1985 kilometers) 1985 1965-85 965-80 1980-85 1985 Low-income economies 2,439.4 32,547 270 w 2.9 w 4.5 w 7.5 w 60 w China and India 1,805.5 12,849 290 w 3.5 w 2.7w 4.4 w 63 w Other low-income 633.9 19,698 200 w 0.4 w 11.4w 18.9w 52 w I Ethiopia 42.3 1.222 110 0.2 3.3 2.6 45 2 Bangladesh 100.6 144 ISO 0.4 14.9 11.5 51 3 Burkina Faso 7.9 274 150 1.3 6.5 7.2 45 4 Mali 7.5 1,240 150 1.4 . . 7.4 46 5 Bhutan 1.2 47 160 . . . . 44 6 Mozambique 13.8 802 160 . . . . 25.8 47 7 Nepal 16.5 141 160 0.1 7.8 8.4 47 8 Malawi 7.0 118 170 1.5 7.3 11.4 45 9 Zaire 30.6 2,345 170 -2.1 24.5 55.3 51 10 Burma 36.9 677 190 2.4 8.7 2.6 59 II Buntndi 4.7 28 230 1.9 8.4 6.6 48 12 Toga 3.0 57 230 0.3 7.1 6.9 51 13 Madagascar 10.2 587 240 -1.9 7.7 19.4 52 14 Niger 6.4 1,267 250 -2.1 7.5 8.5 44 IS Benin 4.0 113 260 0.2 7.4 9.7 49 16 Central African Rep. 2.6 623 260 -0.2 8.4 10.8 49 17 India 765.1 3,288 270 1.7 7.4 7.8 56 18 Rwartda 6.0 26 280 1.8 12.5 7.6 48 19 Somalia 5.4 638 280 -0.7 10.1 45.4 46 20 Kenya 20.4 583 290 1.9 7.3 10.0 54 21 Tanzania 22.2 945 290 (.) 9.6 19.6 52 22 Sudan 21.9 2,506 300 (.) 11.5 31.7 48 23 China 1,040.3 9.561 310 4.8 (.) 2.4 69 24 Haiti 5.9 28 310 0.7 7.3 7.0 54 25 Guinea 6.2 246 320 0.8 2.8 8.3 40 26 Sierra Leone 3.7 72 350 1.1 7.8 25.0 40 27 Senegal 6.6 196 370 -0.6 6.5 9.7 47 28 Ghana 12.7 239 380 -2.2 22.8 57.0 53 29 Pakistan 96.2 804 380 2.6 10.2 8.1 51 30 Sn Lanka 15.8 66 380 2.9 9.5 14.7 70 31 Zambia 6.7 753 390 -1.6 6.4 14.7 52 32 Afghanistan . . 648 . . . . 4.9 33 Chad 5.0 1,284 . . -2.3 6.2 . . 45 34 Kampuchea,Dem. . . 181 . . . . . . . 35 Lao PDR 3.6 237 . . . . . . 45 36 Uganda 14.7 236 -2.6 23.8 . . 49 37 VietNam 61.7 330 65 Middle-income economies 1,242.1 38,071 t 1,290w 3.0w 21.1 w 57.4w 62w Lower middle-income 674.6 t 16,090 t 820w 2.6 w 22.2 w 22.3 w 58 w 38 Mauritania 1.7 1,031 420 0.1 7.5 8.1 47 39 Bolivia 6.4 1,099 470 -0.2 15.7 569.1 53 40 Lesotho 1.5 30 470 6.5 8.6 11.4 54 41 Liberia 2.2 III 470 -1.4 6.5 1.6 50 42 Indonesia 162.2 1,919 530 4.8 34.3 10.7 55 43 Yemen, PDR 2.1 333 530 . , . . 5.7 46 44 Yemen. Arab Rep. 8.0 195 550 5.3 . . 9.7 45 45 Morocco 21.9 447 560 2.2 5.8 7.8 59 46 Philippines 54.7 300 580 2.3 11.8 19.3 63 47 Egypt, Arab Rep. 48.5 1,001 610 3.1 7.5 11.0 61 48 Côtcd'Ivoire 10.1 322 660 0.9 9.2 10.0 53 49 Papua New Guinea 3.5 462 680 0.4 8.1 5.5 52 50 Zimbabwe 8.4 391 680 1.6 5.7 13.2 57 SI Honduras 4.4 112 720 0.4 6.3 5.4 62 52 Nicaragua 3.3 130 770 -2.1 8.9 33.8 59 53 Dominican Rep. 6.4 49 790 2.9 6.6 14.6 64 54 Nigeria 99.7 924 800 2.2 14.5 11.4 50 55 Thailand 51.7 514 800 4.0 6.8 3.2 64 56 Camemon 10.2 475 810 3.6 9.0 11.8 55 57 El Salvador 4.8 21 820 -0.2 7.0 11.6 64 58 Botswana 1.1 600 840 8.3 8.0 5.2 57 59 Paraguay 3.7 407 860 3.9 9.2 15.8 66 60 Jamaica 2.2 Il 940 -0.7 12.6 18.3 73 61 Peni 18.6 1,285 1,010 0.2 20.5 98.6 59 62 Turkey 50.2 781 1,080 2.6 20.8 37.1 64 63 Mauritius 1.0 2 1,090 2.7 11.8 8.5 66 64 Congo. People's Rep. 1.9 342 1,110 3.8 7.1 12.6 58 65 Ecuador 9.4 284 1,160 3.5 11.3 29.7 66 66 Tunisia 7.1 164 1,190 4.0 6.7 10.0 63 67 Guatemala 8.0 109 1,250 1.7 7.1 7.4 60 Note.' Forcomparability and coverage, see the technical notes. Figures in italics are foryears otherthan those specified. For U.N. and World Bank membercountnes with nonulations of less than I million. see Box A I 202 GNP per capita Life Area Average annual Average annual expectancy Population (thousands growth rate rate of int1ation at birth (millions) of square Dollai's )percent) reent) )years) mid-1985 kilometers) 1985 1965-85 1965-80 1980-85 1985 68 CostaRica 2.6 51 1,300 1.4 11.2 36.4 74 69 Colombia 28.4 1,139 1,320 2.9 17.5 22.5 65 70 Chile 12.1 757 1,430 -0.2 129.9 19.3 70 71 Jordan 3.5 98 1,560 5.8 . . 3.9 65 72 Synan Arab Rep. 10.5 185 1,570 4.0 8.4 6.1 64 73 Lebanon . . 10 . . . . 9.3 Upper middle-income 567.4 21,981 t 1,850 is' 20,5w 74.7 66w 74 Brazil 135.6 8,512 1,640 4.3 31.6 147.7 65 75 Uniguay 3.0 176 1,650 1.4 57.7 44.6 72 76 Hungary 10.6 93 1,950 5.8 2.7 5.6 71 77 Portugal 10.2 92 1,970 3.3 11.7 22.7 74 78 Malaysia 15.6 330 2,000 4.4 4.9 3.1 68 79 SouthAfrica 32.4 1,221 2,010 1.1 9.9 13.0 55 80 Poland 37.2 313 2,050 . . . . 35.2 72 81 Yugoslavia 23.1 256 2,070 4.1 15.2 45.1 72 82 Mexico 78.8 1,973 2,080 2.7 3.2 62.2 67 83 Panama 2.2 77 2,100 2.5 5.5 3.7 72 84 Argentina 30.5 2,767 2,130 0.2 78.5 342.8 70 85 Korea, Rep. of 41.1 98 2,150 6.6 18.7 6.0 69 86 Algeria 21.9 2,382 2,550 3.6 9.9 6.9 61 87 Venezuela 17.3 912 3,080 0.5 8.7 9.2 70 88 Greece 9.9 132 3,550 3.6 10.3 20.6 68 89 Israel 4.2 21 4,990 2.5 25.2 196.3 75 90 Trinidad and Tobago 1.2 5 6,020 2.3 14.2 7.6 69 91 Hong Kong 5.4 I 6,230 6.1 8.1 7.9 76 92 Oman 1.2 300 6,730 5.7 20.5 4.9 54 93 Singapore 2.6 I 7,420 7.6 4.8 3.1 73 94 Iran, Islamic Rep. 44.6 .648 5.2 60 95 Iraq 15.9 435 . . . . 61 96 Romania 22.7 238 . . . . . . . . 72 Drs .onomies 610 1,060s '[manufactures 52(1 glil. ub-Sa High-income oil exporters 18.4 4,012 t 9,800 w 16.6 ix -2.5 63 97 Libya 3.8 1,760 7,170 -1.3 15.4 -0.3 60 98 Saudi Arabia 11.5 2,150 8,850 5.3 17.6 -3.2 62 99 Kuwait 1.7 18 14,480 -0.3 14.1 -3.6 72 100 United Arab Emirates 1.4 84 19,270 -1.4 70 Industrial market economies 37.3 t 30,935 t 11,810 iS 2.4w 7.6w 5.8w 101 Spain 38.6 505 4,290 2.6 12.2 12.6 77 102 Ireland 3.6 70 4,850 2.2 11.9 0.8 74 103 Italy 57.1 301 6,520 2.6 11.2 14.2 77 104 New Zealand 3.3 269 7,010 1.4 10.1 9.8 74 105 Belgium 9.9 31 8,280 2.8 6.5 5.9 75 106 United Kingdom 56.5 245 8,460 1.6 11.2 6,4 75 107 Austria 7.6 84 9,120 3.5 5.7 4.9 74 108 Netherlands 14.5 41 9,290 2.0 7.5 3.5 77 109 France 55.2 547 9,540 2.8 8.0 9.5 78 110 Australia 15.8 7.687 10,830 2.0 8.8 9.1 78 Ill Finland 4.9 337 10,890 3.3 (0.5 8.6 76 112 Germany, Fed. Rep. 61.0 249 10,940 2.7 5.1 3.2 75 113 Denmark 5.1 43 11,200 1.8 9.2 8.1 75 114 Japan 120.8 372 11,300 4.7 7.5 1.2 77 115 Sweden 8.4 450 11,890 1.8 8.0 8.6 77 116 Canada 25.4 9,976 13,680 2.4 7.4 6.3 76 117 Norway 4.2 324 14,370 3.3 7.7 8.5 77 118 Switzerland 6.5 41 16,370 1.4 5.3 4.5 77 119 United States 239.3 9.363 6,690 1.7 6.1 5.3 76 Nonreporting nonmember economies 362.6 1 25,826 t . . . . 69 w 120 Albania 3.0 29 . . . . . . 70 121 Angola 8.8 1,247 . . . . . . 44 122 Bulgaria 9.0 III . . . . . . . . 71 123 Cuba 10.1 IS . . . . . . . . 77 124 Czechoslovakia 15.5 128 . . . . . . . . 70 125 German Dem. Rep. 16.6 108 . . . . . - . . 59 126 Korea,Dem. Rep. 20.4 121 . . . . . . 68 127 Mongolia 1.9 1,565 . . . . . . . . 63 128 USSR 277.4 22,402 . . . . . - . . 70 a. See the technical notes. 203 Table 2. Growth of production Average annual growth rate (percent) GDP Agncuiture tndustly (Manufacturing) Services 1965-80 1980-85 1965-80 1980-85 1965-80 1980-85 1965-80 1980-85 1965-80 1980-85 Low-income economies 4.8w 7w 2.7w 6.0w 7.6w 9.3w 7.8 w 10.8w 5.0w 6.3 w China and India 5.3w 8.3w 2.9w 7.1w 8.2w 10.0w 8.1 w 11.2w 5.5w 7.5 w Other low-income 3.2w 2.8w 2.0w 1.9w 4.4w 3.7w 5.3 w 5.5 w 4.0 w 3.0 w Ethiopia 2.8 0.3 1.2 -3.4 3.2 2,8 5.0 5.3 3.2 2 Bangladesh 2.4 3.6 1.5 2.8 3.8 4.7 6.8 2.0 3.4 4.3 3 Burkina Faso 3.2 2.4 . . 2.7 . . 2.1 2.4 4 Mali 4.1 -0.5 2.8 -4.1 4.2 3.8 7.0 4.0 5 Bhutan . . S 6 Mozambique . . -9.6 -16.5 . . -13.9 0.l 7 Nepal 2.3 3.4 . 8 Malawi 5.8 2.0 . . 2.7 . . 1.3 1.8 9 Zaire 1.4 1.0 . . 2.5 . . 2.0 -1.4 -0.8 10 Burma 3.9 5.5 3.7 5.4 4.4 7.0 3.9 6.0 4.0 5.1 II Burundi 3.6 1.9 3.3 0.8 7.8 4.8 5.9 6.8 2.7 3.3 12 Togo 4.4 -1.8 1.9 0.9 6.8 -2.8 -3.4 5.4 -3.2 13 Madagascar 1.8 -0.8 . . 2.4 . . -6.8 -0.6 14 Niger 0.3 -3.6 -3.4 (.) 11.4 -3.6 3.4 -7.4 IS Benin 2.3 3.4 . . 0.9 13.5 7.2 2.4 16 Central African Rep. 2.6 0.6 2.1 2.2 5.3 1.0 . . -1.8 2.0 -1.4 17 India 3.8 5.2 2.8 2.7 4.1 5.4 4.4 5.6 4.8 7.5 18 Rwanda 4.9 1.8 . . 2.6 4.9 . . 4.8 -0.4 19 Somalia 2.8 4.9 . . 7.9 . . -5.! . . -3.4 . . 3.6 20 Kenya 6.4 3.1 4.9 2.8 9.8 2.0 10.5 3.8 6.4 3.9 21 Tanzania 3.9 0.8 1.7 0.7 4.2 -4.5 5.6 -4.6 6.7 2.8 22 Sudan 3.8 -0.7 2.9 -5.5 3.1 4.3 . 4.9 0.6 II! . . . 23 China 6.4 9.8 3.0 9.4 10.0 95b 124b 7.0 7.5 24 Haiti 2.9 -0.8 1.0 -1.3 7.1 -2.4 6.2 -2.6 2.7 0.5 25 Guinea 3.9 0.9 0.3 . . 0.1 . . 1.5 . . 2.1 26 Sierra Leone 2.8 2.1 2.3 1.1 -1.1 -2.5 4.0 5.2 5.8 4.3 27 Senegal 2.0 3.3 1.4 1.8 4.8 4.5 3.4 4.9 1.3 3.3 28 Ghana 1.4 -0.7 1.6 -1.3 1.4 -5.5 2.5 -5.6 I.! 2.2 29 Pakistan 5.2 6.0 3.3 2.1 6.2 8.8 5.3 10.1 6.1 6.8 30 Sn Lanka 4.0 5.1 2.7 4.0 5.1 4.2 3.2 5.5 4.3 6.1 31 Zambia 1.8 0.1 2.2 2.9 2.1 -0.5 5.3 0.4 1.5 -0.4 32 Afghanistan 3.0 33 Chad 0.! .. .. 34 Kampuchea, De,n. 35 Lao PDR 36 Uganda 0.6 4.9 1.2 6.5 -4.! 1.8 -3.7 2.3 1.1 3.0 37 VietNam . . . Middle-income economies w 1.7w 3.5w 2.1w 7.6w 1.2w . . . . 6.7w 1.9w Lower middle-income 6.3w 1.6w 3.3w 1.9w 8.5w 0.6w 7.3w 3.2w 6.4w 2.3w 38 Mauntania 2.1 0.2 -2.0 1.6 2.2 4.2 . 6.5 -3.2 39 Bolivia 4.5 -4.5 3.8 -3.7 3.7 -7.3 5.4 -10.6 5.6 -2.9 40 Lesotho 6.7 0.5 .. .. .. 41 Libena 3.2 -1.9 5.5 1.1 2.2 -6.7 10.0 -5.1 2.4 -0.2 42 Indonesia 7.9 3.5 4.3 3.1 11.9 1.0 12.0 6.4 7.3 6.3 43 Yemen, PDR 1.6 . . . . . . . . . . . . . 44 Yemen, Arab Rep. . . 4.5 . . 0.2 . . 8.3 . . 16.5 . . 5.2 45 Morocco 5.7 3.0 2.2 1.0 6.1 1.3 5.9 0.7 6.5 4.3 46 Philippines 5.9 -0.5 4.6 1.7 8.0 -2.8 7.5 - 1.2 5.2 0.1 47 Egypt, Arab Rep. 6.7 5.2 2.8 1.9 7.0 7.0 . . 9.5 5.1 48 Côte d'Ivojre 6.8 -1.7 3.3 -1.1 10.4 -1.5 9.1 . . 9.4 -2.5 49 Papua New Guinea 4.1 1.3 . , . . . 50 Zimbabwe 4.9 2.5 . . 3.7 . . 0.4 . . 0.9 . . 3.8 SI Honduras 4.1 0.6 1.6 2.2 5.7 -0.8 6.0 -2.1 5.4 0.3 52 Nicaragua 2.6 0.2 3.3 1.4 4.2 0.3 5.2 0.8 1.4 -0.4 53 Dominican Rep. 7.3 2.2 3.8 3.3 10.9 2.! 8.9 2.0 7.0 2.0 54 Nigeria 7.9 -3.4 1.7 1.0 13.4 -5.8 14.6 3.0 8.8 -3.5 55 Thailand 7.4 5.1 4.9 3.4 9.5 5.1 10.9 5.3 8.0 6.0 56 Cameroon 4.9 8.6 4.2 1.3 8.1 17.8 7.0 18.4 4.4 7.1 57 El Salvador 4.4 -1.8 3.6 -2.9 -1.7 4.6 -2.1 5.3 4.3 -1.3 58 Botswana 14.3 12.1 9.3 -8.1 23.2 21.1 12.5 5.8 12.2 6.0 59 Paraguay 7.0 1.4 4.9 2.8 8.8 0.4 7.0 0.3 7.5 1.2 60 Jamaica 1.5 0.5 0.5 1.9 -0.1 -1.6 0.4 0.8 2.7 1.3 61 Pens 3.9 -1.6 1.0 1.9 4.4 -3.0 3.8 -3.8 4.3 -1.2 62 Turkey 6.3 4.5 3.2 2.6 7.2 6.0 7.5 7.9 7.6 4.5 63 Mauritius 4.9 3.9 . . 5.2 . . 4.3 . . 6.! . . 3.5 64 Congo, People's Rep. 5.9 7.8 3.1 -1.5 10.3 11.3 . . 6.2 4.7 7.0 65 Ecuador 8.4 1.5 3.4 0.2 13.7 4.0 11.5 0.5 7.6 0.2 66 Tunisia 6.6 4.1 5.5 4.2 7.4 3.8 9.9 6.7 6.5 4.3 67 Guatemala 5.9 -1.4 5.1 -0.6 7.3 -3.8 6.5 '2.2 5.7 -0.8 Note: For data comparability and coverage, see the technical notes. Figures in italics are for years other than those specified. 204 Average annual growth rate (percent) GDP Agriculture Industry (Manufacturing) Services 1965-80 1980-85 1965-80 1980-85 1965-80 1980-85 1965-80 1980-85 1965-80 1980-85 68 CostaRica 6.3 0.5 4.2 2.1 8.7 -0.1 . . 6.0 0.2 69 Colombia 5.6 1.9 4.3 1.8 5.5 2.9 6.2 . . 6.4 1.6 70 Chile . 1.9 -1.1 1.6 2.1 0.8 -0.5 0.6 -1.9 2.7 -2.1 71 Jordan . . 4.1 . . 6.4 . 4.0 5.6 . . 3.8 72 Synan Arab Rep. 8.7 1.5 4.8 -1.4 12.2 0.6 . 9.0 2.9 73 Lebanon -1.2 Upper middle-income 6.6 ss 3.7 w 2.3 w 7.2 w 1.4w . 6.9w 1.7 w 74 Brazil 9.0 1.3 4.7 3.0 10.0 0.3 9.8 9.4 1.8 75 Uruguay 2.4 -3.9 1.0 -1.3 3.1 -7.2 2.3 -2.9 76 Hungary 5.5 1.8 2.7 3.5 6.4 2.0 6.2 0.9 77 Portugal 5.3 0.9 -0.7 . . 0.9 1.3 78 Malaysia 7.3 5.5 3.0 6.7 6.1 5.9 79 South Africa 4.0 0.8 . 80 Poland . . 0.5 . . . . . 81 Yugoslavia 6.1 0.8 3.1 1.3 7.8 0.6 5. o1 82 Mexico 6.5 0.8 3.2 2.3 7.6 0.3 7.4 6.6 0.8 83 Panama 5.5 2.4 2.4 2.7 5.9 -2.2 4.7 -0.3 6.0 3.6 84 Argentina 3.3 -1.4 1.4 2.8 3.3 -2.5 2.7 -1.6 3.9 -1.8 85 Korea, Rep. of 9.5 7.9 3.0 6.3 16.6 9.6 18.8 9.0 9.4 6.7 86 Algeria 7.5 4.9 5.8 2.1 8.1 5.3 9.5 9.0 7.1 4.9 87 Venezuela 5.2 -1.6 4.0 1.5 3.5 -1.8 5.9 1.4 6.6 -1.9 88 Greece 5.8 1.0 2.3 -0.7 7.1 -0.6 8.4 -0.9 6.2 2.4 89 Israel 6.7 1.7 . . . . . . . . . . . . . 90 Trinidad and Tobago 4.8 -4.1 0.1 1.4 3.8 -4.0 . . -4.8 5.7 -4.5 91 Hong Kong 8.5 5.9 . . . . . 92 Oman 12.5 4.0 . . . . . . . . . . . . . 93 Singapore 10.2 6.5 3.1 - 1.8 12.2 5.9 13.3 2.1 9.7 6.9 94 Iran,IslamicRep. 6.2 4.5 2.4 10.0 . . 13.3 95 Iraq . . . . . . . . 96 Romania .. .. .. Developing economies 6.0w 3.3w 3.1 w 4.0 w 7.6w 3.5w 6.4 w 2.8 w Oil exporters 6.8w 1.0w 3.2 w 1.9w 8.3w 0.2w 8.5w 1.8w 6.9 w 1.4w Exporters of manufactures 6.7w 5.5w 3.2 w 6.1w 8.8w 6.6w 7.4 w 4.3 w Highly indebted countries .4w 0.1w 3.2 w 1.9w 7.3 w -0.9w 7.3w -0.3 w 6.8 w 0.3 w Sub-Saharan Africa 5.3 w -0.7w 1.9w 0.9 w 9.7w -2.4w 9.8w 3.5w .4 w --0.4w High-income oil exporters 7.5 w -2.2w 7.8 w -8.3w 9.2w 97 Libya 4.2 -6.1 10.7 7.3 1.2 -8.8 13.7 11.5 15.5 -3.7 98 Saudi Arabia 10.9 -2.1 4.1 8.0 11.6 -9.7 8.1 7.7 10.5 7.3 99 Kuwait 3.1 0.3 .. .. .. .. 100 United Arab Emirates -2.8 . . 13.3 -6.1 20.2 . 5.9 Industrial market economies 3.7w 2.3 w 1.2 w 1.5w 3.6w 2.5 w 4.0w 3.0w 3.9w 2.0 w 101 Spain 4.8 1.6 2.7 2.5 5.8 0.6 6.7 0.3 4.6 2.2 102 Ireland 4.7 1.5 .. .. . .. .. .. 103 Italy 3.8 0.8 0.9 0.5 4.2 -0.3 . . . . 4.1 1.8 104 New Zealand 3.0 3.1 .. .. .. .. .. 105 Belgium 3.8 0.7 1.1 3.4 4.5 0.6 4.8 1.6 3.4 0.6 106 United Kingdom 2.2 2.0 1.7 3.2 1.2 0.6 1.1 0.1 2.9 2.1 107 Austria 4.4 1.7 1.9 1.5 4.6 1.4 4.8 2.1 4.6 2.1 108 Netherlands 3.9 0.7 4.3 7.8 3.6 0.4 4.3 1.4 4.0 0.2 109 France 4.3 1.1 0.8 3.1 4.6 0.3 5.3 0.4 4.6 1.4 110 Australia 4.2 2.5 2.6 3.9 2.9 1.0 1.2 -0.4 5.4 3.3 Ill Finland 4.1 2.7 0.4 (.) 4.8 2.7 5.2 3.0 4.4 3.2 112 Germany, Fed. Rep. 3.4 1.3 1.6 4.0 3.1 -0.5 3.4 -0.2 3.8 2.0 113 Denmark 2.8 2.4 0.3 5.1 2.2 2.2 3.4 2.9 3.3 2.2 114 Japan 6.3 3.8 0.8 1.6 8.5 5.9 9.4 7.8 5.2 1.6 115 Sweden 2.7 2.0 -0.2 3.1 2.2 2.8 2.3 2.9 3.3 1.4 116 Canada 4.8 2.4 1.6 0.5 4.0 -0.6 4.2 -0.2 5.4 2.7 117 Norway 4.4 3.3 1.1 -1.3 5.0 2.4 2.8 -0.! 4.4 4.1 118 Switzerland 2.0 1.2 .. .. .. .. .. .. 119 United States 2.9 2.5 1.3 1.8 2.3 2.4 2.7 3.3 3.4 2.6 Nonreporting nonmember economies 120 Albania 121 Angola 122 Bulgaria 123 Cuba 124 Czechoslovakia 125 German Dem. Rep. 126 Korea, Dem. Rep. 127 Mongolia 128 USSR a. Because manufacturing is generally the most dynamic part of the industrial sector, its gmwth rate is shown separately. b. World Bank estimate. 205 Table 3. Structure of production GDP Distribution of gross domestic product (percent) (millions of dollars) Agnculture Industry (Manufacturing)b Services 1965 1985 1965 1985 1965 1985 1965 985 '965 1985 Low-income economies 147,330 t 587,020 t 41 w 32 w 28 w 33 w 21 w 26 w 32 w 35 w China and India 111,850 t 441,240 t 41 w 31 w 30 w 37 w 24 w 29w 29 w 32 w Other low-income 35,480 t 145,780 t 41 w 36w 17w 19w 10 w 12 w 42 w 45 w I Ethiopia 1,180 4,230 58 44 14 16 7 28 39 2 Bangladesh 4,380 16,110 53 50 II 14 5 8 36 36 3 Burkina Faso 260 930 53 45 20 22 27 33 4 Mali 1,100 50 13 7 37 5 Bhutan 180 50 18 .. 4 32 6 Mozambique 3,230 35 II 53 7 Nepal 730 2,340 65 62 II 12 3 5 23 26 8 Malawi 220 970 50 38 13 19 37 44 9 Zaire 3,140 4,810 21 31 26 34 16 1 53 36 10 Burma 1,600 7,070 35 48 13 13 9 10 52 39 II Burundi 160 970 61 IS 9 24 12 Togo 190 700 45 30 21 24 10 7 34 47 13 Madagascar 14 Niger 730 670 2,340 31 42 16 16 Ii 53 42 1,580 68 47 3 16 2 4 29 37 15 Benin 220 960 59 48 8 16 4 33 36 16 Central AfricanRep. 140 610 46 39 16 20 4 8 38 41 17 India 46,260 175,710 47 31 22 27 15 17 31 41 18 Rwanda 150 1,710 75 45 7 21 2 16 18 34 19 Somalia 220 2,320 71 58 6 9 3 6 24 34 20 Kenya 920 5,020 35 31 18 20 II 13 47 49 21 Tanzania 790 5,600 46 58 14 8 8 5 40 33 22 Sudan 1,330 6,930 54 26 9 18 4 9 37 57 23 China 65,590 265,530 39 33 38 47 3Ø 37C 23 20 24 Haiti 350 1,930 0 25 Guinea 520 1,980 40 22 2 38 26 Sierra Leone 320 1,190 34 44 28 14 6 6 38 42 27 Senegal 810 2,560 25 19 18 29 14 18 56 52 28 Ghana 2,050 4,860 44 41 19 15 10 II 38 43 29 Pakistan 5,450 28,240 40 25 20 28 14 20 40 47 30 Sn Lanka 1,770 5,500 28 27 21 26 17 15 51 46 31 Zambia 1,064) 2,330 14 14 54 39 6 22 32 46 32 Afghanistan 620 33 Chad 290 42 15 12 43 34 Kantpuchea,Dem. 35 LaoPDR 870 .. . .. .. .. 36 Uganda 1,100 . . 52 . . 13 . . 8 . . 35 37 VietNam . Middle-income economies 186,300 t 1,43° 960 t 20w 14w Mi w 34w 50w 52w Lower middle-income 66,800 t 30 t 29 w 22 w 24 w 32 w 16 w 17 w 47 w 47 w 38 Mauritania 160 600 32 29 36 25 4 . 32 47 39 Bolivia 730 2,980 23 27 31 30 15 19 46 42 40 Lesotho 50 260 65 . . 5 S I 30 41 Liberia 270 1,000 27 37 40 28 3 5 34 36 42 Indonesia 3,830 86,470 56 24 13 36 8 14 31 41 43 Yemen, PDR 900 .. .. .. .. 44 Yemen, Arab Rep. . . 3,700 34 . . 16 7 50 45 Morocco 2,950 11,850 23 18 28 32 16 17 49 50 46 Philippines 6,010 32,590 26 27 28 32 20 25 46 4l 47 Egypt, Arab Rep. 4,550 30,550 29 20 27 31 . . . . 44 49 48 Côte d'Ivoire 760 5,220 47 36 19 26 II 17 33 38 49 Papua New Guinea 340 2,270 42 18 . . . 4! 50 Zimbabwe 960 4,530 18 13 35 43 20 29 47 44 SI Honduras 460 2,960 40 27 19 25 12 14 41 48 52 Nicaragua 570 2,860 25 23 24 33 l8 27 51 44 53 Dominican Rep. 960 4,910 26 15 20 31 14 19 53 53 54 Nigeria 4,190 75,300 53 36 19 32 7 9 29 32 55 Thailand 4.050 38,240 35 17 23 30 14 20 42 53 56 Cameroon 750 7,940 32 21 17 37 10 12 50 42 57 El Salvador 800 3,820 29 19 22 22 18 16 49 60 58 Botswana 50 830 34 6 19 49 12 8 47 46 59 Paraguay 440 5,810 37 29 19 25 16 16 45 46 60 Jamaica 870 1,980 10 6 37 36 17 20 53 58 6! Peru 5,030 16,850 18 II 29 38 17 20 53 5! 62 Turkey 7,660 48,820 34 19 25 35 16 25 41 46 63 Mauritius 190 890 16 15 23 29 14 20 61 56 64 Congo, People's Rep. 200 2,160 19 8 19 54 . . 6 62 38 65 Ecuador 1,150 12,550 27 14 22 42 18 19 50 45 66 Tunisia 880 7,240 22 17 24 34 9 14 54 49 67 Guatemala 1,330 11,020 . . . . . . . . . Note: For data comparability and coverage, see the technical notes. Figures in italics are for years other than those specified. 206 GDP Distribution of gross domestic product (percent) (millions of dollars) Agriculture Industry (Manufacturing)b Services 1965 1985 1965 1985 1965 1985 1965 1985 1965 1985 68 Costakica 590 3,810 24 20 23 29 .. 53 51 69 Colombia 5,570 34,400 30 20 25 30 18 18 46 50 70 Chile 5,940 16,000 9 40 24 52 71 Jordan 3,450 . 8 28 12 64 72 SyrianArabRep. 1,470 16,370 29 22 22 21 49 57 73 Lebanon 1,150 12 21 . 67 Upper middle-income 119,5th 930,330 t 15 w lOw 34w 35 w 51 w 54 w 74 Brazil 19,260 188,250 19 13 33 33 26 48 54 75 Umguay 930 4,380 15 11 32 33 . 53 56 76 Hungaryd 20,560 16 41 43 77 Portugal 3,740 20,430 9 40 51 78 Malaysia 3,130 31,270 28 . . 25 . 9 47 79 South Africa 10,540 67,710 10 5 42 45 23 23 48 50 80 Poland 70,439 . 0 .. 81 Yugoslavia 11,190 44,370 23 12 42 46 . 35 42 82 Mexico 20,160 177,360 14 11 31 35 21 . 54 54 83 Panama 660 4,880 18 9 19 18 12 9 63 73 84 Argentina 16,500 65,920 17 . 42 . . 33 . 42 85 Korea, Rep of 3,000 86,180 39 14 26 41 19 28 35 45 86 Algeria 3,170 58,180 15 8 34 48 11 11 51 43 87 Venezuela 8,290 49,600 7 8 41 42 . . 21 52 50 88 Greece 5,270 29,150 24 17 26 29 16 18 50 54 89 Israel 3,590 20,270 . . . . . . 90 Trinidad and Tobago 660 7,770 5 3 38 44 19 7 57 53 91 HongKong 2,150 30,730 2 1 40 31 24 24 58 68 92 Oman 60 8,820 61 3 23 59 (.) 3 16 38 93 Singapore 970 17,470 3 1 24 37 15 24 73 62 94 Iran, Islamic Rep. 6,170 . 26 36 12 38 95 Iraq 2,430 18 46 8 36 96 Romania Developing economies 333,630 2,026,970 29 w 20 w 29 s 14w 42 w 47 w Oil exporters 57,090 533,070 22 w 17w 29 ss 16w 15w 13w 50 w 47 w Exporters of manufactures 163,420 907,600 34 w 21 w 31 ii 35 w 36 w 44 w Highly indebted countries 115,530 779,100 18 w 15w 32 s 33w 23w 17w 49 w 52 w Sub-Saharan Africa 24,620 160,660 39 w 34 w 19 27w lOw lOw 42 w 40 w High-income oil exporters 6,960 t 170,300 Sw 2w 65w 58w 5w 8w 30w 39w 97 Libya 1,500 25,420 5 4 63 57 3 5 32 39 98 Saudi Arabia 2,300 95,050 8 3 60 56 9 8 32 41 99 Kuwait 2,100 21,710 (.) 1 73 58 3 8 27 41 100 UnitedArabEmitates .. 28,120 .. 1 67 10 32 Industrial market economies 1,367,050 t 8,568,920 t 5w 3w 40 w 36 w 30w 23w 55w 61w 101 Spain 23,320 164,250 15 36 25 49 102 Ireland 2,690 18,430 . . . . . . . . 103 Italy 62,600 358,670 56 104 New Zealand 105 Belgium 5,580 16,840 22,140 79,080 . 11 5 5 11 2 41 . . 41 39 33 33 30 . . . 24 23 . 48 . . 53 56 64 106 United Kingdom 99,530 454,300 3 2 41 36 30 22 56 62 107 Austria 9,470 66,050 9 3 46 38 33 28 45 59 108 Netherlands 19,700 124,970 . . 4 . 34 . . . . . . 62 109 France 97,930 510,320 8 4 39 34 29 25 52 62 110 Australia 22,140 162,490 11 4 40 33 28 17 48 63 Ill Finland 8,190 54,030 15 7 33 33 21 23 52 60 112 Germany, Fed. Rep. 114,800 624,970 4 2 53 40 40 3] 43 58 113 Denmark 10,180 57,840 8 5 32 24 20 17 60 71 114 Japan 90,970 1,327,900 9 3 43 41 32 30 48 56 115 Sweden 21,670 100,250 6 3 40 31 28 21 53 66 116 Canada 51,840 346,030 5 3 34 30 23 16 61 67 117 Norway 7,080 57,910 8 4 33 43 21 14 59 54 118 Switzerland 13,920 92,690 . . . . . . . . . . . . . 119 UnitedStates 688,600 3,946,600 3 2 38 31 29 20 59 67 Nonreportirig nonmember economies 120 Albania 121 Angola 122 Bulgaria 123 Cuba 124 Czechoslovakia 125 German Dem. Rep. 126 Korea, Dem. Rep. 127 Mongolia 128 USSR a. See the technical notes. b. Because manufacturing is generally the most dynamic part of the industrial sector, its share of GDP is shown separately. c. World Bank estimate. d. Servicea include the unallocated share of GDP. 207 Table 4. Growth of consumption and investment Average annual growth rate (percent) General goverament Gross consumption Private consumption domestic investment 1965-80 1980-85 965-80 1980-85 965-80 1980-85 Low-income economies 5.4 w 6.6w 3.9 w 5.6w 7.2 w 11.4w China and India 6.1 w 7.6 w 4.3 w 6.4 w 8.2 w 13.2w Other low-income 3.2 w 2.3 w 3.0w 3.1 w 3.2 w -2.1 w I Ethiopia 6.4 5.8 3.6 1.0 -0.6 1.6 2 Bangladesh a 2.7 3.7 0.0 0.5 3 Burkina Faso 8.7 3.2 2.1 0.8 8.8 -3.2 4 Mali 5.1 9.0 5.0 2.5 1.8 -7.9 5 Bhutan 6 Mozambique -9.4 -7.4 -22.1 7 Nepal 8 Malawi 5.7 1.5 1.9 9.0 -7.5 9 Zaire 0.7 -15.5 -0.2 0.6 6.7 -4.4 10 Burma a 5.9 3.7 3.6 5.6 -1.8 II Burundi 7.3 1.9 3.9 1.4 9.0 5.6 12 logo 9.5 -3.9 5.4 -1.9 9.0 -6.8 13 Madagascar 2.0 -1.5 1.5 -0.2 1.5 -8.2 14 Niger 2.9 2.5 -0.6 -1.3 6.3 -26.5 15 Benin 0.7 4.8 1.7 3.3 10.4 -17.9 16 Central African Rep. -1.! -4.6 4.2 -0.7 -5.4 14.3 17 India 6.3 10.7 3.1 4.4 4.8 4.6 18 Rwanda 6.2 0.8 4.0 0.6 9.0 7.4 19 Somalia 12.7 -9.1 3.! 2.7 0.4 21.5 20 Kenya 10.4 -0.3 5.3 2.2 7.1 -8.9 21 Tanzania a a 4.6 1.9 6.2 -3.4 22 Sudan 0.2 -8.9 4.5 2.7 6.5 -12.9 23 China 6.0 6.3 5.3 7.7 10.5 16.5 24 Haiti 1.9 2.9 2.4 -2.7 14.8 0.0 25 Guinea -5.2 5.4 -7.6 26 Sierra Leone -0.2 5.3 4.0 -2.9 -0.6 -11.7 27 Senegal 2.9 4.3 1.8 1.7 3.9 0.7 28 Ghana 3.8 0.1 1.2 -0.9 -1.3 -1.6 29 Pakistan 4.7 10.5 5.5 5.1 2.4 6.1 30 Sri Lanka 1.1 6.8 3.2 9.2 11.5 -4.4 31 Zambia 5.1 -6.4 0.! 2.2 -3.6 -14.0 32 Afghanistan 33 Chad 34 Kanipuchea, Dem. 35 Lao PDR 36 Uganda a 1.1 -5.7 37 VietNam Middle-income economies 7.2w 2.9w 6.3w 1.5w 8.6w -3.9w Lower middle-income 8.6w 3.1w 5.5w 1.9w 9.1 w -3.5w 38 Mauritania 10.0 -7.2 1.8 6.3 19.2 -8.1 39 Bolivia 8.0 -2.6 4.0 -4.4 4.4 -9.5 40 Lesotho 12.3 8.5 17.5 41 Liberia 3.4 4.2 3.1 1.9 6.4 -20.0 42 Indonesia 11.4 5.2 6.3 5.9 16.1 5.6 43 Yemen, PDR 44 Yemen, Arab Rep. 9.9 2.3 -12.5 45 Morocco 11.0 3.0 2.6 II.) -3.1 46 Philippines 7.7 -0.6 4.5 2.3 8.5 -14.4 47 Egypt, Arab Rep. 8.5 5.7 3.0 11.5 0.7 48 Côte d'lvoire 12.7 -5.1 7.9 -0.1 10.4 -22.0 49 Papua New Guinea 0.! -2.2 3.7 1.4 1.4 -2.0 50 Zimbabwe 10.6 9.6 5.4 1.7 0.9 -2.4 SI Honduras 7.3 -0.1 4.3 -1.3 6.6 -2.7 52 Nicaragua 6.6 20.6 2.0 -9.0 I.5 0.2 53 Dominican Rep. 0.3 -0.1 7.3 0.5 13.5 -2.7 54 Nigeria 13.5 1.3 7.0 -1.5 14.7 -18.0 55 Thailand 9.3 4.3 6.8 4.7 7.6 1.7 56 Cameroon 5.0 8.7 3.8 3.0 9.9 10.8 57 El Salvador 7.0 0.6 4.1 -2.3 6.6 -2.1 58 Botswana 12.0 12.0 9.2 5.5 21.0 -14.8 59 Paraguay 5.1 7.1 6.3 3.1 13.5 -8.8 60 Jamaica 9.8 1.0 1.5 0.1 -3.3 2.1 61 Peru 5.6 -1.4 4.2 -1.0 0.2 -16.5 62 Turkey 6.1 3.0 5.4 3.6 8.8 3.6 63 Mauritius 7.1 1.9 6.2 1.5 8.3 5.5 64 Congo, People's Rep. 5.5 6.4 2.8 8.4 4.5 0.8 65 Ecuador 12.2 -1.7 6.8 1.3 9.5 -7.2 66 Tunisia 7.2 6.2 7.9 4.7 4.6 1.2 67 Guatemala 6.2 0.3 5.3 -0.9 7.4 -9.0 Note: Fordata comparability and coverage, see the technical notes. Figures in italics are for years other than those specified. 208 Average annual growth rate (percent) Genera] government Gross consumption Private consumption domestic Investment 1965-80 1980-85 1965-80 l980-85 l965-80 980-85 68 CostaRica 6.8 -1.4 5.1 0.2 9.4 -1.9 69 Colombia 6.7 I4 5.9 2.6 5.8 0.6 70 Chile 4.0 -0.6 I0 -2.2 0.5 -13.5 71 Jordan . . 4.9 . . 4.5 -2.0 72 Synan Arab Rep. 15.0 4.8 10.1 0.2 14.3 3.1 73 Lebanon . . . Upper middle-income 6.5w 2.8w 6.8w 8.4w 74 Brazil 6.5 0.2 9.1 2.2 10.2 -5.5 75 Uniguay 3.2 -0.3 2.4 -5.7 8.0 -19.1 76 Hungary . . -0.8 . . 1.6 . . -4.0 77 Portugal 8.1 3.4 6.0 0.1 4.7 -10.1 78 Malaysia 8.5 3.6 6.0 3.8 10.4 5.3 79 South Africa 5.7 . . 4.3 . . 4.2 80 Poland . . 2.2 . . -2.3 . . -3.2 81 Yugoslavia 3.6 -0.8 7.7 -0.8 6.5 -0.3 82 Mexico 8.5 3.3 5.9 0.1 8.5 -9.1 83 Panama 7.4 3.3 4.7 6.2 5.9 -9.4 84 Argentina 3.2 -3.0 2.7 -1.2 4.4 -13.8 85 Korea, Rep. of 6.7 3.4 7.9 5.5 16.5 9.6 86 Algeria 8.6 5.3 9.0 5.4 15.9 3.8 87 Venezuela 7.4 . . 8.5 . . 8.5 88 Greece 6.6 3.4 5.5 1.8 5.3 -4.6 89 Israel 8.4 -0.7 6.1 3.5 5.9 -1.0 90 Trinidad and Tobago a 1.2 7.5 -3.0 7.3 -10.1 91 HongKong 7.7 6.2 9.0 6.6 8.6 -1.7 92Oman .. .. .. 93 Singapore 10.1 9.4 7.8 4.5 13.9 7.4 94 Iran,Isl.amrcRep. 14.9 8.4 . . 10.6 95 Iraq 96 Romania Des ing economies 6.6 w 4.1 w 5.6w 2.7 w 8.2 w 0.8 w Oil cxporters 9.4 w 2.8 w 6.6 w 0.6 w 11.2w -4.8 w Exporters of manufactures 6.2 w 5.9w 6.2 w 4.4w 8.7w 6.2 w Highly indebted countries 6.9 w 1.6w 6.4 w 0.2 w 8.2 w -9.4w Sub-Saharan Africa 8.0 w 0.7 w 4.4 w 0.3 w 9.0 w -11.4 w High-income oil exporters 97 Libya 19.2 17.5 7.2 98 Saudi Arabia a 15.4 . . 27.5 99 Kuwait a 8.4 . . 11.7 100 United Arab Emirates 6.5 6.4 0.2 Industrial market economies 3.0w 2.7w 4.0w 2.2 w 2.9 w 2.7 w 101 Spain 5.0 4.0 4.9 0.3 4.0 -2.6 102 Ireland 6.1 1.0 4.0 -1.9 6.8 -1.0 103 Italy 3.3 43 3.9 03 2.8 -2.3 104 New Zealand 2.9 0.3 3.2 1.1 2.6 8.5 105 Belgium 4.3 0.2 4.1 0.2 2.9 -4.2 106 United Kingdom 2.2 1.0 2.1 2.4 1.1 5.3 107 Austria 4.0 1.6 4.2 2.4 4.6 0.2 108 Netherlands 30 0.6 4.3 -0.2 2.3 0.9 109 France 3.5 1.7 4.7 1.8 3.7 -1.2 110 Australia 5.4 3.8 4.1 2.8 2.4 0.8 Ill Finland 5.4 3.7 3.8 2.9 2.8 0.8 112 Germany, Fed. Rep. 3.5 1.0 4.0 0.6 1.8 -0.8 113 Denmark 4.8 0.9 2.4 1.7 1.3 4.9 114 Japan 5.1 2.8 6.1 3.0 6.7 2.4 115 Sweden 4.0 1.5 2.5 0.5 1.1 0.5 116 Canada 4.8 1.9 5.! 2.2 4.9 0.4 117 Norway 4.7 3.0 4.5 3.4 2.7 2.9 118 Switzerland 2.7 2.3 2.6 1.1 0.8 0.9 119 United States 1.9 4.2 3.5 3.0 1.8 5.2 Nonreporting nonmember economies 120 Albania 121 Angola 122 Bulgaria 123 Cuba 124 Czechoslovakia 125 German Dent. Rep. 126 Korea, Dent. Rep. 127 Mongolia 128 USSR a. General government consumption figures are not available separately: they are included in private consumption. 209 Table 5. Structure of demand Distribution of gross domestic product (percent) General Exports of goods government Private Gross domestic Gross domestic and nonfactor Resource consumption consumption investment savings services balance 1965 1985 1965 1985 1965 1985 1965 1985 1965 1985 1965 1985 Low-income economies 13w 13w 69w 64w 21w 29w 19s 24w 7w lOw -1w -5w China and India 13w 13w 67w 59w 22w 33w 20w 28w 4w 9w -1w -4w Other low-income 11w 12w 74w 82w 15w 15w 15w 6w 19w 14w -1w -9w I Ethiopia Ii 20 77 86 13 10 12 -6 12 12 -1 16 2 Bangladesh 9 8 83 89 II 13 8 3 10 6 -4 -10 3 BurkinaFaso 9 15 87 91 12 20 4 -7 9 16 -8 -26 4 Mali 5 Bhutan 6 Mozambique .... 23 16 0 87 81 S 7 19 -5 -3 0 21 4 -24 -10 7 Nepal a 8 100 80 6 21 (.) 12 8 13 -6 -9 8 Malawi 16 15 84 73 14 16 (.) II 19 25 -14 -4 9 Zaire 10 6 61 78 14 13 29 16 36 39 15 2 10 Burma a 14 87 73 19 17 13 14 14 6 -6 3 II Burundi 7 II 90 84 6 15 4 5 10 Il -2 -10 12 logo 8 14 76 71 22 26 17 15 20 41 -6 -II 13 Madagascar 23 13 74 78 10 14 4 9 16 14 -6 -5 14 Niger 6 12 90 83 8 14 3 5 9 17 -5 -9 IS Benin II 9 87 92 II 14 3 -1 13 24 -8 -IS 16 CentralAfricanRep. 22 12 67 86 21 16 II 2 27 25 -II -14 17 India 10 12 77 67 18 25 14 21 4 6 -2 -3 18 Rwand.a 14 17 81 75 10 17 5 8 12 9 -5 -9 19 Somalia 8 12 84 93 II 15 8 -5 17 7 -3 -21 20 Kenya IS 18 70 66 14 19 15 16 31 25 -2 1 21 Tanzania 10 9 73 87 15 13 17 4 26 7 I -10 22 Sudan 12 II 79 92 10 7 9 -3 IS 10 -1 -10 23 China 15 14 59 52 25 38 25 34 4 II I -5 24 Haiti 8 13 90 81 7 IS 2 6 13 16 -5 -8 25 Guinea 14 73 9 13 25 4 26 Sierra Leone 8 12 83 80 12 9 9 8 30 II 3 1 27 Senegal 17 18 75 80 12 14 8 I 24 31 -4 -13 28 Ghana 14 9 77 84 18 9 8 7 17 13 10 -2 29 Pakistan II 12 76 83 21 17 13 5 8 II -8 -12 30 Sri Lanka 13 9 74 78 12 25 13 13 38 26 I -12 31 Zambia 15 19 45 67 25 12 40 13 49 39 15 32 Afghanistan a . . 99 . II I II - tO 33 Chad 20 . 74 . . 12 . . 6 19 -6 34 KampucheaDem. 16 . . 71 . . 13 . 12 . 12 -1 3SLaoPDR .. 36 Uganda 37 VietNam 10 78 . . . . II . 12 . . 26 . . Middle-income economies 11w 12w 68w 65w 22w 21w 21w 23w 17w 26w (.)w 2w Lower middle-income 11w 13w 74w 68w 18w 20w 15w 19w 16w 23w -2w -lw 38 Mauritania 19 15 54 76 14 25 27 8 42 60 13 -17 39 Bolivia 9 9 78 71 22 17 13 20 2! 18 -6 3 40 Lesotho 18 . . 109 . . II . . -26 . . 16 . . -38 41 Liberia 12 21 61 65 17 9 27 14 50 43 10 6 42 Indonesia 5 12 87 56 8 30 8 32 5 23 (.) 2 43 Yemen, PDR . . . . . . . . . 44 Yemen, Arab Rep. . . 22 . . 93 . . 21 . . - IS . . 5 . . -36 45 Morocco 12 16 77 72 10 22 12 12 18 27 1 -10 46 Philippines 9 7 76 80 21 16 IS 13 17 22 (.) 3 47 Egypt,ArabRep. 19 23 67 61 18 25 14 16 18 27 -4 -9 48 Côted'Ivoire II 14 61 60 22 13 29 26 37 46 7 13 49 PapuaNewGuinea 34 23 64 63 22 22 2 13 18 44 20 10 50 Zimbabwe 12 19 65 58 15 23 23 23 . . 26 . . (.) 51 Honduras 10 17 75 70 IS 17 15 13 27 27 (.) -4 52 Nicaragua 8 45 74 57 21 19 18 -2 29 14 -3 -21 53 Dominican Rep. 18 8 75 74 9 21 7 18 IS 28 -2 -3 54 Nigeria 7 9 76 77 19 10 17 14 18 17 -2 4 55 Thailand 10 13 70 65 20 23 21 21 18 27 -1 -1 56 Cameroon 14 9 73 53 13 26 13 38 25 35 -I 13 57 El Salvador 9 13 79 81 IS 13 12 6 27 23 -2 -7 58 Botswana 24 23 89 49 6 21 -13 27 32 63 -19 7 59 Paraguay 7 8 79 83 15 17 14 9 15 21 -1 -9 60 Jamaica 8 16 69 72 27 23 23 12 33 55 -4 - II 61 Peru ID II 63 64 34 20 27 25 16 22 -4 6 62 Turkey 12 9 74 75 IS 20 13 16 6 19 -1 -4 63 Mauritius 13 12 74 67 17 22 13 21 36 54 -4 -1 64 Congo, People's Rep. 14 16 80 51 22 30 5 33 36 56 -17 3 65 Ecuador 9 12 80 65 14 18 II 24 16 27 -3 6 66 Tunisia IS 16 71 63 28 27 14 20 19 33 -14 -6 67 Guatemala 7 7 82 84 13 12 tO 9 17 19 3 -2 Note: For data comparability and coverage, see the technical notes. Figures in italics are for yearn others than those specified. 210 Distribution of gioss domestic product (percent) General Exports of goods government Private Gross domestic Gross domestic and nonfactor Resource consumption consumption investment savings services balance 1965 1985 1965 1985 1965 1985 1965 1985 965 1985 1965 1985 68 Costa Rica 69 Colombia 13 8 16 10 78 75 62 73 20 16 23 18 17 9 22 17 23 II 32 15 10 2 1 70 Chile II 14 73 69 15 14 16 16 14 29 1 3 71 Jordan . . 26 . . 87 . 31 . 13 . . 49 . . -44 72 Syrian Arab Rep. 14 25 76 62 10 24 10 14 17 II (.) 73 Lebanon 10 81 22 . 9 . . 36 . 13 Up1 iddle-income 11 w 12 w 65 w 62 w 24 w 24 w 26 w 18 w 28 w (.) w 4w 74 Brazil II 9 62 69 25 16 27 22 8 14 2 6 75 Uniguay 15 12 68 75 Il 8 18 12 19 25 7 4 76 Hungary 77 Portugal 78 Malaysia 12 15 a 10 15 15 75 68 61 63 66 52 26 25 20 25 21 28 25 20 24 27 20 33 . 27 42 . 42 39 55 52 4 2 5 79 South Africa II 17 60 52 28 21 30 28 26 34 (.) 10 80 Poland . 0 9 . . 62 . . 28 . . 29 . . 18 , 81 Yugoslavia 18 13 52 46 30 39 30 41 22 30 (.) 2 82 Mexico 7 10 72 64 22 21 26 16 83 Panama II 21 73 63 18 15 21 16 15 9 36 36 2 5 I 84 Argentina 8 10 69 74 19 9 23 16 8 15 2 6 85 Korea, Rep. of 86 Algeria 15 9 10 IS 84 66 59 46 15 22 30 36 19 7 31 38 9 22 36 24 8 3 I 3 87 Venezuela 12 13 54 62 24 15 34 24 31 27 10 10 88 Greece 12 20 73 71 26 21 15 9 9 22 12 89 Israel 90 Trinidad andTobago 20 II 31 20 64 66 61 52 29 23 16 26 15 23 28 9 19 39 42 31 13 8 (.) 3 91 Hong Kong 92 Oman 7 7 64 65 57 36 21 29 27 71 106 50 7 6 93 Singapore . 10 . 13 a . 79 . 45 . 22 . 30 43 . 10 . 43 42 123 . 12 2 . . 13 94 Iran, islamic Rep. 13 . . 63 . . 17 24 . . 20 . . 6 95 Iraq 20 . 49 . . 16 31 38 15 96 Romania Developing economies 12 w 12 w 68 w 64w . w 23 w 20w 23 w 13 w 21 w 1w (.) w Oil exporters lOw 12 w 70w 62 w 20 w 23 w 20 w 26 w 16w 21 w (.) w 3w Exporters of manufactures 13w 12w 66w 61w 23w 28w 22w 27w 8w 21 w w w Highly indebted countries 10w lOw 67 w 68w 22w 18 w 23 w 22 w 14 w 17 w 2w 5w Sub-SaharanAfrica 11w 12w 70w 76w 16w 13w 18w 13w 25w 21w 1w (.)w High-income oil exporters 15 w 31 w 32 w 40 w 19 w 29 w 53 w 30 w 61 w 47 w 34 w (.) w 97 Libya 14 36 29 50 53 21 99 . . . . . . . . . . 98 Saudi Arabia 18 37 34 41 14 31 48 21 60 40 34 99 Kuwait 13 20 26 50 16 2l 60 30 68 60 45 100 UnitedArabEmirates . . 17 24 31 59 60 . . 28 Industri: rket economies 15w 17w 61w 62w 23w 21w 23w 21w 12w 18w (.) w (.) w 101 Spain 7 14 71 64 25 22 II 23 102 Ireland 14 19 72 57 24 19 22 21 IS 24 35 62 9 3 2 2 103 Italy 104 New Zealand 105 Belgium IS 12 13 19 16 17 62 63 64 62 60 65 20 27 23 19 28 15 23 25 23 18 24 18 16 22 36 28 31 78 23 (.) 3 2 106 United Kingdom 17 21 64 60 20 17 19 18 20 29 I 107 Austria 13 19 59 57 28 24 27 25 26 40 (.) 108 Netherlands 15 16 59 59 27 20 26 25 43 64 5 109 France 110 Australia III Finland 13 10 14 16 17 20 61 63 60 65 60 54 25 29 28 19 24 24 26 27 26 19 23 26 14 IS 2! 25 16 30 2 2 2 I (.) I 112 Germany, Fed. Rep. 15 20 56 57 28 20 29 24 18 33 (.) 4 113 Denmark 114 Japan 16 8 25 10 59 58 55 58 26 32 20 28 25 33 20 32 29 II 37 IS 2 I (.) 4 115 Sweden 18 27 56 51 27 19 26 21 22 35 2 116 Canada 15 20 60 57 26 20 25 23 19 29 (.) 3 117 Norway 15 19 56 49 30 25 29 33 41 47 8 118 Switzerland 10 13 60 62 30 24 30 25 29 39 (.) 119 United States 17 18 62 65 20 19 21 16 5 7 I 3 Nonreporting nonmember economies 120 Albania 121 Angola 122 Bulgaria 123 Cuba 124 Czechoslovakia 125 German Dem. Rep. 126 Korea, Dem. Rep. 127 Mongolia 128 USSR a. General government consumption figures are not available separately; they are included in private consumption. 211 Table 6. Agriculture and food Value added Food aid Fertilizer consumption Average index of in agriculture Cereal imports in cereals (hundreds of grams of food production (millions of (thousands of (thousands of plant nutnent per per capita l98Odollars) metric tons) metric tons) hectate of arable land) (1979-81 = 1(8)) 1970 1985 1974 1985 1974/75 1984/85 l970 1984 1983-85 Low-income economies 24,1101 21,6741 5,656 t 7,282 177 w 657 w 120 w China and India 15,101 t 10,403 1,5821 566t 230 w 923 w 123 w Other low-income 9,009 t 11,271 4,074 t 6,716 78 w 197 w 112 w IEthiopia 1.663 1,511 118 986 54 869 4 35 97 2 Bangladesh 5,922 7,393 1,866 2,102 2,076 1,500 142 611 110 3 BurkinaFaso 461 607 99 113 28 124 3 50 114 4 Mali 717 816 281 281 107 266 29 75 114 5 Bhutan 3 16 0 5 0 25 110 6 Mozambique 477 62 426 34 366 27 48 98 7 Nepal 1,102 1.456 18 18 0 9 30 198 116 8 Malawi 258 426 17 23 (.) 5 52 183 lOS 9 Zaire 2,518 3,362 343 331 I 138 8 14 113 10 Burma 1,705 3,519 26 0 9 0 34 158 129 II Butundi 468 598 7 20 6 17 5 21 106 12 Togo 238 325 6 79 II 23 3 21 103 13 Madagascar 1,111 1.293 114 205 7 98 56 46 112 14 Niger 1,466 1,070 155 247 73 218 I 5 96 IS Benin 410 515 8 54 9 21 33 30 121 16 Central African Rep. 256 333 7 17 I 12 II 2 lOS 17 India 46,456 61,710 5,261 9 1,582 304 114 394 120 18 Rwanda 295 614 3 24 19 36 3 7 106 19 Somalia 589 911 42 344 III 248 31 23 102 20 Kenya 1.198 2,263 IS 365 2 340 224 376 99 21 Tanzania 1.834 2,088 431 231 148 127 30 44 108 22 Sudan 1,754 1,511 125 1,082 46 812 31 30 103 23 China 69,147 139,482 9,840 10,394 0 262 418 1,806 125 24 Haiti 83 227 25 101 4 36 104 25 Guinea 805 63 140 49 47 18 I 102 26 Sierra Leone 259 358 72 81 10 21 13 7 108 27 Senegal 603 615 34! 510 27 130 20 51 105 28 Ghana 2.320 2,398 177 292 33 94 9 77 118 29 Pakistan 5,007 7,23! 1,274 982 584 411 168 594 114 30 Sn Lanka 812 1,294 95! 1,07! 27! 276 496 767 98 31 Zambia 473 659 93 247 5 112 7! 130 107 32 Afghanistan 5 50 10 50 24 70 104 33 Chad 416 37 134 20 163 7 18 106 34 Kampuchea,Dem. . 223 60 226 22 13 16 153 35 Lao PDR . 53 38 8 5 4 6 129 36 Uganda 2,558 3,03! 37 20 0 30 13 2 125 37 VietNam 1,854 455 64 21 512 627 122 Middle-income economies 44,161 1 73,509 I 2,325 I 3 291w 558w 110w Lower middle-income 15,865 1 28,415 t 1,942 1 4, i87 I 149 w 395w 111w 38 Mauritania 200 222 115 240 48 135 6 23 94 39 Bolivia 380 496 209 459 22 Ill 13 25 101 40 Lesotho 88 . 49 118 14 72 17 151 93 41 Liberia 235 373 42 116 3 20 55 75 114 42 Indonesia 12,037 22,0!! 1,919 1,444 30! 270 119 746 117 43 Yemen, PDR S S . 149 357 (.) 25 0 130 100 44 Yemen, Arab Rep. 452 825 158 654 33 34 I 118 112 45 Morocco 2,784 3,214 891 2,270 75 518 130 295 113 46 Philippines 5,115 9,104 817 1,524 89 68 214 319 103 47 Egypt, Arab Rep. 3,283 4,885 3,877 8,904 610 1,951 1,282 3,639 115 48 Côted'Ivoire 1,999 2,853 172 272 4 0 71 95 115 49 Papua New Guinea 662 958 71 144 . . . . 76 182 109 50 Zimbabwe 556 955 56 106 0 131 466 579 100 SI Honduras 477 702 52 99 31 118 160 159 104 52 Nicaragua 400 533 44 114 3 43 184 557 90 53 DominicanRep. 953 1,235 252 492 16 107 354 288 113 54 Nigeria 17,943 18,858 389 2,199 7 0 3 87 109 55 Thailand 5,63! 10,132 97 174 0 4 76 250 119 56 Cameroon 1,233 2,245 81 139 4 12 28 63 107 57 El Salvador 740 847 75 224 4 194 1,048 1.132 100 58 Botswana 20 72 2! 112 5 39 14 10 96 59 Paraguay 733 1,565 71 83 10 4 58 46 III 60 Jamaica 213 236 340 454 I 225 886 473 109 6! Pent 2,245 2,432 637 1,187 37 216 297 224 III 62 Turkey 8,701 13.776 1,276 1,022 16 0 166 625 108 63 Maurttius 178 169 160 184 22 9 2,08! 2,538 lOS 64 Congo, People's Rep. 147 184 34 90 2 I 112 24 104 65 Ecuador 1.054 1,523 152 293 13 18 123 297 104 66 Tunisia 712 1,602 307 732 59 192 82 157 114 67 Guatemala 138 164 9 23 224 375 108 Note: For data comparability and coverage. see the technical notes. Ftguresin italics ate for years other than those specified. 212 Value added Food aid Fertilizer consumption Average index of in agriculture Cereal imports in cereals (hundreds of grams of food production (millions of (thousands of (thousands of plant nutrient per per capita 1980 dollars) metric Ions) metnc tons) hectare of arable land) (1979-81 = 100) 1970 1985 1974 1985 1974/75 1984/85 l970 1984 983-85 68 Costa Rica 666 949 110 146 I 164 1,086 1,391 100 69 Colombia 4,248 7,106 503 1,021 28 4 310 558 103 70 Chile 1,597 2,262 1,737 486 323 10 317 249 103 71 Jordan 187 327 171 720 79 28 20 394 121 72 SyrianArabRep. 1,057 2,572 339 1,081 47 31 67 319 108 73 Lebanon 354 590 26 15 1,279 1,191 112 Upper middle-income 28,296 t 45,094 t 383 t 94 402 w 684 w 108 w 74 Brazil 18,425 37,540 2,485 4,857 31 10 169 304 115 75 Uruguay 913 953 70 31 6 392 292 107 76 Hungaty 77 Portugal 2,816 4,385 408 134 . . . 1,485 2,998 Ill . . 2,380 1,860 2,204 (.) (.) 411 634 100 78 Malaysia 3,391 6,274 1,017 2,218 I 436 1,304 116 79 South Africa 3,571 127 821 425 644 88 80 Poland . . . 4,185 2,396 . . 68 1,715 2,314 106 81 Yugoslavia 5,849 8,346 992 136 . . 766 1,178 102 82 Mexico 11,125 17,669 2,88! 4,507 . 6 246 602 110 83 Panama 275 375 63 115 3 I 391 41! 109 84 Argentina 3,254 4,452 (.) I 24 37 106 85 Korea, Rep. of 8,408 12995 2,679 6,826 234 0 2,466 3,311 109 86 Algeria 1,731 4,054 1,816 5,27! 54 2 174 221 108 87 Venezuela 2,477 3.620 1,270 2,793 165 411 10! 88 Greece 4,929 6,164 1,341 453 858 1,611 104 89 Israel . . . . 1,176 1,705 53 8 1,394 1,915 117 90 Trinidad and Tobago 153 168 208 195 0 . . 640 494 95 9! Hong Kong . . 657 861 0 . . 0 0 108 92 Oman . . . . 52 203 0 322 93 Singapore 119 132 682 907 (.) . . 2,667 7,833 98 94 Iran, IslamicRep. 10,314 . . 2,076 4,479 0 . . 76 699 109 95 Iraq 870 3,385 (.) (.) 35 165 114 96 Roniania . . 1,38! 596 . . 559 1,559 110 ing econor 68,271 t 95,183 1 7,981 t 12,163 232 w 608 w porters 15,964 f 34,983 t 1,038 1 2,288 131 w 472 w rters of manufactures 31,606 t 31,025 t 1,900 t 652 341 w 919 w indebted countries 13,655 t 22,6361 637 1 1,348 165 w 296 w aharan Africa 10,205 I 910 I 4,812 32 w 70 w High-income oil exporters 1,327 1 7,180 58w 959w 97 Libya 168 723 612 1,024 64 430 98 Saudi Arabia 833 2,045 482 5,036 44 1,896 99 Kuwait 42 . . 101 683 0 4,200 100 United Arab Emirates 378 132 437 0 2,991 Industrial market economies 65,494 t 63,940 r 986 w 1,228 w 103 w 10! Spain 10,929 15,999 4,675 4,183 595 710 104 102 Ireland . . . . 63! 500 3,573 6,973 108 103 Italy 22,099 25,215 8,100 7,052 962 1,684 103 104 New Zealand . . . . 92 78 8,875 11,468 110 105 Belgium1' 2,370 3,220 4,585 5,322 5,686 5,382 98 106 United Kingdom 7.907 11,476 7,54! 3,521 2,521 3,746 109 107 Austria 2,939 3,565 165 107 2,517 2,522 108 108 Netherlands 3,949 8,492 7,199 5,252 7,165 7,879 107 109 France 24,070 30,219 654 1,216 2,424 3,115 107 110 Australia 7,009 10,377 2 25 246 262 110 I!! Finland 4,096 4,265 222 130 1,93! 2,220 114 112 Germany, Fed. Rep. 14,859 19,040 7,164 6,482 4,208 4,211 110 113 Denmark 2,490 4,020 462 404 2,254 2,660 118 114 Japan 39,216 41,435 19,557 26,720 3,849 4,365 106 115 Sweden 4,067 4,477 30! III 1,639 1,603 108 116 Canada 8,50! 10,634 1,513 692 192 484 110 117 Norway 2,035 2,455 713 227 2,47! 2,970 109 118 Switzerland . . . . 1,458 926 3,842 4,296 108 119 UnitedStates 61,880 85,063 460 992 800 1,04! 100 Nonreporting nonmember economies 15,476 t 49,800 1 561 w 1,111 w 110 ii' 120 Albania . . 48 3 745 1,446 109 121 Angola . . 149 377 0 78 45 25 102 122 Bulgaria . . . . 649 1,140 1,446 2,437 101 123 Cuba . . . . 1,622 2,073 1,539 1,642 110 124 Czechoslovakia . . . . 1,296 598 2,402 3,435 118 125 German Dem. Rep. . . 2,821 2,083 3,202 2,901 105 126 Korea,Dem. Rep. . . . . 1,108 200 1,484 3,452 116 127 Mongolia . . . . 28 75 18 122 1!! 128 USSR . . . . 7,755 43,25! 437 988 110 a. Average for 1969-7!. b. Includes Luxembourg. 213 Table 7. Structure of manufacturing Distnbution of manufacwnng value added (percent; 1980 prices) Value added in manufacturing Machinery and (millions of Food and Textiles and transport 1980 dollars) agriculture clothing equipment Chemicals Other 1970 1984 1970 1984 1970 1984 1970 1984 1970 1984 1970 1984 Low-income economies China and India Other low-income 1 Ethiopia 282 453 30 38 34 28 1 . . 2 2 33 32 2 Bangladesh 659 1,381 18 15 51 39 3 6 13 24 15 16 3 BurkinaFaso 72 63 10 16 2 1 (.) . . 16 19 4 Mali . . 22 25 54 57 5 6 2 2 17 10 5 Bhutan . . . . . . . . . . . . . . . 6 Mozambique . . 178 40 . 16 . . 5 5 . . 33 7 Nepal . . 69 . . 13 . . . . . . 2 . . 17 8 Malawi . . . . 33 46 23 16 3 . . . . . 42 38 9 Zaire 356 288 40 44 15 11 7 9 5 7 33 29 10 Burma 373 692 30 37 6 12 2 2 4 6 57 44 II Bunindi 52 101 . 78 . . . . . . . . 5 . 17 12 logo 67 51 43 38 38 . . . . . . . 12 19 13 Madagascar 22 23 31 42 10 . . 4 5 32 31 14 Niger . . . . 33 27 . . S II 28 IS Benin 69 74 S 16 Central African Rep. . . 47 14 41 72 38 (.) 1 3 4 II 17 17 India 16,281 30,035 II 12 37 26 14 19 8 II 30 32 18 Rwanda 99 210 75 72 . . . . . 2 3 23 25 19 Somalia 85 86 69 . 4 . . (.) . . I . . 27 20 Kenya 263 919 39 38 10 II II 13 10 8 29 29 21 Tanzania 353 407 23 26 27 26 7 9 9 9 34 31 22 Sudan 325 . . 30 38 24 2 3 2 4 42 56 23 China 46,484b 143822h 24 Haiti . . . . 19 . . 42 . . 15 . . 2 22 25 Guinea . . 41 . . . . . . . . . . S S S S 26 Sietra Leone 41 75 35 42 . . . . . . . 3 6 61 52 27 Senegal 366 574 55 49 23 22 . . 7 6 5 IS 17 28 Ghana 410 223 14 27 42 19 3 1 5 5 36 49 29 Pakistan 2,359 5,624 19 28 57 23 7 10 7 21 II 18 30 Sri Lanka 548 834 45 44 8 15 7 4 6 7 34 3/ 31 Zambia 524 729 49 42 8 II 10 10 8 9 26 29 32 Afghanistan . . . . . . S S S S 33 Chad . . 46 48 37 34 S S () (.) 17 18 34 Kampuchea, Dem. . S S S S S S S . 35LaoPDR .. .. .. .. 36 Uganda 285 120 59 59 8 17 (.) . . 8 2 26 22 37 VietNam . . . . . S S Middle-income economies Lower middle-income 38 Mauritania . . . . 91 91 . . . . S 9 9 39 Bolivia 331 360 24 36 43 16 I 2 4 4 28 42 40 Lesotho 4 22 . . . . . . . . . . . S S S S 41 Liberia 47 63 16 24 . . . . . . . . . . . 84 75 42 Indonesia 2,723 13,165 18 20 7 7 5 7 7 6 62 60 43 Yemen, PDR . . . . . . . 44 Yemen Arab Rep. 43 273 . . . . . . . . S S . . . 45 Morocco 1,772 3,117 28 35 27 21 9 4 6 10 30 30 46 Philippines 4,383 8,644 42 44 II 14 9 8 6 7 32 28 47 Egypt, Arab Rep. . . . . 22 24 35 29 5 13 7 8 32 26 48 Côted'Ivoire 376 1,229 24 38 24 27 18 8 6 8 29 19 49 Papua New Guinea . . S S . . . . . . 50 Zimbabwe 798 1,259 22 25 18 19 10 9 8 9 42 38 51 Honduras 196 316 43 48 13 11 (.) 1 2 5 41 35 52 Nicaragua 408 580 60 62 10 14 2 1 II 7 17 16 53 Dominican Rep. 527 1,082 83 70 5 6 (.) . . 3 5 8 20 54 Nigeria 2,012 8,039 32 30 II 9 10 20 9 14 39 27 55 Thailand 2,526 8,325 32 23 21 . . 6 /2 6 8 36 56 56 Cameroon 295 1,289 37 41 . . . . 4 2 5 5 54 52 57 El Salvador 401 454 46 40 24 22 4 6 3 10 24 21 58 Botswana II 52 . . . . . . . . . . . . . . . 59 Paraguay 330 737 57 41 17 19 1 2 3 4 23 34 60 Jamaica 533 446 41 43 9 6 7 . . II 16 32 35 61 Pent 3,020 3,549 29 26 17 13 II 12 5 11 38 38 62 Turkey 6,993 15,692 16 2/ 27 16 12 16 8 II 38 37 63 Mauritius 81 181 61 . . 5 . 5 7 . 4 . . 23 64 Congo, People's Rep. . . 177 70 52 2 4 3 . 3 6 21 38 65 Ecuador 835 2,214 51 39 19 17 (.) I 3 4 27 39 66 Tunisia 353 1,375 26 24 28 21 3 8 10 10 33 37 67 Guatemala . . . . 39 . . 16 . . 4 17 24 Note: For data comparability and coverage, see the technical notes. Figures in italics are for years other than those specified. 214 Value added Distribution of manufacturing value added (percent; 1980 prices) in manufacturing Machinery and (millions of Food and Textiles and transport 1980 dollars) agriculture clothing equipment Chemicals Other 1970 1984 1970 1984 1970 1984 1970 1984 1970 1984 1970 1984 68 Costu Rica 55 . 8 . . 6 8 .. 23 69 Colombia 3,297 5,787 37 45 18 33 5 5 6 8 34 29 70 Chile 5,275 5,422 23 27 17 10 6 3 7 8 48 52 71 Jordan 102 585 26 26 . . . . . . 2 4 72 71 72 Syrian Arab Rep 27 33 38 33 I 2 6 7 28 27 73 Lebanon . . . . . . . . . . Upper middle-income 74 Brazil 26,963 56,878 21 19 15 10 16 18 4 II 44 41 75 Uruguay 30 28 37 25 9 7 9 9 35 30 76 Hungaty 11 II 35 10 25 29 8 12 41 38 77 Portugal . . . . 16 16 32 28 12 II 5 7 35 37 78 Malaysia 1,681 6,770 27 18 4 6 16 28 4 4 49 42 79 South Africa 9,747 . . 12 14 9 8 26 20 7 9 46 50 80 Poland . . 22 17 19 IS 23 30 7 8 29 30 8! Yugoslavia . . . . 13 Il 18 15 21 24 5 7 44 42 82 Mexico 21,533 43,331 29 28 16 12 II 13 9 13 35 34 83 Panama 249 344 30 42 10 II I 1 4 8 55 37 84 Argentina 10,192 11,044 22 24 13 9 17 15 8 12 39 40 85 Korea, Rep. of 4,239 26,650 13 9 16 17 9 29 16 II 46 35 86 Algeria 1,578 5,195 33 18 29 26 5 7 4 3 29 47 87 Venezuela 5,790 9,981 22 28 30 6 6 6 8 6 55 54 88 Greece 3,852 6,635 21 20 21 21 34 II 6 8 39 39 89 Israel .. .. 10 13 12 10 20 25 7 8 51 44 90 Trinidad and Tobago 395 308 15 27 6 7 5 15 5 8 69 43 91 Hong Kong . . 4 50 . . 16 . . I . . 28 92 Oman .. .. .. .. .. .. .. .. .. 93 Singapore 1,174 3,854 8 3 8 4 20 52 3 6 61 35 94 Iran,IslamicRep. 4,711 . 25 II 18 19 8 18 7 5 42 48 95lraq .. 19 .. 24 .. 18 .. 4 .. 35 96 Romania . . 25 16 8 9 21 34 9 II 36 30 Developing economies Oil exporters Exporters of manufactures Highly indebted countries Sub-Saharan Africa High-income oil exporters 97 Libya 197 1,066 . . . . . . . . . . . . . . . 98 Saudi Arabia 2,987 8,179 7 10 . . . . . . . . . . . . 93 90 99 Kuwait 696 1,790 3 8 . . . . . . .. 3 7 94 85 100 United Arab Emirates 2,657 . . . . . . . . . . . . . Industrial market economies 101 Spain 38,119 59,816 8 33 22 15 24 20 8 8 39 44 102 Ireland ,. 34 32 19 10 12 18 5 15 30 25 103 Italy . . . . 10 II 18 18 24 25 8 8 40 38 104 New Zealand . . . . 26 24 12 12 17 17 .5 5 41 41 105 Belgium 21,791 31,497 16 19 13 9 24 24 0 12 37 35 106 United Kingdom 130,154 124,809 Il 13 8 7 34 33 7 II 39 36 107 Austria 14,555 22,642 IS 15 12 8 21 24 5 7 47 46 108 Netherlands . . . . 16 19 8 4 27 28 II 13 38 37 109 France 119,708 175,519 16 17 10 7 29 35 10 9 36 32 110 Australia 21,725 25,026 19 39 7 8 23 19 5 8 46 46 Ill Finland 8,370 14,488 13 II 9 7 18 22 5 6 55 54 112 Germany, Fed. Rep. 215,818 265,225 10 10 8 5 37 41 8 9 38 34 113 Denmark 8,485 32,430 21 22 7 6 23 23 6 8 43 40 114 Japan 157,344 412,667 12 9 8 5 27 41 6 6 47 38 115 Sweden 23,355 29,213 9 9 6 3 28 32 5 7 52 50 116 Canada 34,285 50,007 15 13 8 7 39 24 6 7 52 48 117 Norway 7,715 9,071 15 II 6 3 27 27 5 8 47 51 118 Switzerland . . . . 12 15 9 8 26 24 8 12 45 40 119 UnitedStates 439,097 651,315 9 9 7 6 30 35 7 9 46 41 Nonreporting nonmember economies 120 Albania . . . . . . . 121 Angola .. .. .. .. .. .. .. 122 Bulgaria . . . . 30 19 37 14 II 21 6 7 36 39 123 Cuba . . . . 73 53 6 6 2 10 5 6 IS 25 124 Czechoslovakia . . . . II 8 12 9 30 40 7 8 40 34 125 GernaanDem. Rep. . . 12 9 IS 12 27 34 12 13 35 32 126 Korea, Dem. Rep. . . . . . . . . . . . . . . 127 Mongolia . . . . 29 2! 35 31 . . . . 2 4 34 43 128 USSR .. 27 21 39 15 19 30 5 6 29 28 a. Includes unallocabie data; see the technical notes. b. World Bank estimate. 215 Table 8. Manufacturing earnings and output Total earnings as Earnings per employee percentage of Gross output per employee Growth rates Indes (1980=100) value added (1980=100) 1970-80 1980-85 1983 1984 985 1970 1983 1984 1985 1970 1983 1984 1985 Low-income economies China and India Other low-income I Ethiopia -6.0 -2.7 93 89 . 24 19 18 17 63 103 128 142 2 Bangladesh -2.9 -5.2 84 81 78 26 32 32 32 116 90 90 89 3 BurkinaFaso . . 1.5 94 109 106 . 18 20 20 . 91 101 104 4 Mali -8.4 . . . 46 97 5 Bhutan . . 6 Mozambique 29 41 41 41 7 Nepal 8 Malawi 105 36 . 121 92 9 Zaire 10 Burma II Burundi -6.1 133 18 . 135 12 logo 13 Madagascar -0.8 36 1. 14 Niger IS Benin 25 25 25 .. .1 16 Central African Rep. . . -0.6 87 97 103 . . 46 46 46 . . 75 81 87 17 India -0.2 1.6 103 106 47 49 49 49 84 120 123 128 18 Rwanda . . . 22 . . 19 . . 19 Somalia -6.4 . 68 40 . 28 31 31 32 . . 67 39 31 20 Kenya -3.4 -6.1 80 79 . 53 46 46 47 38 90 90 92 21 Tanzania 42 35 35 35 122 81 81 86 22 Sudan 31 23 China 24 Haiti -3.1 0.2 lÔ7 106 107 25 Guinea 26 Sierra Leone 27 Senegal 42 46 46 . 28 Ghana 23 23 193 77 . 29 Pakistan 3.4 9.6 128 144 149 21 21 21 21 60 134 145 158 30 Sri Lanka -2.0 82 89 89 27 27 27 70 87 94 95 3! Zambia -3.2 -3.6 96 89 33 26 25 25 110 98 91 81 32 Afghanistan 33 Chad 34 Kampuchea, Dent. 35 Lao PDR 36 Uganda 37 VietNam Middle-income economies Lower middle-income 38 Mauritania . . 39 Bolivia 2.5 . 44 68 40 Lesotho 2.8 112 114 118 . 48 48 48 . . 115 41 Liberia . . 5.4 102 118 . . 42 Indonesia 4.7 7.3 128 128 147 26 27 24 23 42 129 126 140 43 Yemen, PDR . . 44 Yemen Arab Rep. .. .. 45 Morocco . . -4.2 88 82 82 . 51 51 51 . . 89 83 79 46 Philippines -1.8 -11.5 78 67 54 21 25 25 25 107 79 67 56 47 Egypt, Arab Rep. 4.0 . 54 9! . 48 Côted'lvoire -0.9 . 138 . 27 52 49 Papua New Guinea 3.0 -4.3 83 82 . 42 36 36 37 50 Zimbabwe 1.6 -1.9 102 92 99 43 45 45 45 98 93 85 80 51 Honduras . . . . . 38 38 38 52 Nicaragua -9.0 76 71 . 16 22 20 206 122 107 53 Dominican Rep. -1.0 -0.2 98 100 . 35 22 24 23 53 88 86 54 Nigeria -0.4 . 18 22 22 22 97 106 82 83 55 Thailand 1.1 10.5 135 151 159 25 24 24 24 70 146 160 166 56 Cameroon . . 29 37 37 37 . 57 El Salvador 2.4 90 . 28 28 71 92 58 Botswana 10.4 . 80 . . . 39 70 68 62 59 Paraguay . . . . . 60 Jamaica -0.2 . . 43 61 Peru . . -11.8 78 80 52 . . IS 15 15 83 80 78 51 62 Turkey 3.4 -0.5 98 99 101 26 26 25 23 108 127 122 137 63 Mauritius 1.0 . 97 34 50 . . 139 107 64 Congo, People's Rep. . . . 34 . . 57 . . . 65 Ecuador 3.2 3.7 110 121 126 27 36 36 36 87 66 Tunisia 4.2 -5.1 83 83 79 44 47 47 47 95 93 90 88 67 Guatemala . . 0.5 101 104 Note: For data comparability and coverage, see the technical notes. Figures in italics are for years other than those specified 216 Total earnings as Earnings per employee pementage of Gross output per employee Growth rates Index (1980=l00) value added (1980=100) 1970-SO 1980-85 1983 1984 1985 1970 1983 1984 1985 1970 1983 1984 1985 68 Costa Rica . . . . 42 . 69 Colombia -0.2 3.2 109 115 114 25 21 20 20 84 102 103 70 Chile . . 5.5 112 131 141 19 17 17 18 60 123 . 71 Jordan . . 1.9 109 104 115 37 30 29 31 . . 172 204 250 72 Syrian ArabRep. . . 4.3 109 114 . . 36 42 33 . . 73 138 188 73 Lebanon . Upper middle-income 74 Brazil 3.8 . . 85 22 20 19 19 71 74 . 75 Uniguay . . 1.1 102 78 136 . . 29 20 27 . . 114 113 125 76 Hungary 4.0 1.2 101 106 108 28 32 33 32 41 114 116 118 77 Portugal 2.5 1.1 105 103 106 34 45 45 44 . . 106 107 112 78 Malaysia . . 79 South Africa . . . 108 . 46 53 50 51 55 . 80 Poland . . . . 24 25 24 . . 81 Yugoslavia 1.3 -4.3 91 86 . . 39 33 30 29 59 lOS 109 77 82 Mexico 2.9 -4.1 87 90 82 39 29 27 25 80 lOS 113 110 83 Panama 0.2 1.8 117 106 32 32 30 30 67 92 87 92 84 Argentina 1.4 5.4 103 126 113 30 19 21 19 100 129 131 123 85 Korea, Rep. of 10.0 5.6 109 124 126 25 26 27 27 39 126 146 149 86 Algeria 0.2 -0.1 95 98 . . 45 53 53 53 101 98 100 102 87 Venezuela 3.8 8.1 119 147 154 31 32 32 33 118 115 122 122 88 Greece 5.0 -2.3 89 90 90 32 39 39 39 57 91 91 93 89 Israel 8.8 . . 55 52 . . 36 43 42 90 Trinidad and Tobago 1.3 119 103 94 41 41 41 :: 107 91 Hong Kong 2.2 103 110 . . 47 49 48 92 Oman .. 61 61 61 93 Singapore 3.0 8.9 130 140 . . 36 37 36 .o 94 Iran, Islamic Rep. . . 25 85 95 Iraq 36 96 Romania . . Developing economies Oil exporters Exporters of manufactures Highly indebted countries Sub-Saharan Africa High-income oil exporters 97 Libya . . 37 46 98 Saudi Arabia . . 99 Kuwait . . -1.5 92 98 . 12 27 27 29 96 117 100 United Arab Emirates 40 40 40 Industrial market economies 101 Spain 4.5 3.1 108 110 116 52 45 43 41 72 114 120 128 102 Ireland 4.1 0.2 86 94 105 49 42 42 42 103 Italy 4.3 4.! 105 113 124 41 38 38 59 108 119 134 104 New Zealand 1.2 -2.4 94 92 90 62 62 56 54 105 Belgium 4.6 3.0 105 110 115 46 50 50 50 50 118 124 135 106 United Kingdom 1.7 5.9 106 123 132 52 44 46 46 83 119 132 107 Austria 3.4 2.5 103 110 114 47 55 57 57 63 III 117 124 108 Netherlands 2.5 2.1 106 108 108 52 58 58 58 69 107 114 113 109 France . . . 64 105 III 110 Australia 2.9 1.9 106 107 111 53 56 51 51 66 99 100 110 Ill Finland 2.6 2.5 105 107 115 47 44 42 42 70 109 113 128 112 Germany, Fed. Rep. 3.5 0.1 99 101 100 46 48 47 47 55 108 114 115 113 Denmark 2.5 0.5 100 98 103 56 53 52 51 64 112 113 121 114 Japan 3.1 2.5 105 109 113 32 36 36 35 40 110 121 132 115 Sweden 0.5 -0.6 96 97 96 52 37 37 35 73 121 125 134 116 Canada 1.8 -0.! 90 98 102 53 49 49 49 70 100 109 117 Norway 2.6 0.3 98 101 50 58 55 . . 71 104 108 118 Switzerland 119 United States 0.1 0.1 102 98 101 47 40 40 40 63 104 Nonreporting nonmember economies 120 Albania 121 Angola 122 Bulgaria 123 Cuba 124 Czechoslovakia 125 German Dem. Rep. 126 Korea, Dem. Rep. 127 Mongolia 128 USSR 217 Table 9. Commercial energy Energy consumption Average annual energy per capita Energy imports growth rate (percent) (kilograms as a percentage of Energy production Energy consumption of oil equivalent) merchandise exports 1965-80 1980-85 1965-80 1980-85 1965 1985 1965 1985 Low-income economies 9.0 w 6.7 s 8.2 w 5.7 131 w 306 w 7s, 32w China and India 9.1 w 6.8 w 8.8 w 5.9 w 147 w 382 w Other low-income 8.9 w 3.8w 2.9w 3.9w 72 w 86 w 7w 33w I Ethiopia 7.5 5.5 4.1 -1.8 10 17 8 43 2 Bangladesh 18.8 . . 7.6 . . 43 . . 41 3 BurkinaFaso . . . . 10.4 -0.4 8 20 11 4 Mali 37.0 25.0 7.0 4.1 15 25 16 55 5 Bhutan . . 6 Mozambique 19.3 -22.1 2.3 1.4 81 86 13 37 7 Nepal 18.3 16.7 5.7 8.6 6 17 . . 49 8 Malawi 18.3 5.1 8.0 -2.6 25 39 7 23 9 Zaire 9.4 3.8 3.6 0.7 74 73 6 12 10 Bumia 8.4 6.7 4.8 6.3 39 74 4 3 II Bunindi . . 23.7 5.4 14.8 5 26 II 18 12 Togo 7.1 -2.1 11.2 -5.4 27 47 6 13 Madagascar 3.9 12.5 4.7 -10.5 34 33 8 34 14 Niger 21.0 12.5 7.0 8 48 9 3 15 Benin . . 9.9 -0.7 21 35 14 23 16 Central African Rep. 6.6 1.9 2.9 2.1 22 33 7 1 17 India 5.5 9.6 5.8 6.4 100 201 8 30 18 Rwanda 8.8 9.0 15.2 6.1 8 43 10 25 19 Somalia . . . . 16.7 2.0 15 82 9 43 20 Kenya 13.1 12.2 5.0 -5.7 114 103 21 Tanzania 7.3 2.9 3.7 2.8 37 39 . 22 Sudan 17.8 0.8 2.0 0.3 67 61 5 51 23 China 10.0 6.2 9.8 5.7 178 515 24 Haiti . . 4.1 8.4 1.9 25 55 25 Guinea 14.9 0.2 2.0 0.7 56 53 26 Sierra Leone 0.8 -1.3 104 82 11 63 27 Senegal . . . . 7.2 -2.3 79 110 8 17 28 Ghana 17.7 -15.6 7.7 -7.4 76 131 6 9 29 Pakistan 6.5 8.8 3.3 9.4 136 218 7 52 30 Sri Lanka 10.4 9.2 2.2 3.4 107 139 6 33 31 Zambia 25.7 1.4 4.1 (.) 464 412 5 29 32 Afghanistan 15.7 2.3 5.7 11.7 30 73 8 2 33 Chad .. .. .. .. .. .. 1 34 Kampuchea,Desn. -2.1 7.6 1.6 19 58 7 35 Lao PDR 3.5 4.2 8.0 22 58 36 Uganda -0.5 3.3 -0.6 5.2 36 24 37 VietNam 5.3 -1.2 -2.6 (.) 106 76 Middle-income economies 4.9 w 2.9 w 6.7w 2.7w 483 w 886w 9w 16w Lower middle-income 10.6 w 2.0 w 7.3 w 4.4 w 171 w 358 w 8w 21w 38 Mauritania . . . . 9.4 0.4 48 127 2 23 39 Bolivia 9.4 -0.7 7.7 -1.5 156 263 1 1 40 Lesolho . . . . . . . . . . . . . 41 Liberia 14.6 1.2 7.8 0.7 182 345 6 16 42 Indonesia 9.9 0.2 8.4 4.4 91 219 3 12 43 Yemen, PDR -4.6 17.7 982 750 63 44 Yemen, ArabRep. . . . . 21.0 20.0 7 117 45 Morocco 2.4 -4.5 8.3 (.) 124 237 5 50 46 Philippines 9.0 19.6 6.0 1.8 160 255 12 44 47 Egypt, Arab Rep. 10.7 9.3 6.2 7.9 313 588 II 10 48 Côted'Ivoire 11.1 28.9 8.6 0.6 109 166 5 14 49 Papua New Guinea 13.7 7.7 13.0 3.2 56 235 7 25 50 Zimbabwe -0.9 -4.4 5.1 -2.4 441 427 (.) 1 51 Honduras 14.0 2.5 7.6 1.7 111 201 5 28 52 Nicaragua 2.6 1.0 6.5 0.3 172 259 6 21 53 Dominican Rep. 10.9 -5.0 11.5 3.3 130 372 7 71 54 Nigeria 17.3 -4.6 12.9 9.0 34 165 7 3 55 Thailand 9.0 56.1 10.5 6.6 80 343 11 33 56 Cameroon 13.0 17.2 6.3 7.7 67 145 6 1 57 El Salvador 9.0 3.1 7.0 0.9 140 186 5 58 Botswana 8.8 0.1 9.4 1.2 211 380 . 59 Paraguay . . 15.1 9.9 6.1 86 281 14 57 60 Jamaica -0.9 5.4 6.1 -5.0 707 954 12 59 61 Pent 6.7 -0.3 5.1 0.7 403 543 3 4 62 Turkey 4.3 7.2 8.6 6.8 258 712 12 53 63 Mauritius 2.1 2.8 7.2 -0.1 163 311 6 23 64 Congo, People's Rep. 41.1 12.4 7.8 5.7 90 232 8 1 65 Ecuador 35.0 7.8 11.6 11.1 162 720 11 1 66 Tunisia 20.4 -0.1 9.0 4.4 170 546 12 19 67 Guatemala 12.5 7.2 6.8 -2.7 150 176 9 17 Note: Fordata comparability and coverage. see the technical notes. Figuresinitalics are for years other than those specified. 218 Energy consumption Average annual energy per capita Energy imports growth rate (percent) (kilograms as a percentage of Energy production Energy consumption of oil equivalent) merchandise exports 1965-80 980-85 1965-80 1980-85 1965 1985 1965 1985 68 Costa Rica 8.2 7.1 - 8.8 0.6 269 534 8 14 69 Colombia 1.0 5.4 6.1 2.4 413 755 1 14 70 Chile 1.8 3.0 3.1 -1.2 657 726 5 16 71 Jordan . . . . 9.5 9.8 226 771 33 73 72 Syrian Arab Rep. 56.0 2.9 12.0 4.0 212 838 13 76 73 Lebanon 2.0 -8.4 2.0 -2.1 713 777 50 33 Upper mi-income 3.7 s 3.2 w 6.5 w 2.2 w 826 w 1,510 w 9w 14 w 74 Brazil 8.6 12.6 10.0 3.2 286 781 14 37 75 Uruguay 3.7 20.8 1.3 -3.1 765 745 13 30 76 Hungary 0.9 2.7 3.9 0.7 1,825 2,974 12 21 77 Portugal 3.5 9.3 6.3 4.3 506 1,312 13 36 78 Malaysia 36.9 21.0 6.9 7.7 312 826 10 9 79 South Africa 5.1 3.3 4.4 0.8 1,702 2,184 10 1 80 Poland 4.0 1.9 4.8 0.8 2,027 3,438 . 81 Yugoslavia 3.5 3.9 5.9 2.6 898 1,926 7 31 82 Mexico 9.7 4.8 7.9 1.2 622 1,290 4 1 83 Panama 6.9 11.1 5.9 0.5 576 634 84 Argentina 4.5 3.6 4.3 2.2 975 1,468 8 6 85 Korea, Rep. of 4.1 9.3 12.1 5.0 237 1.241 18 24 86 Algeria 5.3 5.7 11.9 11.8 226 1,123 (.) 2 87 Venezuela -3.1 -3.6 4.7 1.7 2,319 2,409 (.) / 88 Greece 10.5 12.2 8.5 2.3 615 1,841 29 66 89 Israel -15.2 -21.5 4.4 2.4 1,574 1,949 13 21 90 Trinidad and Tobago 3.8 -3.8 6.4 -5.3 2,776 3,641 . . 4 91 HongKong . . . . 8.4 6.6 424 1,264 4 5 92 Oman 16.0 14.3 30.3 14.3 14 2,683 . 93 Singapore . . . . 11.3 -1.1 670 2,165 17 34 94 Iran, Islamic Rep. 3.6 9.3 9.0 3.8 537 1,026 (.) 4 95 Iraq 6.2 -6.1 7.5 2.1 399 662 (.) 96 Ropnania 4.3 1.5 6.6 1.2 1,536 3,453 Developing economies 5.8w 4.1 w 7.2 w 3.8 s 251 w 502w 8w 17w Oil exporters 5.0 w 1.6w 7.8 w 3.7 w 300 w 629w 5w 5w Exporters of manufactures 7.0 w 6.0w 7.8 w 4.3 w 246 w 555w his' 22 w Highly indebted countries 3.6w 2.1 w 6.9 w 2.3 w 422 w 776w 6 Sub-Saharan Africa 15.7w -2.6w 6.3 w 2.3 w 62 w 107w 6v High-income oil exporters 6.4w -14.5w 7.5w 8.4w 1,861w 3,699w (.) w 97 Libya 0.6 -7.9 17.2 11.1 222 3,042 2 6 98 Saudi Arabia 11.5 -19.6 7.2 8.1 1,759 3,653 (.) / 99 Kuwait -1.6 -4.8 1.7 7.7 . . 4,569 (.) 4 100 United Arab Emirates 14.7 -5.5 36.6 7.4 108 5,102 Industrial market economies 2.1 w Sw 3.0 w 0.1 w 3,745 w 4,958 w 11 w 21 w 101 Spain 3.6 8.2 6.6 0.2 901 1,932 31 45 102 Ireland (.) 14.2 3.9 1.8 1,504 2,627 14 II 103 Italy 1.3 1.5 3.7 0.4 1,568 2,606 16 30 104 New Zealand 4.7 9.2 3.6 3.5 2,622 3,823 7 13 105 Belgium -3.9 14.5 2.9 -1.3 3,402 4,666 9 17 106 United Kingdom 3.6 2.6 0.8 (.) 3,481 3,603 13 14 107 Austria 0.8 -1.0 4.1 -0.7 2,060 3,217 10 18 108 Netherlands 15.2 -0.3 4.9 -0.1 3,134 5.138 12 21 109 France -0.9 9.8 3.7 -0.4 2,468 3,673 16 25 110 Australia 10.5 5.9 5.1 0.9 3,287 5,116 10 7 Ill Finland 3.9 11.4 5.4 -0.6 2,233 4,589 II 24 112 Germany, Fed. Rep. -0.1 0.9 2.9 -0.1 3,197 4,451 8 17 113 Denmark 2.6 63.l 2.4 0.3 2,911 4,001 13 19 114 Japan -0.4 5.0 6.0 1.4 1,474 3,116 19 32 115 Sweden 4.9 8.6 2.6 2.2 4,162 6,482 12 18 116 Canada 5.7 3.4 4.6 0.4 6,007 9,224 7 5 117 Norway 12.4 5.9 4.1 2.8 4,650 8,920 II 7 118 Switzerland 3,7 1.8 3.1 1.7 2,501 3,952 8 II 119 United States 1.1 0.2 2.3 -0.4 6,535 7,278 8 26 Nonreporting nonmember economies 4.6w 2.9w 4.4w 2.9w 2,509w 4,487w 120 Albania 8.7 8.2 6.8 7.5 415 1,267 . 121 Angola 19.9 10.3 5.3 2.4 114 207 2 1 122 Bulgaria 1.2 3.3 6.1 1.5 1,788 4.332 . 123 Cuba 8.1 28.1 5.8 0.9 604 1,075 12 13 124 Czechoslovakia 1.0 1.0 3.2 0.6 3,374 4,853 . . 125 GermanDem. Rep. 0.7 3.9 2.4 1.2 3,762 5,680 126 Korea,Dem. Rep. 6.4 2.7 6.6 2.9 1,196 2,118 127 Mongolia 10.3 7.4 9.5 5.5 471 1,313 128 USSR 4.9 2.9 4.5 3.3 2,603 4,885 219 Table 10. Growth of merchandise trade Merchandise trade Average annual growth rate (millions of dollars) (percent) Terms of trade Exports Imports Exports Imports (1980=100) 1985 1985 1965-80 1980-85 1965-80 1980-85 1983 1985 Low-income economies 52,704 82,554 2.7w 5.0w 2.4w 7.3w 93 m 94 m China and India 37,587 57,134 4.8w 7.6w 4.5w 12.1w 105 m 107 in Other low-income 15,117 25,420 0.2w 0.1w 0.3 w -0.5 w 93 m 94 m 1 Ethiopia 338 989 -0.5 -0.8 -0.9 6.8 92 100 2 Bangladesh 999 2,772 .. 7.1 . . 3.1 102 113 3 BurkinaFaso 68 261 4.0 0.8 5.7 -5.2 95 81 4 Mali 172 363 10.2 4.2 5.3 -1.0 93 82 5 Bhutan . 6 Mozambique 174 547 . . . . . . . . . 7 Nepal 161 459 -2.3 8.4 3.0 7.8 89 94 8 Malawi 251 287 4.3 2.9 3.3 -6.4 113 101 9 Zaire 1,568 1,178 4.4 -2.9 -1.9 -0.2 84 83 10 Burma 303 283 -2.1 0.2 -5.8 -6.7 77 70 11 Bumndi 110 194 3.0 12.5 2.1 5.1 90 99 12 Togo 242 321 5.4 -4.2 8.4 -12.5 90 86 13 Madagascar 311 323 0.7 -2.8 -0.4 -11.6 .95 103 14 Niger 250 353 12.8 -17.4 6.6 -8.1 107 107 15 Benin 152 437 -2.3 -1.3 9.4 -2.3 93 89 16 CentralAfricanRep. 115 140 1.4 6.5 4.8 3.7 90 95 17 India 10,2mb 14,608 3.7 4.6 1.6 2.2 111 115 18 Rwanda 75 235 5.9 -0.9 7.3 2.1 91 102 19 Somalia 91 380 4.4 -7.4 4.4 9.2 97 90 20 Kenya 976 1,436 (.) -3.9 1.7 -9.0 94 94 21 Tanzania 255 1,017 -4.0 -11.1 1.6 -3.9 91 90 22 Sudan 374 771 -0.3 6.1 2.4 -8.9 99 87 23 China 27,327 42,526 5.5 8.8 8.0 17.6 100 100 24 Haiti 455 512 2.5 1.3 5.5 1.9 93 95 25 Guinea 465 370 . 26 SierraLeone 137 166 -3.9 -3.5 -2.7 -16.7 95 96 27 Senegal 526 862 2.4 5.2 4.1 -0.1 99 98 28 Ghana 617 727 -1.8 -7.9 -1.4 -8.6 88 91 29 Pakistan 2,740 5,890 4.3 2.4 0.5 3.9 96 95 30 Sri Lanka 1,333 1,832 0.5 7.3 -1.1 1.5 101 97 31 Zambia 829' 654 1.7 -0.3 -5.5 -7.7 78 72 32 Afghanistan 566 999 33 Chad 113 218 34 Kampuchea, Dem. .. . 35 Lao PDR 19 64 36 Uganda 332 380 -3.9 4.7 -5.3 6.0 89 96 37 VietNam Middle-income economies 379,877 t 360,816 3.2w 3.7w 6.0w -1.0w 96m 94m Lower middle-income 91,343 1 101,265 6.8w 1.1w 5.9w -1.3w 95m 93m 38 Mauritania 374 234 2.7 14.9 6.6 -3.6 99 96 39 Bolivia 662 550 2.5 -2.4 5.0 -4.3 90 86 40 Lesothoc . . . . . .. . . . 41 Liberia 452 293 4.5 -1.4 1.5 -7.1 95 91 42 Indonesia 18,590 12,069 9.7 1.1 13.0 4.9 97 97 43 Yemen, PDR 645 1,543 -13.6 1.3 -7.3 3.7 96 100 44 Yemen, Arab Rep. 10 1,360 -0.3 1.8 25.2 -3.0 95 96 45 Morucco 2,156 3,885 3.6 3.5 6.6 0.3 86 86 46 Philippines 4,629 5,459 4.7 -2.1 2.9 -5.9 99 96 47 Egypt, Arab Rep. 4l5o lI200 2.0 3.9 6.0 8.0 99 93 48 Côted'Ivoire 2,972 1,749 5.6 1.8 8.0 -10.7 92 94 49 PapuaNewGuinea 920 1,077 12.8 1.5 1.7 0.3 95 94 50 Zimbabwe 1,061 854 3.4 -2.7 -2.0 -7.7 95 89 51 Honduras 406 585 3.1 -7.2 2.6 -5.2 99 95 52 Nicaragua 303 849 2.4 -2.9 1.3 -0.1 95 89 53 DominicanRep. 735 1,276 3.7 -1.5 5.0 -0.3 87 83 54 Nigeria 12,567 8,877 11.5 -9.9 15.1 -11.5 97 95 55 Thailand 7,100 9,231 8.5 8.4 4.1 2.8 84 77 56 Camemon 2322b 1132h 5.2 12.2 5.6 -4.6 93 94 57 El Salvador 705 999 2.4 -5.3 2.7 1.8 92 98 58 Botswanac . . . . . . . . . . 59 Paraguay 304 502 6.5 4.0 3.6 -1.7 96 83 60 Jamaica 538 1,124 -0.2 -7.3 -1.8 (.) 95 95 61 Peru 2,966 1,835 2.3 1.4 -0.2 -10.3 84 81 62 Turkey 8,255 11,035 5.5 25.3 7.8 10.1 94 92 63 Mauritius 414 522 3.4 7.4 6.4 -1.1 86 78 64 Congo, People's Rep. 1,097 716 12.5 6.5 1.0 6.3 97 95 65 Ecuador 2,905 1,606 15.2 6.3 6.9 -4.3 97 94 66 Tunisia 1,738 2,757 8.5 -1.8 10.4 -2.8 91 91 67 Guatemala 1,060 1,175 4.9 -1.3 4.6 -6.1 93 91 Note: For data comparability and coverage, see the technical notes. Figures in italics are for years other than those specified 220 Average annual gmwth rates Merchandise trade (percent) (millions of dollars) Terms of trade Exports Imports (1980=100) Exports Imports 1985 1985 1965-80 1980-85 1965-80 1980-85 1983 1985 68 Costa Rica 957 1,108 7.1 0.4 5.8 -4.4 98 97 69 Colombia 3,696 4,113 1.5 1.6 5.3 -1.4 92 97 70 Chile 3,743 2,743 7.9 2.3 1.5 -12.5 84 79 71 Jordan 789 2,733 13.5 8.3 9.8 3.1 92 93 72 SynanArabRep. 1,640 3,844 11.4 0.4 8.6 -0.9 99 94 73 Lebanon 482 2,230 . . 0 per middle-income 288,534 1 259,551 t 1.6 w 5.0w 6.0 w -0.8 w 97 m 94 m 74 Brazil 25,637 14,346 9.4 6.6 8.3 -9.1 87 87 75 Umguay 855 666 4.6 (.) 1.2 -16.5 88 85 76 Hungary 8,513 8,224 . . . . . . . . . 77 Portugal 5,680 7,652 3.4 10.0 3.8 -2.4 87 90 78 Malaysia 15,282 12,302 4.4 10.7 2.2 6.4 88 85 79 South Africa 16,523 11,469 7.9 -3.0 0.1 -8.8 86 85 80 Poland 11,447 10,761 . . . . . . . . . 81 Yugoslavia 10,700 12,207 5.6 2.1 6.6 -3.3 110 III 82 Mexico 21,866 13,459 7.7 10.1 5.7 -11.3 98 98 83 Panama 1,949 2,603 . . -3.6 . . -1.5 lOS 94 84 Argentina 8,396 3,814 4.7 3.2 1.8 -17.2 96 88 85 Korea, Rep. of 30,283 31,129 27.3 13.0 15.2 9.8 101 105 86 Algeria 13.034 9,061 1.6 0.9 13.1 -0.2 97 94 87 Venezuela 12,272 8,178 -9.4 -5.8 8.7 -9.1 96 94 88 Greece 4,539 10,134 12.0 2.5 5.3 .8 96 91 89 Israel 6,601 10,163 8.9 5.0 6.2 3.8 94 95 90 TrinidadandTobago 2,196 1,586 -5.5 -9.9 -5.7 -11.8 97 97 91 Hong Kong 30,184 29,705 9.5 9.4 8.3 7.7 109 110 92 Oman 4,962 3,153 . . . . . . . . . 93 Singapore 22,812 26,285 4.8 5.9 7.0 4.2 101 101 94 !ran,lslamic Rep. 13,186 11,658 95 Iraq 9,050 9,780 96 Romania 12,167 10,969 Developing econon. 432,581 443,370 3.1w 3.9w 5.3w 0.4 95 m 94 m Oil exporters 119,837 96,319 -0.2w -0.3 w 7.9 w -4.2 w 97 m 94 m Exporters of manufactures 202,011 218,822 7.9w 7.9w 7.5 w 5.3 w 102 m 103 m Highly indebted countries 117,517 85,719 0.5 w 1.1 w 6.3 w -8.6w 96,0 94,n Sub-Saharan Africa 31,861 28,004 I 9.6w -5.0w 9.8 w -9.4w 95m 94 m High-income oil exporters 63,573 t 44,087 t 4.4 w -17.1 w 19.3w -1.1w lOSrn 107m 97 Libya 10,841 6,186 -2.1 -9.1 15.0 -8.9 96 97 98 Saudi Arabia 27,403 23,697 8.8 -24.0 25.9 -0.1 106 107 99 Kuwait 10,992 6,614 -1.9 -9.2 11.8 3.8 110 108 100 UnitedArabEmirates 14,337 7,590 10.9 -3.9 20.2 -0.1 104 103 Industrial market economies 1,089,810 t 1,227,022 t 7.5 w 3.7 w 6.7 w 3.9 w 100 m 100 101 Spain 24,307 30,066 18.6 8.3 11.3 0.6 88 93 102 Ireland 10,399 10,049 9.2 9.7 7.5 3.2 105 104 103 Italy 78,943 91.123 8.1 4.7 6.3 3.2 98 97 104 New Zealand 5,731 5,982 4.5 4.8 3.3 4.8 107 94 105 Belgium" 53,316 56,147 7.6 3.4 7.7 1.1 95 95 106 United Kingdom 101.096 109,110 5.5 2.6 4.2 4.3 100 100 107 Austria 17,102 20,803 8.4 5.7 8.7 3.4 101 99 108 Netherlands 68.283 65,212 8.3 3.4 6.3 2.6 101 104 109 France 97,457 107,588 8.9 2.2 8.9 1.1 99 103 110 Australia 22,764) 25,890 6.1 5.7 2.1 4,2 97 90 Ill Finland 13,609 13,226 5.6 3.2 5.0 1.0 101 102 112 Germany, Fed. Rep. 25,684 25,268 7.9 4.6 7.2 2.6 99 98 113 Denmark 17,082 18,246 5.3 6.0 4.4 3.8 99 100 114 Japan 175,858 130,488 11.5 7.3 8.7 2.4 106 113 115 Sweden 30,403 28,538 5.0 6.4 4.5 3.8 100 104 116 Canada 87,502 81,477 6.0 8.8 7.0 5.4 97 92 117 Norway 19,853 15,556 7.2 5.8 5.5 4.2 109 115 118 Switzerland 27,281 30,626 5.9 3.5 5.4 3.6 112 107 119 United States 213,144 361,627 6.7 -2.8 6.6 8.4 112 114 Nonreporting nonmember economies 120 Albania . 121 Angola 2,061 1,018 122 Bulgaria 13,341 13,647 123 Cuba . 124 Czechoslovakia 17,554 17,548 125 German Dem. Rep. 25,684 25,268 126 Korea, Dem. Rep. 127 Mongolia 128 USSR 87,201 82,596 a. See the technical notes. b. World Bank estimate. c. Figures are for the South African Customs Union comprising South Africa. Namibia. Botswana. and Swazi. land; trade between the component territories is excluded. d. Includes Luxembourg. 221 Table 11. Structure of merchandise exports Percentage share of merchandise exports Fuels, Other Machinery and minerals, primary transport Other (Textiles and mends commodities equipment manufactures and clothing) 1965 1985 1965 1985 1965 1985 1965 1985 965 985 Low-income economies , 25 w , 31 w 4w 41 w 20w China and India 25 w 22 w , 5w 47 w , 23 w Other low-income 24w 23w 67w 53w 1w 1w 9w 23w 4w 13w I Ethiopia (.) 10 100 89 0 (.) (.) (.) 1 (.) 2 Bangladesh . 3 . 32 . (.) . . 65 . . 55 3 BurkinaFaso I (.) 94 89 I 4 4 6 2 2 4 Mali 5 Bhutan 6 Mozambique 14 I 12 2 .... 96 84 81 64 (.) I 1 1 2 2 16 24 . 0 I S 3 I (.) 7 Nepal . . (.) . . 56 . . I . . 43 . . 34 8 Malawi (.) (.) 99 94 (.) 1 1 4 (.) 3 9 Zaire 72 74 20 17 (.) (,) 8 10 (.) (.) 10 Burma 5 15 94 79 (.) I (.) 5 (.) (.) II Burundi (.) 2 94 82 (.) (.) 6 16 I (.) 12 logo 33 52 62 35 I (.) 4 13 (.) (.) 13 Madagascar 4 5 90 86 1 1 4 8 I 4 14 Niger (.) 95 . . I 4 S I IS Benin 1 45 94 39 2 13 3 3 (.) I 16 Central African Rep. 1 3 45 64 (.) (.) 54 33 (.) (.) 17 India 10 25 41 26 I 4 48 45 36 18 18 Rwanda 40 5 60 94 0 (.) 1 1 19 Somalia (.) (.) 86 98 4 1 10 / . 20 Kenya 13 22 77 65 (.) 2 10 11 (.) (.) 21 Tanzania 1 17 86 76 0 (.) 13 7 (.) 4 22 Sudan I 2 98 94 I I (.) 3 (.) 1 23 China . 25 21 . . 6 48 24 24 Haiti . . . . 25 Guinea . . . . . 26 Sierra Leone 25 34 14 33 (.) (.) 60 32 (.) (.) 27 Senegal 9 18 88 72 I 1 2 9 I 2 28 Ghana 13 30 85 65 1 (,) 2 5 (.) (.) 29 Pakistan 2 2 62 35 I 2 35 61 29 45 30 Sri Lanka 2 10 97 63 (.) I I 26 (.) 21 31 Zambia 97 94 3 4 (.) (.) (.) 2 (.) (.) 32 Afghanistan (.) 87 13 . 13 33Chad 5 .. 92 .. .. 34 Kampuchea, Dem. (.) . . 99 . . (.) . . (.) (.) 35 Lao PDR 62 32 . . (.) . . 6 (.) 36 Uganda 13 (.) 86 99 (.) (.) I (.) (.) (.) 37 VietNam Middle-income economies 34w 40w 46w 19w 4w 14w 15w 27w 5w 9w Lower middle-income 28w 51w 63w 29w 1w 3w 7w 17w 2w 7w 38 Mauritania 94 58 5 41 I (.) (.) 1 (.) (.) 39 Bolivia 93 82 3 12 0 1 4 6 (.) I 40 Lesotho1' . . . . . . . . . . 41 Liberia 72 65 25 34 I (.) 3 / (.) 0 42 Indonesia 43 75 53 14 3 1 1 10 (.) 2 43 Yemen, PDR 79 94 IS 4 2 1 4 I 2 (.) 44 Yemen, Arab Rep. 45 Morocco 40 32 55 28 (.) '1 s 39 1 14 46 Philippines II 13 84 36 (.) 5 6 46 I 7 47 Egypt, Arab Rep. 8 72 71 18 (.) (.) 20 10 15 8 48 Côted'lvoire 2 10 93 80 I 2 4 8 1 2 49 Papua New Guinea (.) 51 90 46 0 (.) 10 2 0 (.1 50 Zimbabwe 24 25 47 5/ 6 1 23 24 6 1 SI Honduras 6 7 90 84 (.) (.) 4 9 I 52 Nicaragua 4 2 90 85 (.) (.) 6 13 (.) I 53 Dominican Rep. 10 (.) 88 76 (.) 4 2 /9 (.) (.) 54 Nigeria 32 96 65 3 0 (.) 2 (.) (.) (.) 55 Thailand II 5 84 60 (.) 7 4 28 (.) 13 56 Cameroon 17 63 77 34 3 (,) 2 2 (.) (.) 57 El Salvador 2 2 81 70 I 10 16 17 6 7 58 Botswanab . . . . . . 59 Paraguay (.) (.) 92 93 (.) (.1 8 7 (.) (.) 60 Jamaica 28 67 41 21 (.) 2 31 /0 4 2 61 Peru 45 70 54 18 (.) / I 10 (.) 6 62 Turkey 9 10 89 36 (.) 5 2 49 I 32 63 Mauritius 0 (.) 100 69 (.) / (.) 30 (.) 23 64 Congo, People's Rep. 4 89 45 6 2 (.) 49 5 (.) (.) 65 Ecuador 2 74 96 25 (.) (.) 2 1 1 (.) 66 Tunisia 31 47 51 II (.) 5 19 37 2 18 67 Guatemala (.) 6 86 69 I I 13 24 4 4 Note: For data comparability and coverage, see the technical notes. Figures in italics are for years other than those specified 222 Percentage share of merchandise exports Fuels, Other Machinery and minerals, pnmary transport Other (Textiles and metals commodities equipment manufactures and clothtng) 1965 1985 1965 1985 1965 1985 1965 1985 1965 1985 Costa Rica (.) (.) 84 70 I 5 15 25 2 8 69 Colombia 18 /5 75 67 (.) 1 6 17 2 3 70 Chile 89 64 7 29 I 1 4 6 (.) (.) 71 Jordan 27 32 54 16 II 14 7 38 1 7 72 Syrian Arab Rep. 1 65 89 22 I I 9 /2 7 8 73 Lebanon 14 52 . . 14 . . 19 .. 2 Upper middle-income 37 w 37w 38 w 16w 6w 18 w 20 w 30w 6w 9w 74 Brazil 9 15 83 44 2 14 7 27 I 3 75 Uruguay (.) (.) 95 62 0 1 5 36 2 16 76 Hungary 5 8 25 24 32 33 37 35 9 6 77 Portugal 4 5 34 17 3 16 58 62 24 29 78 Malaysia 35 34 59 39 2 /9 4 8 (.) 3 79 South Africa" 24 39 44 20 3 2 29 39 1 2 80 Poland . . S S . . 81 Yugoslavia 10 8 33 12 24 33 33 46 8 9 82 Mexico 22 64 62 9 1 16 15 12 3 1 83 Panama 35 3 63 83 (.) (.) 2 13 I 4 84 Argentina I 5 93 77 I 5 5 /3 (.) / 85 Korea, Rep. of IS 4 25 5 3 36 56 55 27 23 86 Algeria 57 98 39 (.) 2 (.) 2 2 (.) (.) 87 Venecuela 97 94 1 / (.) (.) 2 5 (.) (.) 88 Greece 8 19 78 31 2 3 II 46 3 23 89 Israel 6 3 28 14 2 21 63 63 9 6 90 Trinidadand Tobago 84 84 9 2 (.) 3 7 1/ (.) (.) 91 HongKong 2 2 II 6 6 24 81 68 43 32 92 Oman . . 92 . I 5 . . 2 . (.) 93 Singapore 21 29 44 12 10 32 24 26 6 4 94 iran, islamic Rep. 88 98 8 1 (.) (S ) 4 1 4 1 95 Iraq 95 99 4 1 (.) (. ) I (.) (.) (.) 96 Romania Developing economies 32 w 39 Sc 48 w 21 w 4w 13w 16 w 28 w 6w lOw Oil exporters 66 w 84 w 29 w 7w 1w 4w 5w 6w 2w 1w Exporters of manufactures 9w 13w 40 w 17 w 11w 23 w 40 w 47 w 18w 17w Highly indebted countries 38 w 46 w 51w 26 w 3w 11w 8w 18 w 1w 3w Sub-Saharan Africa 32 w 63 w 60 w 31 w 1w 1w 7w 5w 1w 1w high-income oil exporters 98 w 98 w 1w (.)w 1w 1w (.)w 1w (.)w (.)w 97 Libya 99 98 1 (.) I I (.) / (.) (.) 98 Saudi Arabia 98 98 I (.) I 1 I I (.) (.) 99 Kuwait 98 95 I (.) I / (.) 3 (.) (.) 100 United Arab Emirates 99 95 1 / 0 / 0 (.) 0 (.) Industrial market economies 9w 11w 21w 13w 31w 40w 38w 37w 7w A 101 Spain 9 12 5! 17 10 27 29 44 6 4 102 Ireland 3 3 63 27 5 30 29 39 7 5 103 Italy 8 6 14 9 30 32 47 53 15 13 104 New Zealand I 7 94 67 (.) 5 5 21 (.) 3 105 Belgium' 13 II Il 12 20 23 55 53 12 7 106 United Kingdom 7 24 10 8 41 32 4! 35 7 4 107 Austria 8 6 17 9 20 31 55 55 12 9 108 Netherlands 12 25 32 23 21 16 35 35 9 4 109 France 8 7 21 19 26 34 45 41 10 5 110 Australia 13 44 73 36 5 5 0 IS I Ill Finland 3 8 40 IS l2 26 45 5! 2 5 112 Germany, Fed. Rep. 7 5 5 7 46 47 42 41 5 5 113 Denmark 2 7 55 35 22 25 21 33 4 5 114 Japan 2 I 7 I 31 62 60 36 17 3 115 Sweden 9 9 23 II 35 42 33 38 2 2 116 Canada 28 22 35 17 IS 40 22 21 1 1l7 Norway 21 62 28 7 17 14 34 16 2 I 118 Switzerland 3 3 7 4 30 33 60 59 10 6 119 United States 8 8 27 17 37 48 28 27 3 2 Nonreporting nonmember economies 120 Albania . 121 Angola 6 97 76 '1 17 (.) .; I.) 122 Bulgaria . . . 123 Cuba 4 92 .. 4 (.) 124 Czechoslovakia S 125 German Dem. Rep. 126 Korea, Dem. Rep. 127 Mongolia 128 USSR a. Textiles and clothing is a subgroup of other manufactures. b. Figures are for the South African Customs Union compnstng South Africa, Namibta, Lesotho Bot- swana, and Swaziland; trade between the component territories is excluded. c. Includes Luxembourg. 223 Table 12. Structure of merchandise imports Peitentage share of metehandise imports Other Machinery pnmaty and transport Other Food Fuels commodities equipment manufactures 1965 1985 1965 1985 1965 1985 1965 1985 1965 1985 Low-income economies 20w lOw 5w 11w 8w 9w 31w 27w 35 w 40 w China and India 11w 7w 11w 27w 45w Other low-income 19w 17w 6w 21w 4w 4w 28w 28w 43 w 30 w I Ethiopia 6 29 6 15 6 4 37 29 44 23 2 Bangladesh 24 17 8 18 33 3 Burkina Faso 23 23 4 17 14 6 19 24 40 30 4 Mali 20 14 6 18 5 3 23 26 47 40 5 Bhutan S 6 Mozambique 17 20 8 18 7 4 24 33 45 26 7 Nepal 13 II 5 20 51 8 Malawi 15 8 5 18 3 3 21 25 57 47 9 Zaire 18 11 7 20 5 2 33 36 37 31 10 Burma 15 5 4 3 5 3 18 53 58 37 II Burundi 16 9 6 15 8 6 15 37 55 33 12 logo 14 15 4 44 5 3 32 11 45 27 13 Madagascar 19 12 5 28 2 4 25 27 48 30 14 Niger 12 15 6 4 6 7 21 25 55 49 IS Benin 18 12 6 5 7 5 17 17 53 60 16 Central African Rep. 13 17 7 2 2 4 29 36 49 41 17 India 22 13 5 21 14 6 37 25 22 34 18 Rwanda 12 9 7 16 5 6 28 35 50 35 19 Somalia 31 22 5 18 8 4 24 32 33 24 20 Kenya 9 36 4 23 28 21 Tanzania 22 Sudan 23 11 21 Si 21 - i'l 33 23 China 10 (.) 13 27 50 24 Haiti 25 Guinea S 26 Sierra Leone 17 27 9 35 3 2 29 15 41 21 27 Senegal 36 26 6 10 4 4 15 28 38 32 28 Ghana 12 15 4 8 3 9 33 40 48 28 29 Pakistan 20 19 3 24 5 6 38 27 34 24 30 Sn Lanka 41 15 8 26 4 3 12 24 34 32 31 Zambia 9 5 10 43 3 1 33 29 45 22 32 Afghanistan 17 4 I 8 69 33 Chad 13 .. 20 .. 4 .. 21 42 34 Kampuchea, Dem. 6 . . 7 2 . . 26 . . 58 35 Lao PDR 27 . . 14 6 . 19 . 34 36 Uganda 37 Vie: Na,n Middle-income economies 15 w 11 w 8w 18 w 11 w 7w 30 w 31 w 37 w 33 w Lower middle-income 16 w 13 w 7w 19 w 6w 6w 31 w 28 w 40 w 34 w 38 Mauritania 9 25 4 19 I 2 56 35 30 20 39 Bolivia 19 23 1 2 3 3 34 25 42 48 40 Lesothoa . . . . . . S S 0 S 41 Liberia 17 24 8 20 3 3 33 27 39 27 42 Indonesia 6 6 3 20 2 7 39 36 50 31 43 Yemen, PDR 19 23 39 37 5 3 10 19 26 17 44 Yemen, Arab Rep. .. .. .. .. .. .. S 45 Morocco 36 17 5 28 10 13 18 18 31 24 46 Philippines 20 8 10 27 7 5 33 21 30 39 47 Egypt, Arab Rep. 26 25 7 4 12 10 23 25 31 36 48 Côted'Ivoire 18 16 6 22 3 4 28 22 46 36 49 Papua New Guinea 23 15 4 21 3 2 25 29 45 33 50 Zimbabwe 7 5 (.) 1 4 3 41 65 47 26 51 Honduras II /0 6 22 1 2 26 18 56 47 52 Nicaragua 12 13 5 /9 2 1 30 21 51 46 53 Dominican Rep. 24 14 10 36 4 3 23 17 40 29 54 Nigeria 9 21 6 5 3 3 34 35 48 37 55 Thailand 6 5 9 23 6 8 31 29 49 34 56 Cameroon Il 17 5 2 4 2 28 38 5! 41 57 El Salvador IS 20 5 9 4 4 28 21 48 46 58 Botswana S S S S S S S S S S S S S S S S S 59 Paraguay 14 8 14 27 2 3 37 33 33 29 60 Jamaica 21 19 9 23 5 3 23 22 42 32 61 Peru 17 25 3 3 5 3 41 38 34 31 62 Turkey 6 5 10 36 10 7 37 25 37 26 63 Mauritius 35 25 5 19 3 5 15 12 42 39 64 Congo, People's Rep. 15 12 6 2 1 2 34 48 44 36 65 Ecuador 10 10 9 2 4 5 33 36 44 47 66 Tunisia 16 IS 6 11 7 10 31 3/ 41 33 67 Guatemala II 9 7 /7 2 4 29 18 50 53 Note: For data comparability and coverage, see the technical notes. Figures in italics are for years other than those specified 224 Percentage share of merchandise imports Other Machinery primary arid transport Other Food Fuels commodities equipment manufactures 1965 1985 1965 1985 1965 l985 1965 985 1965 1985 68 Costa Rica 9 10 5 17 2 3 29 18 54 52 69 Colombia 8 10 1 11 10 7 45 35 35 37 70 Chile 20 18 6 21 10 5 35 22 30 33 71 Jotdan 28 19 6 22 6 4 18 20 42 35 72 SyrianArab Rep. 22 18 10 34 9 4 16 19 43 24 73 Lebanon 28 9 . 9 17 36 Upper middle-income 15 w lOw 8w 17 w 7w 29w 32 w 35 w 33 w 74 Brazil 20 9 21 53 9 5 22 15 28 17 75 Un,guay 7 8 17 36 16 8 24 19 36 30 76 Hungary 12 7 II 22 22 10 27 27 28 34 77 Portugal 16 15 8 26 19 II 27 22 30 26 78 Malaysia 25 11 12 10 10 5 22 46 32 28 79 South Africa 5 6 5 1 II 5 42 55 37 34 80 Poland . . 0 . 0 S S . . . . . . 81 Yugoslavia 16 5 6 27 19 14 28 25 32 30 82 Mexico 5 17 2 3 10 6 50 45 33 29 83 Panama II 10 21 26 2 1 21 22 45 40 84 Argentina 6 4 10 10 21 11 25 32 38 43 85 Korea, Rep. of 15 6 7 24 26 13 13 34 38 23 86 Algeria 27 19 (.) 2 6 6 15 32 52 41 87 Venezuela 12 19 1 1 5 6 44 43 39 31 88 Greece 15 13 8 30 II 7 35 23 30 28 89 Israel 16 9 6 16 12 6 28 27 38 42 90 Trinidad and Tobago 12 17 49 3 2 5 16 37 21 38 91 Hong Kong 25 10 3 5 13 7 13 24 46 55 92 Oman . . 14 . . 2 . . 2 . . 41 . . 41 93 Singapore 23 9 13 29 19 5 14 31 30 26 94 Iran, Islamic Rep. 16 12 (.) 5 6 6 36 39 42 38 95 iraq 24 15 (.) 1 7 2 25 45 44 37 96 Romania .. .. .. .. Developing economies 16w 11w 7w 17w lOw 7w 30w 30w 36w 34w Oil exporters 14w 16w 6w 7w 6w 6w 34w 37w 40w 35w Exporters of manufactures 19w 9w 8w 20w 16w 9w 25w 27w 31w 35w Highly indebted countries 14w 12w 7w 21w lOw 7w 34w 29w 35w 31w Sub-Saharan Africa 15w 18w 6w 13w 4w 3w 30w 32w 45w 34w High-income oil exporters 22w lOw 2w 3w 5w 3w 32w 44w 40w 40w 97 Libya 13 10 4 10 3 3 36 36 43 40 98 Saudi Arabia 30 10 1 1 5 3 27 45 37 41 99 Kuwait 22 10 1 5 7 3 32 44 39 38 100 United Arab Emirates Industrial market economies 19w lOw 11w 20w 20w 8w 19w 29w 31w 33w 101 Spain 19 10 10 36 16 12 27 22 28 21 102 Ireland 18 12 8 12 10 5 25 31 39 40 103 Italy 24 14 16 27 24 12 15 21 21 27 104 New Zealand 7 6 7 13 10 5 33 36 43 41 105 Belgiumb 14 II 9 17 21 10 24 23 32 39 106 United Kingdom 30 II II 13 25 8 II 32 23 36 107 Austria 14 6 7 15 13 9 31 30 35 40 108 Netherlands IS 14 10 22 13 6 25 23 37 35 109 France 19 10 15 22 18 8 20 25 27 35 110 Australia 5 5 8 7 10 4 37 42 41 42 Ill Finland 10 5 10 24 12 8 35 30 34 33 112 Germany, Fed. Rep. 22 12 8 20 21 9 13 23 35 37 113 Denmark 14 II II 17 II 6 25 26 39 40 114 Japan 22 14 20 44 38 16 9 9 II 18 115 Sweden 12 6 11 19 12 7 30 33 36 35 116 Canada 10 6 7 6 9 5 40 56 34 28 117 Norway 10 6 7 9 12 7 38 38 32 40 118 Switzerland 16 8 6 10 II 6 24 26 43 50 119 United States 19 7 10 16 20 5 14 38 36 35 Nonreporting nonmember economies 120 Albania . . . 121 Angola 17 26 2 3 4 .'t5 4 33 122 Bulgaria . S 123 Cuba 29 10 43 124 Czechoslovakia 125 German Dem. Rep. 126 Korea, Dem. Rep. 127 Mongolia 128 USSR a. Figures are for the South African Customs Union comprising South Africa, Namibia, Lesotho, Botswana, and Swaziland; trade between the component territories is excluded. b. Includes Luxembourg. 225 Table 13. Origin and destination of merchandise exports Destination of merchandise exports (percentage of total) Industrial Nonreporting market nonmember High-income Developing economies economies oil exporters economies Origin 1965 1985 1965 1985 1965 1985 1965 1985 Low-income economies 52 is 4w 4w 4lss China and India 45 w 8w 2w 45 w Other low-income 65 w 60 w 4w 3w 2w 6w 29 w 32 w I Ethiopia 78 71 3 8 6 4 14 17 2 Bangladesh . . 48 4 2 . . 46 3 Burkina Faso 17 35 . . . . . . 83 65 4 Mali 7 54 4 . . . (.) 89 45 5 Bhutan 15 . . . . . 0 85 6 Mozambique 24 44 4 (.) 4 72 52 7 Nepal . . 39 . . 4 (.) 57 8 Malawi 69 61 (.) (.) 31 39 9Zaire 93 66 (.) (.) (.) 7 34 lOBurina 29 28 7 4 I 3 63 66 II Burundi 24 81 . . (.) . . (,) 76 19 12 Togo 92 54 2 (.) . . . . 6 46 13 Madagascar 85 90 (.) I (.) I IS 8 14 Niger 61 . . (.) (.) 39 l5Benin 88 92 .. .. .. 12 8 16 Central African Rep. 7! 66 . . . . . . (.) 29 33 17 India 58 57 15 17 2 6 25 20 18 Rwanda 96 81 . . . (.1 4 19 19 Somalia 40 18 (.) . . 3 67 57 15 20 Kenya 69 51 1 1 I 1 29 48 21 Tanzania 66 63 (.) 4 1 1 33 32 22 Sudan 56 29 9 (.) 4 36 31 34 23 China . . 41 . 5 . . / . . 53 24 Haiti . . 95 . . . . (.) . 5 25 Guinea . . 89 . . . . . . (.) . . 11 26 Sierra Leone 92 97 (.) (.) 8 3 27 Senegal 92 . . (.) . . . . . 7 28 Ghana 74 86 14 (.) (.) (.) 12 14 29 Pakistan 48 49 4 5 3 13 46 32 30 Sri Lanka 56 45 6 5 3 6 35 44 31 Zambia 87 71 2 (.) 12 29 32 Afghanistan 47 . . 27 26 33 Chad 64 78 34 22 34 Kampuchea, Dem. 36 . . 6 58 35LaoPDR 9 91 36 Uganda 69 88 (.) . . I 2 30 9 37 VietNam . . .. . Middle-income economies 68w 64w 8w 7w 1w 2w 24w 28w Lower middle-income 74w 71w 5w 2w 1w 2 is' 20w 25w 38 Mauritania 96 76 (.) (.) 4 24 39 Bolivia 97 37 (.) 3 61 40 Lesothob 41 Libena ½ (.) (.) 8 42 Indonesia 72 76 4 (.1 (.) (.) 24 24 43 Yemen, PDR 38 . . (.) I . . 61 44 Yemen, Arab Rep. .. 23 .. .. .. 13 .. 64 45 Morocco 80 65 6 5 (.) 3 14 27 46 Philippines 95 78 (.) 2 (.) 1 5 18 47 Egypt, Arab Rep. 28 53 38 7 I 2 33 38 48 Côted'lvoire 84 71 I 5 1 (.) IS 24 49 Papua New Guinea 98 82 . . (.) . . (.) 2 18 50 Zimbabwe 50 82 I . . (.) 1 48 17 SI Honduras 80 81 . I . . 2 20 17 52 Nicaragua 81 75 . . (.1 . . (.) 19 25 53 Dominican Rep. 99 84 . . 7 . . (.) I 9 54 Nigeria 91 89 1 (.) (.) (.) 7 11 55 Thailand 44 56 (.) 1 2 4 54 39 56 Cameroon 93 92 (.) (.) (.) (.) 7 8 57 El Salvador 73 79 (.) (.) (.) 27 21 58 Botswan&' . . . . . . . . . 59 Paraguay 58 46 . . . . . . (.) 42 53 60 Jamaica 93 80 (.) (.) (.) (.) 6 20 61 Peru 86 77 2 1 (.) (.) 12 22 62 Turkey 71 51 10 3 (.) 9 19 37 63 Mauritius 94 95 . . (.) (.) 6 5 64 Congo, People's Rep. 86 94 1 (.) (.) 13 6 65 Ecuador 89 63 (.) (.) . . (.) II 37 66 Tunisia 61 81 3 1 3 4 32 15 67 Guatemala 75 57 2 (.) 2 25 39 Note; For data comparability and coverage, see the technical notes. Figures in italics are for years other than those specified. 226 Destination of merchandise exports (percentage of total) tndustrial Nonreporting market nonmember High'income Developing economies economies oil exporters economies Ongin 1965 1985 1965 1985 1965 985 965 1985 68 Costa Rica 79 76 (.) (.) 0 / 20 24 69 Colombia 86 8/ I 1 (.) (.) 13 18 70 Chile 90 74 (.) 1 0 2 10 23 71 Jordan 20 9 4 I 22 19 54 70 72 Syrian Arab Rep. 26 40 14 15 8 4 53 42 73 Lebanon 43 14 3 (.) 35 66 19 20 Upper middle-income 64w 62w lOw 6w (.) w 2w 26w 30 w 74 Brazil 77 62 4 5 (.) 2 19 31 75 Uruguay 76 40 4 8 (.) 3 20 49 76 Hungary 22 27 58 48 (.) 2 20 23 77 Portugal 65 85 IS 4 (.) (.) 20 II 78 Malaysia 56 52 6 2 (.) 2 37 45 79 South Africab 96 84 (.) (.) (.) I 4 15 80 Poland 32 . 36 . I . . 31 81 Yugoslavia 40 33 33 42 26 23 (.) 2 82 Mexico 82 86 (.) / (.) (.) 18 13 83 Panama 87 82 (.) I (.) 2 13 15 84 Argentina 67 43 7 19 (.) (.) 27 38 85 Korea, Rep. of 75 69 (.) (.) (.) 6 25 25 86 Algeria 90 92 2 1 (.) (.) 8 8 87 Venezuela 63 75 (.) (.) (.) (.) 37 25 88 Greece 64 68 16 6 2 6 19 20 89 Israel 72 74 I (.) . . 27 26 90 Trinidad and Tobago 92 74 (.) (.) (.) (.) 8 26 91 Hong Kong 67 54 (.) (.) I 2 32 43 92 Oman S S . . S S S . . . 93 Singapore 28 47 5 I 2 4 65 48 94 Iran, Islamic Rep. 67 74 2 (.) I (.) 30 26 95 Iraq 83 33 I (.) (.) (.) 16 67 96 Romania . . . . . . . rig economi 63 w 8w 2w ,orters 77 w 4w 2w (.)w Eels of manufactures 2w 53 w 19w 9w indebted countries 1w '71 w Sw 6w iharan Africa 'V 2w 2w High-income oil exporters 70 w 59 w (.) w (.) w 3w 1w 27 97 Libya 97 43 (.) (.) (5) (.) 3 57 98 Saudi Arabia 71 60 0 0 8 (.) 21 40 99 Kuwait 56 49 0 (.) I 4 44 47 100 United Arab Emirates 69 75 0 (.) 2 I 30 24 Industrial market economies 70 w 71 w 2w 2w 1w 3w 27 w 24 w 101 Spain 73 66 5 4 (.) 3 21 26 102 Ireland 91 89 1 (.) (.) I 8 9 103 Italy 71 70 3 3 2 5 25 22 104 New Zealand 88 66 I 2 (.) 2 II 30 lOS Belgium 86 84 I 2 (.) 2 12 13 106 United Kingdom 63 77 2 I I 4 33 18 107 Austria 71 73 9 7 (.) 2 19 18 108 Netherlands 83 85 I I I I IS 12 109 France 68 71 2 3 (.) 2 29 24 110 Australia 69 5! 4 3 I 3 27 42 III Finland 71 65 17 23 (.) I 12 12 112 Germany, Fed. Rep. 77 78 2 3 1 2 21 18 113 Denmark 85 81 3 I (.) 2 12 16 114 Japan 49 58 3 2 2 4 47 36 115 Sweden 85 83 3 2 (.) 2 12 13 116 Canada 87 89 4 2 (.) (.) 0 9 117 Norway 82 88 3 I (.) (,) 14 II 118 Switzerland 76 75 2 2 I 4 21 20 119 United States 61 60 (.) I I 3 38 36 Nonreporting nonmember economies 120 Albania 121 Angola 55 122 Bulgaria 123 Cuba 14 61 .. (.) .. 24 124 Czechoslovakia 15 . . 57 . . I 27 125 German Dem. Rep. 126 Korea, Dem. Rep. 127 Mongolia 128 USSR a. Includes unallocable data. b. Figures are for the South African Customs Union comprising South Aftrica, Namibia, Lesotho, Botswana, and Swaziland. trade between the component territories is excluded. c. Includes Luxembourg. 227 Table 14. Origin and destination of manufactured exports Destination of manufactured exports (pementage of total) Industrial Nonreponing Manufactured exports market nonmember High-income Devetoping (millions of dollars) economies economies oil exporters economies Origin 1965 1985 1965 1985 1965 1985 1965 1985 1965 1985 Low-income economies 56w 45w 9w 3w 2w 4w 33s 49w China and India 39w 5w 3w 53w Other low-income 58w 64w 4w 4w w 6w 37w 27w I Ethiopia (.) 4 67 63 (.) 21 20 3 13 13 2 Bangladesh . . 645 - - 53 3 (.) - 43 3 Burkina Faso 1 6 2 34 98 66 4 Mali (.) 30 14 11 (.) 78 89 5 Bhutan . . (.) 6 Mozambique 3 59 27 2 5 (.) (.) 9 68 89 7 Nepal . . 76 . - 65 7 (.) 28 8 Malawi (.) 14 3 39 . . - . . . - 97 61 9 Zaire 28 138 93 22 (.) (.) (.) (.) 7 78 10 Burma I 26 73 43 I (,) (.) 7 26 5/ II Burundi I 16 (.) 28 . . - - . . . 99 72 12 logo I 30 37 II (.) / . . . 63 89 13 Madagascar 5 32 80 77 (.) . 6 20 17 l4Niger I .. 43 .. .. .. 57 IS Benin I /3 15 82 . . . . . - 85 18 16 Central African Rep. 14 36 60 7 . . 0 . . (.) 40 93 17 India 828 5,890 55 59 II 10 2 7 32 24 18 Rwanda (.) 1 95 93 . . . S - 4 7 19 Somalia 4 3 21 65 (.) . . 2 / 77 33 20 Kenya 13 128 23 8 (.) (.) 2 1 75 9/ 21 Tanzania 23 3/ 93 86 (.) 2 (.) 1 7 12 22 Sudan 2 . . 79 . (.) . . 2 . - 20 23 China . . 13,380 - 32 3 2 63 24 Haiti 337 . . 99 (.) . I 25 Guinea . . 5 . . 44 . . . . 3 . . 53 26 Sierra Leone 53 29 99 99 (.) . . - - I I 27 Senegal 4 . 48 . . (.) . . 52 28 Ghana 7 26 60 40 10 . . - - / 29 60 29 Pakistan 190 1,731 40 59 7 5 2 12 52 24 30 Sri Lanka 5 398 59 89 5 (.) (.) (.) 36 /0 31 Zambia I 21 14 67 (.) S - 1 86 32 32 Afghanistan II . . 98 - (.) . . . - 2 II S 33 Chad 34 Kampuchea,Dem. 35 Lao PDR (,) I I . . - 6 28 14 11 . . . . . . . I . . . . . . . 25 . . . . . 69 71 88 89 36 Uganda I 3 7 8/ (.) . . . . 1 93 18 37 VietNam - . . . . . . . - Middle-income economies 45 w 57 w 22w 9w 1w 4w 33w 31w Lower middle-income 38 w 55 w 11w 2w 6w 6w 46w 37w 38 Mauritania I 2 61 34 . . - () 39 66 ,,.. 0 39 Bolivia 6 54 86 7/ (.) 14 29 40 Lesotho5 . . . - . . - - . - S 41 Liberia 4 5 77 60 . . . (.) 23 39 42 Indonesia 27 2,365 25 50 2 (.) S - 4 73 46 43 Yemen, PDR II 5 32 33 . . 4 6 2 62 61 44 Yemen, Arab Rep. S 7 . . 70 . . . . . . 23 . . 7 45 Morocco 23 876 63 52 5 7 (,) 6 32 36 46 Philippines 43 2,534 93 77 . . (.) (.) 2 7 21 47 Egypt,ArabRep. 126 375 20 37 44 36 4 5 32 21 48 Côted'Ivoire 15 273 50 32 (.) (.) (.) (.) 50 68 49 Papua New Guinea 5 27 100 85 . - 0 - - (.) (.) 15 50 Zimbabwe 116 /67 12 78 2 - . (.) 86 22 SI Honduras 6 58 2 28 . . . . - . 98 72 52 Nicaragua 8 56 4 38 . . . . . - (,) 96 62 53 Dominican Rep. 3 /55 95 87 . . . . - . (.) 5 /3 54 Nigeria 17 78 85 64 (.) (.) (.) (.) IS 36 55 Thailand 30 2,583 39 63 (.) (.) (.) 6 61 31 56 Cameroon 6 47 46 47 (.) (,) (.) 54 52 57 El Salvador 32 231 1 46 0 - (.) 99 53 58 Botswana5 . . . . . . . . . 59 Paraguay 5 50 93 49 0 - - . - - . . 7 51 60 Jamaica 64 89 93 38 (.) . . - (.) 7 62 61 Peni 5 236 51 72 (.) (.) - - (.) 49 27 62 Turkey II 3,849 83 56 I / (.) 7 15 36 63 Maunlius (.) 1/5 6 89 . . (.) 84 11 64 Congo, People's Rep. 24 - 59 88 39 I - . - II 6/ 65 Ecuador 3 2/ 25 19 . - (.) ' ' . - 75 81 66 Tunisia 23 756 19 70 3 / 5 4 73 25 67 Guatemala 26 278 9 3 . . . S S ' 91 97 Note: For data comparability and coverage, see the technical notes. Figures in italics are for years other than those specified. 228 Destination of manufactured exports (percentage of total) Industrial Nonreporting Manufactured exports market nonmember High-income Developing (millions of dollars) economies economies oil exporters economies' Ongin 1965 1985 1965 1985 1965 1985 1965 1985 1965 1985 68 Costa Rica 18 320 6 41 . . . . (.3 94 59 69 Colombia 35 611 43 58 (.) I (.) (.) 57 41 70 Chile 28 255 38 35 (.) . . . . (.) 62 65 71 Jordan 5 408 49 8 (.) (.) 23 19 28 73 72 Syrian Arab Rep. 16 246 5 6 12 66 25 7 59 20 73 Lebanon 29 457 19 15 1 . . 61 70 19 15 Upper middle-income 46w 57w 23w 9w 1w 3w 31w 31w 74 Brazil 134 8,911 40 52 1 1 (.) 3 59 43 75 Uruguay 10 346 71 51 5 6 (.) 24 43 76 Hungary 1,053 5,866 II 21 65 53 (.) 2 24 24 77 Portugal 355 4,412 59 87 18 4 (.) (.) 23 8 78 Malaysia 75 4,404 17 69 (.) (.) 2 2 81 29 79 South Africa5 443 4,111 94 84 . . . . (.) (.) 6 16 80 Poland . , 7,403 . . 17 . . 46 . . 2 . . 36 81 Yugoslavia 617 8,421 24 28 41 46 1 2 35 24 82 Mexico 165 7,129 71 90 (.) (.) (.) 29 9 83 Panama I 35 7 39 . 5 . . (,) 93 56 84 Argentina 84 1,423 45 45 1 5 (.) (.3 54 50 85 Korea, Rep. of 104 27,669 68 68 . . (.) (.) 6 32 26 86 Algeria 24 184 50 77 2 4 1 (.) 48 19 87 Venezuela 51 647 59 66 (.) . (.) (.) 41 34 88 Greece 44 2,241 56 67 6 3 9 8 29 23 89 Israel 281 5,212 67 71 I (.) . . . 31 29 90 Trinidad and Tobago 28 330 78 79 . . (.) . 0 (.) 22 2/ 91 Hong Kong 995 27,540 71 56 (.) (.) I 2 28 41 92 Oman . . 262 30 . . . . 43 . . 27 93 Singapore 338 13,317 9 52 (.) I 3 4 88 42 94 iran, islamic Rep. 58 281 6! 81 (.) 10 11 28 8 95 Iraq 8 45 24 83 13 4 63 13 96 Romania .elopirig ecunosloes 47 w 19w 8w 2w 32w 32s' O1 ecperteis 52 ii 12w 8w 4w 2w 34 w if w Iporteis. of manufactures 42 w 24w 9w 1w 3w 34 w 36 w Highly indebted countries 42 5(3 20w 16w (,)w 2w 38w 27w Sub-Saharari Africa 1w 1W (.)w 3w 44 w 46 w -Ugh-income oil exporters Ow 47w 21w 16w 49w 36w 97 Libya 7 205 57 (.1 (.) . . 43 - 98 Saudi Arabia 19 888 31 65 17 3 52 32 99 Kuwait 17 364 18 25 33 48 49 27 100 United Arab Emirates 671 23 20 . . 57 Industrial market economies 66w 70w 2w 2w 1w 3w 31w 25w 101 Spain 382 17,227 57 64 9 5 (.) 3 34 28 102 Ireland 203 7,25! 82 93 (.) (.) (.) I 17 6 103 Italy 5,587 67,292 68 70 3 3 2 5 27 21 104 New Zealand 53 1,488 90 68 . . (.) (.) I 10 32 lOS Belgiumc 4,823 40,860 86 83 1 2 (.) 2 13 14 106 United Kingdom 11,346 68,392 6! 71 2 I I 5 36 24 107 Austria 1,204 14,628 67 72 12 7 (.) 2 21 18 108 Netherlands 3,586 35,149 8! 84 2 I 1 2 I7 13 109 France 7,139 72,242 64 69 2 2 I 3 33 26 110 Australia 432 4,548 57 43 (.1 (.) (.) I 43 56 III Finland 815 10,499 63 63 23 26 (.) I 14 10 112 Germany, Fed. Rep. 15,764 161,304 76 77 2 3 I 2 22 18 113 Denmark 967 9,599 79 78 3 I (.) 2 17 19 114 Japan 7,704 171,144 47 58 3 2 2 4 49 36 115 Sweden 2,685 24,457 82 83 3 2 (.) 2 IS 14 116 Canada 2,973 51,523 88 94 (.) (.) (.1 (.) 12 5 117 Norway 734 5,618 78 70 2 I (.) 1 20 28 118 Switzerland 2,646 25,230 75 74 2 2 1 4 22 20 119 United States 17,833 158,517 58 61 (.) (.) I 3 40 35 Nonreporting nonmember economies 120 Albania . 121 Angola 36 .i . 122 Bulgaria 123 Cuba 27 .. 68 5 124 Czechoslovakia 15,250 . . 11 27 125 German Dem. Rep. 126 Korea, Dem. Rep. 127 Mongolia 128 USSR a. Includes unallocable data. b. Figures are for the South African Customs Union comprising South Africa, Namibia, Lesotho, Botswana, and Swaziland; trade between the component territories is excluded. c. Includes Luxembourg. 229 Table 15. Balance of payments and reserves Receipts Gross international teserves Current account of workers' Net direct In months balance remittances private investment of imri (millions of dollars) (millions of dollars) (millions of dollars) Millions of dollars coverage 1970 1985 1970 1985 1970 1985 1970 1985 1985 Low-income economies 3,243 32,441 4.1 w China and India 26,375 5.1 w Other low-income 3,2191 6,0661 2.1 w I Ethiopia -32 -130 . 4 72 217 1.2 2 Bangladesh . -543 . . 421 -1 353 1.4 3 BurkinaFaso 9 . . 18 (') 36 143 4 Mali -2 -113 6 35 1 29 0.7 5 Bhutan . . . 6 Mozambique . . . . ' 0 0 .. . . . 7 Nepal . -126 . . . 94 105 2.2 8 Malawi -35 . . . ' ' . 9 . 52 274 9 Zaire -64 377 2 42 7 189 337 1.8 10 Burma -63 -203 . . . . . . . . 98 116 2.1 II Bumndi . . . . . . . . . . 15 36 12 logo 3 -48 . . 6 (.) 35 300 6.0 13 Madagascar 10 -151 . . 8 10 . . 37 48 1.1 14 Niger (.) -57 . . . ' (.) . . 19 140 3.8 15 Benin -1 . . 2 . . 7 . . 16 7 16 Central African Rep. -12 -31 . . . . I 5 1 53 2.8 17 India -394 -2,481 113 2,291 6 . . 1,023 9,494 5.4 18 Rwand,a 7 -42 I I (.) 15 8 113 3.9 19 Somalia -6 -97 5 -1 21 9 0.2 20 Kenya -49 -208 . . 14 77 220 417 2.7 21 Tanzania -36 . . . . . . . . 65 16 22 Sudan -42 157 . . 259 . . -3 22 12 0.1 23 China . . -11,417 . . 180 . . 1,031 . . 16,881 4.9 24 Haiti 2 -100 17 98 3 5 4 13 0.3 25 Guinea . . . . . . . . . . . . 26 Sierra Leone -16 -23 . . . . 8 6 39 II 0.4 27 Senegal -16 -338 3 ' . 5 . , 22 15 0.2 28 Ghana -68 -166 . . 1 68 6 43 554 6.8 29 Pakistan -667 -1,092 86 2,526 23 124 195 1,429 2.2 30 Sn Lanka -59 -559 3 296 (.) 30 43 471 2.2 31 Zambia 108 -98 . . . . -297 . . 515 200 2.5 32 Afghanistan . . . . ' . . . . . . . 50 612 33Chad 2 7 .. 1 9 2 37 2.5 34 Kampuchea, Dem. . . . ' . ' . 35LaoPDR .. .. .. .. .. 6 36 Uganda 20 4 . 57 37 VietNam 243 Middle-income economies 15.704 124,507 t 3.3 w Lower middle-income 4,907 t 35,895 t 2.6 w 38 Mauritania -5 -108 I I I 7 3 62 1.2 39 Bolivia 4 -282 . . (.) -76 10 46 491 5.4 40 Lesotho . . 9 ' . . . 3 44 1.5 41 Liberia . . 76 . . . . -16 . . 2 (.) 42 Indonesia -310 -1,840 61 . . 27! 160 5,988 3.2 43 Yemen, PDR -4 -368 60 494 . . 59 261 3.0 44 Yemen, Arab Rep. . . -335 . . 897 . . 3 . . 297 2.3 45 Morocco -124 -889 63 967 20 20 141 345 0.8 46 Philippines -48 8 . . III -29 -14 255 1,099 1.6 47 Egypt, Arab Rep. -148 -1,895 29 3,212 1,175 165 1,587 1.5 48 Côted'Ivoire -38 105 31 . . 119 18 0.1 49 Papua New Guinea -325 .. . . 114 . . 462 3.6 50 Zimbabwe . . -97 . . -2 60 345 2.1 51 Honduras -64 -263 . . . . 8 28 20 112 1.0 52 Nicaragua -40 -444 IS 49 220 2.7 53 Dominican Rep. -102 -163 25 205 72 68 32 347 1.7 54 Nigeria -368 1,242 . . 205 34! 223 1,893 2.0 55 Thailand -250 -1,554 . 43 160 . 911 3,004 3.0 56 Camemon -30 -165 14 16 7 81 142 0.3 57 El Salvador 9 -54 114 4 12 64 333 2.8 58 Eotswana . 140 . . . . . 59 . . . . 783 11.2 59 Paraguay -16 -226 . . (.) 4 I 18 560 4.8 60 Jamaica -153 -19 29 26 161 12 139 161 1.5 61 Peru 202 55 . . . -70 . -54 339 2,465 7.7 62 Turkey -44 -1,030 273 1,714 58 99 440 2,318 1.9 63 Mauntius 8 -30 2 8 46 43 0.8 64 Congo, People's Rep. 210 , 35 9 7 0.1 65 Ecuador -113 -85 . 89 60 76 852 3.0 66 Thnisia -53 -536 29 271 16 107 60 295 1.0 67 Guatemala -8 -240 29 61 79 471 3.9 Note. For data comparability and coverage. see the technical notes. Figures in italics are for years other than those specified. 230 Gross international reserves Receipts Current account of workers Net direct In months balance remittances private investment of import (millions of dollars) (millions of dollars) (millions of dollars) Millions of dollars coverage 1970 1985 1970 1985 1970 1985 1970 1985 1985 68 CostaRica -74 -168 . . 26 67 16 526 3.8 69 Colombia -293 -1,390 6 117 39 729 207 2,197 3.9 70 Chile -91 -1,307 . . -79 112 392 2,950 5.8 71 Jordan -20 -252 . . 1,022 . . 23 258 769 2.4 72 Syrian Arab Rep. -69 -952 7 293 . . 57 356 0.9 73 Lebanon . . . . . . . . 405 4,089 Upper middle- me 10,796 t 88,612 t 3.7 w 74 Brazil 75 Uruguay 76 Hungary -837 -45 -25 -273 -108 -52 . . . . . 2 . . 407 1,267 -8 . . 1,190 186 . . 11,618 1,031 3,880 4.7 8.6 4.4 77 Portugal . . 379 . . 2,075 . . 231 1,565 8,010 9.8 78 Malaysia 8 -723 . . 94 685 667 5,677 3.7 79 SouthAfrica -1,215 2,615 . . 318 21 1,057 1,897 1.4 80 Poland . . . . . . . . . . . 81 Yugoslavia -372 275 441 . . . . 143 1,703 1.3 82 Mexico -1,068 540 323 492 756 5,678 2.3 83 Panama -64 272 . . . . 33 60 16 98 0.2 84 Argentina -163 -954 . . . . II 977 682 4,553 4.8 85 Korea, Rep. of -623 -887 . . . . 66 200 610 2,971 1.0 86 Algeria -125 1,015 211 313 45 -2 352 4,644 4.3 87 Venezuela -104 3,086 . . . . -23 106 1,047 13,998 12.3 88 Greece -422 -3,276 333 775 50 447 318 2,215 2.2 89 Israel -562 1,099 . . . . 40 40 452 4,014 3.3 90 TrinidadandTobago -109 22 3 (.) 83 -36 43 1,145 5.5 91 Hong Kong . . . . . . . . . . 92 Oman . . 223 43 . . 125 12 1,185 3.2 93 Singapore -572 -253 . . 93 1,076 1,012 12,847 5.2 94 lran,IslamicRep. -507 -414 . . 25 . . 217 . 95 Iraq 105 . . . . 24 . . 472 . 96 Romania 1,239 . . 1,448 1.5 Developing economies 18,946 t 156,948 3.5 w Oil exporters 3,670 37,476 3.7w Exporters of manufactures 5,995 t 72,366 3.9w Highly indebted countries 5,935 t 51,578 4.3 w Sub-Saharan Africa 2,028 t 6,306 1.7w High-income oil exporters 2,475 1 43,363 r 7.3 w 97 Libya 645 1,890 . . . . 139 -316 1,596 7,081 11.1 98 Saudi Arabia 71 -12,967 . . 20 2,513 670 26,508 6.7 99 Kuwait . . 5,617 -57 209 6,301 7.4 100 United Arab Emirates . . 3,472 Industrial market economies 72,867 t 505,748 r 4.2 w 101 Spain 79 2,765 469 1,025 179 1,698 1,851 15,966 5.2 102 Ireland -198 -919 . . . . 32 /20 698 3,058 2.3 103 Italy 902 -4,132 446 1,170 498 -892 5,548 37,316 4.0 104 New Zealand -232 -1,461 40 321 137 94 258 1,602 2.3 105 Belgium 717 622 154 384 140 766 2,946 16,026 2.4 106 United Kingdom 1,910 5,155 . . . . -185 -4,254 2,918 19,083 1.2 107 Austria -75 -229 13 182 104 187 1,806 11,680 4.7 108 Netherlands -483 5,178 . . . . -15 -2,840 3,362 25,150 3.8 109 France -203 749 130 230 248 325 5,199 53,354 4.2 110 Australia -837 -8,684 . . 790 -324 1,709 8,361 2.7 Ill Finland -239 -658 -41 -265 455 4,374 3.0 112 Germany, Fed. Rep. 852 13,500 -290 -2,946 13,879 75,504 4.6 113 Denmark -544 -2,708 75 -86 488 5,962 2.7 114 Japan 1,980 49,170 -260 -5,810 4,876 34,642 2.5 115 Sweden -265 -1,204 -104 -964 775 7,778 2.4 116 Canada 821 -432 . . 566 -6,008 4,732 9,079 1.0 117 Norway -242 2,926 II 32 -1,049 813 13,583 6.3 118 Switzerland 72 6,207 66 . . -2,378 5,317 45,249 10.9 119 UnitedStates 2320 -117,750 . . -6,130 -900 15,237 117,982 3.1 Nonreporting nonmember economies 120 Albania 121 Angola 122 Bulgaria 123 Cuba 124 Czechoslovakia 125 German Dem. Rep. 126 Korea, Dem. Rep. 127 Mongolia 128 USS! 231 Table 16. Total external debt Long-term debt (millions of dollars) Public and Pnvate Use of IMF credit Short-term debt Total external debt publicly guaranteed nonguaranteed (millions of dollars) (millions of dollars) (millions of dollars) 1970 1985 1970 1985 1970 1985 1970 1985 1970 1985 Low-income economies China and India Other low-income I Ethiopia 169 1,742 0 0 0 50 77 1,869 2 Bangladesh 5,968 0 424 135 6,526 3 BurkinaFaso 21 496 0 0 0 0 43 539 4 Mali 241 1,327 0 0 9 81 61 1,469 5 Bhutan - 0 0 6 Mozambique S 0 0 7 Nepal 3 527 0 0 0 II 23 562 8 Malawi 125 775 0 0 0 134 79 988 9 Zaire 312 4,821 0 721 309 10 Burma 108 2,947 0 0 17 71 86 3,104 II Burundi 7 415 0 0 8 0 31 446 12 Togo 40 787 0 0 0 63 74 924 13 Madagascar 90 2,340 0 0 0 162 86 2.588 14 Niger 32 791 199 0 67 98 1,155 IS Benin 41 677 0 0 0 0 99 776 6 Central African Rep. 24 296 0 0 0 28 17 341 I7 India 8,109 26,650 100 3,093 lO 4,202 - 1,516 35,460 18 Rwanda 2 324 0 0 3 0 27 - 35I 19 Somalia 77 I,309 0 0 0 142 - 35 1,486 20 Kenya 333 2,857 88 406 0 486 470 4,219 2I Tanzania 257 2,982 15 6 0 21 600 3,609 22 Sudan 308 5,086 31 665 58I 23 China 7,020 0 0 24 Haiti 40 534 2 82 88 25 Guinea 313 1,292 S 3 13 76 S 26 Sierra Leone 61 390 0 0 0 78 59 . - 527 27 Senegal 101 1,989 31 13 0 241 . 211 - . 2,454 28 Ghana 471 1,170 . . . . 46 656 302 29 Pakistan 3,08I I0,68I 5 26 45 1,266 . . 722 2,695 30 Sn Lanka 321 2,815 . 99 79 321 . . 299 . 3,534 31 Zambia 627 3.214 30 0 0 762 . . 507 . . 4,483 32 Afghanistan . S . . . IS 0 S S 33 Chad 33 ISO 0 0 3 9 . . 3 . . 161 34 Kampachea, Dem. . . . . . . . . 0 0 . . 35LaoPDR .. .. .. .. 0 0 36 Uganda 142 726 0 0 0 282 . . 22 . . 1,030 37 VietNam . . . . . . . . S . - Middle-income economies Lower middle-income 38 Mauritania 27 1,363 0 0 0 30 84 - . 1,477 39 Bolivia 482 3,259 II 314 6 SI - - 347 . . 3,972 40 Lesotho 8 172 0 0 0 0 4 176 41 Liberia 158 879 0 0 4 226 50 1,155 42 Indonesia 2,447 26,625 461 3,810 139 46 . . 5,280 35,761 43 Yemen, PDR I 1,446 0 0 0 IS . 70 1,531 44 Yemen, Arab Rep. . . I 868 0 0 0 II . - 60 . . 2,039 45 Morocco 716 11,231 - . . . 28 1,190 1,664 . . S 46 Philippines 575 13,561 919 2.998 69 1,052 . . 8,573 . . 26,184 47 Egypt, Arab Rep. 1,760 17,751 . 750 49 41 . 5,800 . . 24,342 48 Côte d'lvoire 257 5,700 II 1,400 0 622 725 . . 8,446 49 Papua New Guinea 39 1,061 173 1,020 0 II 46 . . 2,239 SO Zimbabwe 239 1,526 . . 45 0 264 308 . . 2,143 SI Honduras 95 2,178 19 141 0 134 . . 259 .. 2,713 52 Nicaragua 147 4,753 0 0 8 0 . . 862 . . 5,615 53 Dominican Rep. 212 2,521 141 151 7 297 .. 325 3,294 54 Nigeria 458 13,016 115 416 0 0 4,916 . . 18,348 55 Thailand 326 9,898 402 3,370 0 1,020 . . 3,200 17,489 56 Carrieroon 132 1,975 9 381 0 1) 515 . . 2,871 57 El Salvador 88 1,460 88 104 7 89 . . 82 . . 1,736 58 Botswana IS 334 . . . . 0 0 . - 2 . 59 Paraguay 112 1,525 . . 104 0 0 . . 151 . . 1,780 60 Jamaica 162 2,823 822 90 0 693 169 . - 3,775 61 Peru 859 10,527 1,799 1,342 10 702 1,117 .. 13,688 62 Turkey 1,875 17,821 42 359 74 1,326 - . 6,617 . . 26,124 63 Mauritius 33 404 0 15 0 159 .. SI . - 629 64 Congo, People's Rep. 140 1,760 . . . 5 0 0 . . 660 65 Ecuador 194 7,121 49 70 14 360 1,683 - . 9,233 66 Tunisia 543 4,442 . . 246 13 0 562 . - 5,250 67 Guatemala 106 2,148 14 106 0 116 . . 226 . . 2,595 Note. For data comparability and coverage, see the technical notes. Figures in italics are for years other than those specified. 232 Long-term debt (millions of dollars) Pablic and Private Use of IMF credit Short-term debt Total external debt pablicly gaaranreed nonguaranteed (millions of dollars) (millions of dollars) (millions of dollars) 1970 1985 1970 1985 1970 1985 1970 1985 1970 1985 68 Costa Rica 134 3,665 112 297 0 189 40 4,191 69 Colombia 1,299 9,377 283 1,568 55 0 3,099 14,044 70 Chile 2,075 12,735 501 4,731 2 1,088 1,668 20,221 71 Jomlan 120 2,693 0 0 0 63 917 3,673 72 Syrian Arab Rep. 233 2,751 0 0 10 0 815 3,566 73 Lebanon 64 172 0 0 235 Upper middle-income 74 Brazil 3,432 73,894 1,706 17,200 0 4,619 11,017 106,730 75 Unsguay 270 2,686 29 60 18 350 814 3,910 76 Hungary 10,138 0 0 0 971 1,881 12,990 77 Portugal 487 10,803 85 519 0 628 2,610 14,560 78 Malaysia 396 13,834 50 4,132 0 118 79 South Africa 911 80 Poland 0 81 Yugoslavia 1,204 9,919 854 6,383 2,108 972 19,382 82 Mexico 3,196 72,510 2,770 16,500 2,969 5,450 97,429 83 Panama 194 3,276 311 1,123 84 Argentina 1,891 35,604 3,291 4,575 2,312 5,953 48,444 85 Korea, Rep. of 1,844 29,126 175 6,630 1,508 10,732 47,996 86 Algeria 941 13,664 0 0 0 1,862 15,526 87 Venezuela 729 16,650 236 5,150 0 10,279 32,079 88 Greece 916 12,452 388 1,657 0 4,530 18,639 89 Israel 2,284 15,850 361 4,494 13 0 3,529 23,873 90 Trinidad and Tobago 102 1,087 0 0 149 91 Hong Kong 3 251 0 0 749 92 Oman 1,946 0 0 422 93 Singapore 154 1,791 0 0 262 94Iran, Islamic Rep. 0 0 95Iraq 0 0 96 Romania 5,801 0 660 5i 6,977 Developing economies Oil exporters Exporters of manufactures Highly indebted countries Sub-Saharan Africa High-income oil exporters 97 Libya 98 Saudi Arabia 99 Kuwait 100 United Arab Emirates Industrial market economies 101 Spain 102 Ireland 103 Italy 104 New Zealand 105 Belgium 106 United Kingdom 107 Austria 108 Netherlands 109 France 110 Australia III Finland 112 Germany, Fed. Rep. 113 Denmark 114 Japan 115 Sweden 116 Canada 117 Norway 118 Switzerland 119 United States Nonreporting nonmember economies 120 Albania 121 Angola 122 Bulgaria 123 Cuba 124 Czechoslovakia 125 German Dem. Rep. 126 Korea, Dem. Rep. 127 Mongolia 128 USSR 233 Table 17. flow of public and private external capital Disbursements Repayment of principal Net flows (millions of dollars) (millions of dollars) (millions of dollars) Public and Public and Public and publicly Private publicly Private publicly Private guaranteed nonguaranteed guaranteed nonguaranteed guaranteed nonguaranteed 1970 1985 1970 1985 1970 1985 1970 1985 1970 1985 1970 1985 Low-income economies China and India Other low-income I Ethiopia 28 368 0 0 IS 69 0 0 13 299 0 0 2 Bangladesh . . 581 . . 0 . . 126 . 0 455 . 0 3 Burkina Faso 2 55 0 0 2 17 0 0 (.) 38 0 0 4 Mali 22 106 0 0 (.) 25 0 0 22 80 0 0 5 Bhutan . . . . . . . . . . . 6 Mozambique . . . . . 2 . . 0 0 . 7 Nepal 1 93 0 0 2 7 0 0 86 0 0 8 Malawi 39 52 0 0 3 48 0 0 36 4 0 0 9 Zaire 32 149 . . . . 28 122 . . . . 3 27 . 10 Burma 22 3l1 0 0 20 126 0 0 2 184 0 0 II Burundi 1 71 0 0 (.) 13 0 0 I 58 0 0 l2Togo 5 54 0 0 2 51 0 0 3 4 0 0 13 Madagascar II 157 0 0 5 64 0 0 5 93 0 0 14 Niger 12 75 . . . . 2 37 . . II 38 . 15 Benin 2 37 0 0 I 14 0 0 I 24 0 0 16 Central African Rep. 17 India 922 2 49 3,449 0 25 0 1,135 2 1,084 7 0 0 1 42 0 0 340 25 653 583 2,364 0 482 18 Rwanda (.) 64 0 0 (.) II 0 0 (.) 53 0 0 19 Somalia 4 l40 0 0 I 40 0 0 4 99 0 0 20 Kenya 34 271 . . 17 244 . . . . 17 27 . 21 Tanzania 50 161 . . . . 10 40 . . . . 40 121 22 Sudan 53 109 . . . . 22 64 . . 30 45 23 China S S . . . . . . . 24 Haiti 4 62 . . 4 13 . . . . I 49 25 Guinea 90 97 . . . . 11 46 . . . 80 51 26 Sierra Leone 27 Senegal 20 8 35 216 0 I 0 6 10 5 45 7 0 3 0 5 3 14 28 l7l 20 0 2 28 Ghana 43 119 . . . . 13 57 . . . . 30 62 29 Pakistan 485 986 3 13 112 766 I 14 374 220 2 30 Sri Lanka 64 359 . . 55 29 119 . . 8 36 240 . . 47 31 Zambia 351 263 . . . . 35 44 . . . 317 219 32 Afghanistan . . . . . . . . S . . . . 33 Chad 6 8 0 0 3 6 0 0 3 2 0 34 Kampuchea, Dem. . . . . . . . . . 35LaoPDR .. .. .. .. 36 Uganda 27 139 0 0 4 79 0 0 23 60 0 0 37 VietNam .. .. .. .. Middle-income economies Lower middle-income 38 Mauritania 4 86 0 0 3 51 0 0 I 35 0 0 39 Bolivia 55 1 l5 . . . . 17 143 . . . . 38 28 . 40 Lesotho (.) 39 0 0 (.) 14 0 0 (.) 24 0 0 41 Liberia 42 Indonesia 442 7 58 3,502 195 0 0 770 12 59 2,360 8 6! 0 0 760 4 383 1,142 50 134 0 10 0 43 Yemen, PDR 1 493 0 0 0 95 0 0 1 398 0 0 44 Yemen, Arab Rep. . . 246 0 0 . . 107 0 0 . . 139 0 0 45 Morocco 167 671 . . . . 37 545 . . . . 130 127 . 46 Philippines 128 1,277 276 285 73 426 186 151 56 85! 90 134 47 Egypt, Arab Rep. 398 2,417 . . 340 300 1,682 140 99 735 . 200 48 Cole d'lvoire 78 306 . . . . 28 147 . . . . 50 159 49 Papua New Guinea 37 83 III 308 0 65 20 178 37 18 91 130 50 Zimbabwe 220 . 5 210 10 3 . . . . . . . . . 51 Honduras 30 358 10 12 4 74 3 15 26 284 7 52 Nicaragua 44 563 0 0 16 22 0 0 28 541 0 0 53 Dominican Rep. 54 Nigeria 38 56 1,560 198 22 25 90 6 37 7 2,748 84 20 30 14 125 31 18 1,188 114 2 5 735 55 Thailand 56 Cameroon 51 28 2,449 182 169 II 784 112 23 5 896 145 107 2 786 322 28 24 1,553 38 62 9 2 210 57 El Salvador 8 179 24 0 6 128 16 10 2 51 8 10 58 Botswana 3 67 (.) 26 3 4! 6 . . . . . . . . . 59 Paraguay IS 244 0 7 73 . . 6 8 171 . . 60 Jamaica IS 400 . . . . 6 193 . . . . 9 208 . . . 61 Pent 148 517 240 45 152 233 168 48 364 7 123 62 Turkey 330 2,719 I 42 101 129 2,249 3 134 201 470 2 92 63 Maurilius 2 66 0 4 I 40 0 4 1 26 0 (.) 64 Congo, People's Rep. 21 269 216 .. 53 65 Ecuador 66 Tunisia 4! 88 605 751 . . 7 . 13 . 16 47 6 228 437 . . II 120 15 26 42 377 314 4 . 107 2 . . . . . . . . . 67 Guatemala 37 259 6 1 20 148 2 3 17 III 4 Note: Fordata comparablity and coverage, see the technical notes. Figures in italics are for years other than those specified. 234 Disbursements Repayment of principal Net flow (millions of dollars) (millions of dollars) (millions of dollars) Public and Public and Public and publicly Private publicly Private publicly Pnvate guaranteed nonguaranteed guaranteed nonguaranteed guaranteed nonguaranteed 1970 1985 970 1985 1970 1985 1970 1985 1970 1985 1970 1985 68 CostaRica 30 286 30 0 21 131 20 20 9 155 10 20 69 Colombia 254 1,784 0 235 78 647 59 104 176 1,137 59 131 70 Chile 405 1,178 247 86 165 223 41 201 240 955 206 115 71 Jonian 14 421 0 0 3 301 0 0 12 119 0 0 72 Syrian Arab Rep. 60 527 0 0 30 264 0 0 30 263 0 0 73 Lebanon 12 26 2 43 10 16 Upper middle-income 74 Brazil 892 2,503 900 0 256 1,497 200 757 635 1,006 700 757 75 Uruguay 38 220 13 0 47 124 4 69 10 96 9 69 76 Hungaty . . 4,192 0 0 . . 2,183 0 0 . 2,009 0 0 77 Portugal 18 1,615 20 75 63 1,500 22 143 45 115 68 78 Malaysia 45 3,393 12 735 47 2,839 9 603 2 553 3 133 79 South Africa . . . . . . . . 80 Poland . . . 0 . . . 0 81 Yugoslavia 180 382 465 389 170 433 204 960 10 50 261 571 82 Mexico 772 4,423 603 793 475 3,475 542 1,413 297 948 61 620 83 Panama 67 139 . . . 24 132 . . . . 44 8 . . 84 Argentina 486 3,790 . . . 343 838 . . . 143 2,952 85 Korea, Rep. of 444 5,615 32 2,501 199 2,879 7 1,242 245 2,736 25 1,259 86 Algeria 303 3,354 0 0 34 3,286 0 0 270 68 0 0 87 Venezuela 225 100 . . . . 42 788 . . . . 183 688 . 88 Greece 164 2,894 144 220 62 803 37 210 102 2,090 107 10 89 Israel 411 680 123 580 26 787 36 485 385 107 87 95 90 Trinidad and Tobago 8 211 . . 10 104 . . 2 107 . 91 HongKong 0 9 . . I 47 . . 38 . 92 Oman . . 703 . . . . . . 143 . . . . . . 559 . 93 Singapore 60 331 . . . . 6 567 . . . . 54 236 . 94 Iran, Islamic Rep. 95 Iraq 96 Rontania 509 1,230 721 Developing economies Oil exporters Exporters of manufactures Highly indebted countries ub-Saharan Africa h-income oil exporters 97 Libya 98 Saudi Arabia 99 Kuwait 100 Uniled Arab Emirates industrial market economies 101 Spain 102 Ireland 103 Italy 104 New Zealand 105 Belgium 106 United Kingdom 107 Austria 108 Netherlands 109 France 110 Australia Ill Finland 112 Germany, Fed. Rep. 113 Denmark 114 Japan 115 Sweden 116 Canada Ill Norway 118 Switzerland 119 United Slates Nonreporting nonmember economies 120 Albania 121 Angola 122 Bulgaria 123 Cuba 124 Czechoslovakia 125 German Dem. Rep. 126 Korea, Dem. Rep. 127 Mongolia 128 USSR a. Disbursements less repayments of princtpal may not equal net flow because of roundtng. 235 Table 18. Total external public and private debt and debt service ratios Total long-term debt Total interest disbursed and outstanding Total long-term debt service as percentage of: payments Millions of As percentage on long-term debt Exports of goods dollars of GNP (millions of dollars) GNP and services 1970 1985 1970 1985 1970 1985 1970 1985 1970 985 Low-income economies China and India Other low-income I Ethiopia 169 1,742 9.5 37.1 6 35 1.2 2.2 11.4 10.9 2 Bangladesh . - 5,968 . - 37.2 - . 89 . - 1.3 . - 16.7 3 Burkina Faso 21 496 6.6 46.4 (.) 10 (.7 2.5 6.8 4 Mali 241 1,327 70.7 122.1 (.) 13 (.2 3.5 1.4 16.6 5 Bhutan . . . - - . . 6 Mozambique . . . . . . . . - . . . . . . . - 7 Nepal 3 527 0.3 22.5 (.) 6 (.3 0.5 . - 4.0 8 Malawi 125 775 44.2 75.7 3 28 2.2 7.4 7.7 9Zaire .. .. .. .. .. .. .. 10 Burma 108 2,947 5.0 42.1 3 70 1.0 2.8 17.2 51.4 II Bunindi 7 415 3.1 39.7 (.) 9 (.3 2.0 2.3 16.6 12 Togo 40 787 16.2 121.0 I 39 0.9 13.7 3.0 27.5 13 Madagascar 90 2.340 10.5 105.4 2 53 0.8 5.3 3.7 19.6 14 Niger . . 990 . . 64.4 . . , . . . . . . 15 Benin 41 677 15.2 66.9 (.) 9 (.6 2.2 2.3 16 Central African Rep. 24 296 13.5 44.9 I 7 1.7 2.0 5.1 11.8 17 India 8,209 29,743 15.4 15.0 202 1.066 1.1 1.4 25.1 12.7 18 Rwanda 2 324 0.9 19.1 (.) 4 (.1 0.9 1.2 4.3 19 Somalia 77 1,309 24,5 53.5 (.) 17 (.3 2.3 2.1 44.8 20 Kenya 421 3,263 27.2 58.5 . . . . . . . . . 21 Tanzania 272 2,988 21.3 48.6 22 Sudan 23 China . . . 24 Haiti . 25 Guinea . . . 26 Sierra Leone 61 390 14.5 32.6 2 3 3.1 0.8 10.4 5.7 27 Senegal 132 2,002 15.6 82.8 2 45 1.1 3.9 4.0 9.4 28 Ghana . . . . . . . . . . . . . . . . . 29 Pakistan 3,086 10,707 30.8 31.7 77 308 1.9 3.2 23.5 30.0 30 Sri Lanka . . 2,914 . . 49.2 . . 113 . . 4.1 14.7 31 Zambia 657 3,214 37.7 150.8 . . . . . . . 32 Afghanistan . . . . . . . . . . . . . 33 Chad 33 ISO 9.9 . . (.) 2 (.9 . . 4.2 34 Kampuchea. Dem. . . . . . . . . . . . . . 35LaoPDR .. .. .. .. .. .. 36 Uganda 142 726 7.5 . 5 27 0.4 . 2.9 . . 37 VietNam . . . . . . . Middle-income economies Lower middle-income 38 Mauritania 27 1,363 13.9 208.2 (.) 28 1.8 12.0 3.3 19.0 39 Bolivia 493 3,574 47.3 136.8 . . . . . . . . . 40 Lesotho 8 172 7.8 30.1 (.) 4 (.5 3.2 . 6.2 . 41 Liberia 158 879 39.4 85.3 6 10 4.4 1.7 . 3.8 . 42 Indonesia 2,908 30,435 30.0 36.6 45 1,931 1.7 6.1 . 25.1 . 43 Yemen. PDR 1 1,446 134.7 0 19 . . 10.6 0.0 42.3 44 Yemen, Arab Rep. 1,868 45.6 . 19 . 3.1 . 55.8 . . - 45 Morocco . . . . . . . . . . . . . . . . . 46 Philippines 1,495 6,559 21.! 52.1 42 970 4.3 4.9 22.8 19.5 47 Egypt. Arab Rep. . . 18.501 . 64.5 . 627 . . 8.5 . 33.6 . . . 48 Côte d'lvoire 268 I 7,100 19.6 110.2 . . . . . . . . . 49 Papua New Guinea 211 2,082 33.7 96.2 10 131 4.8 17.3 . 27.3 . 50 Zimbabwe . . 1.571 . 32.2 . . . . . . . . . . SI Honduras 115 2,320 16.3 73.2 4 104 1.5 6.1 5.2 20.0 52 Nicaragua 147 4,753 19.5 185.2 7 19 3.0 1.6 10.5 53 Dominican Rep. 353 2,672 24.2 62.2 13 146 2.7 5.7 15.2 23.1 54 Nigeria 573 13,432 5.7 17.8 28 1,298 0.9 5.5 7.1 32.1 55 Thailand 727 13.268 11,1 36.0 33 911 2.5 7.0 14.0 25.4 56 Cameroon 141 2.356 13.0 31.0 5 133 1.0 7.9 4.0 15.0 57 El Salvador 176 1,565 17.3 42.5 9 76 3.1 5.8 12.0 18.6 58 Botswana . . . . . . . . . . . . . . . 59 Paraguay . 1,629 . . 59.6 . 80 . . 5.8 . 13.5 . 60 Jamaica 985 2,913 73.0 171.9 . . . . . . . . . 61 Peru 2,658 11,869 38.1 74.9 162 287 7.! 3.8 40.0 16.0 62 Turkey 1,917 18.180 15.2 35.4 45 1,277 1.4 7.1 22.8 32.1 63 Mauritius 33 419 14.7 41.3 2 27 1.4 7.0 3.2 12.3 64 Congo, People's Rep. - . . .. . . . . . . . - . . . - 65 Ecuador 243 7,191 14.8 61.5 10 729 2.2 9.2 14.0 33.0 66 Tunisia . . 4,688 59.2 . .. - . . . . . 67 Guatemala 120 2,254 6.5 20.8 7 116 1.6 2.5 8.2 22.3 Note: Fordata comparability and coverage, see the technical notes. Public and private debt includes public, publicly guaranteed, and pnvate nonguaranteed debt: data are shown only when available for all the caragorie Figures in italics are for years other than those specified. 236 Total long-term debt Total interest disbursed and outstanding Total long-term debt service as percentage of: payments Millions of As percentage on long-term debt Exports of goods dollars of GNP (millions of dollars) GNP and services l970 1985 1970 1985 1970 985 1970 1985 1970 1985 68 Costa Rica 246 3,962 25.3 113.6 14 353 5.7 14.5 19.9 39.8 69 Colombia 1,582 10,945 22.5 33.3 59 861 2.8 4.9 19.3 33.4 70 Chile 2,576 17,465 32.2 123.9 104 1,646 3.9 14.7 24.4 44.1 71 Jordan 120 2,693 23.8 70.9 2 153 0.9 12.0 3.6 22.1 72 Syrian Arab Rep. 233 2,751 10.8 16.9 6 96 1.7 2.2 11.2 14.8 73 Lebanon . . . . . Upper middle-income 74 Brazil 5,138 91,094 12.2 43.8 224 7,950 1.6 4.9 21.8 34.8 75 Uruguay 298 2,746 12.5 58.4 17 291 2.9 10.3 23.6 36.5 76 Hungary . . 10,138 . . 51.1 . . 792 . . 13.0 25.0 77 Portugal 572 11,322 9.2 57.2 34 1,040 1.9 13.6 . . 33.8 78 Malaysia 446 17,966 10.9 62.0 25 1,461 2.0 16.9 4.4 27.5 79 South Africa . . . . . . . . . . . . . . . . 80 Poland . . . . . . . . . . . . . . . . . 81 Yugoslavia 2,058 16,302 15.0 35.3 104 1,625 3.5 6.5 19.7 21.2 82 Mexico 5,966 89,010 17.0 52.8 283 9,436 3.7 8.5 44.3 48.2 83 Panama . . . . . . . . . . . . . 84 Argentina 5,182 40,179 23.3 56.4 . . . . . . . . . 85 Korea, Rep. of 2,019 35,756 23.3 43.0 76 2,991 3.2 8.6 20.4 21.5 86 Algeria 941 13,664 19.4 24.0 10 1,297 0.9 8.1 3.9 33.3 87 Venezuela 965 2l,800 8.7 46.1 . . . . . . . 88 Greece l,304 14,109 12.8 43.4 64 1,072 1.6 6.4 14.7 29.3 89 Israel 2,645 20,344 48.1 105.8 34 1,790 1.7 15.9 6.8 28.6 90 Trinidad and Tobago 91 Hong Kong 92 Oman 93 Singapore 94 Iran, Islamic Rep. 95 Iraq 96 Romania 5,801 543 . . . . . . 13.6 Developing cc Oil exporters Exporters of mar Highly indebted Sub-Saharan Afr: High-income oil ex 97 Libya 98 Saudi Arabia 99 Kuwait 100 United Arab Emirates Industrial market economies 101 Spain 102 Ireland 103 Italy l04 New Zealand 105 Belgium 106 United Kingdom 107 Austria 108 Netherlands 109 France 110 Australia Ill Finland 112 Germany, Fed. Rep. 113 Denmark 114 Japan 115 Sweden 116 Canada 117 Norway 118 Switzerland 119 United States Nonreporting nonmember economies 120 Albania 121 Angola 122 Bulgaria 123 Cuba 124 Czechoslovakia 125 German Dem. Rep. 126 Korea, Dem. Rep. 127 Mongolia 128 USSR 237 Table 19. External public debt and debt service ratios External public debt outstanding and diabuiaed Debt service as percentage of: Interest payments on Millions of As percentage external public debt Exports of dollars of GNP (millions of dollars) GNP goods and services 1970 1985 1970 1985 970 1985 1970 1985 1970 1985 Low-income economies 15,4901 92,997 t 17.1w 15.7w 398 t ,249 t 1.2w 1.0w 12.4w 9w China and India 33,6701 . . 7.3 w . . . . . . 0.5 w . . .7 w Other low-income 7,381 1 59,327t 19.7w 46.5w 2021 1,4481 1.5 w 2.9w 8.4w 18.4w I Ethiopia 169 1,742 9.5 37.1 6 35 1.2 2.2 11.4 10.9 2 Bangladesh . . 5,968 . . 37.2 . . 89 . . 1.3 . . 16.7 3 Burkina Faso 21 496 6.6 46.4 (.) 10 0.7 2.5 6.8 4 Mali 241 1,327 70.7 122.1 (.) 13 0.2 3.5 1.4 16.6 5 Bhutan . . . 6 Mozambique . . . . . . . . . . . . . . . 7 Nepal 3 527 0.3 22.5 (.) 6 0.3 0.5 . . 4.0 8 Malawi 125 775 44.2 75.7 3 28 2.2 7.4 7.7 9 Zaire 312 4,821 9.1 111.8 9 219 1.1 7.9 4.4 8.6 10 Burma 108 2,947 5.0 42.1 3 70 1.0 2.8 17.2 51.4 II Bunindi 7 415 3.1 39.7 (.) 9 0.3 2.0 2.3 16.6 12 logo 40 787 16.2 121.0 I 39 0.9 13.7 3.0 27.5 13 Madagascar 90 2,340 10.5 105.4 2 53 0.8 5.3 3.7 19.6 14 Niger 32 791 5.0 51.5 1 30 0.4 4.4 4.0 26.7 IS Benin 41 677 15.2 66.9 (.) 9 0.6 2.2 2.3 16 Central African Rep. 24 296 13.5 44.9 1 7 1.7 2.0 5.1 11.8 17 India 8,109 26,650 15.2 13.5 196 801 1.0 1.0 23.7 9.3 18 Rwanda 2 324 0.9 19.1 (.) 4 0.1 0.9 1.2 4.3 19 Somalia 77 1,309 24.5 53.5 (.) 17 0.3 2.3 2.1 44.8 20 Kenya 333 2,857 21.6 51.2 13 142 1.9 6.9 5.8 25.5 21 Tanzania 257 2,982 20.1 48.5 7 21 1.3 1.0 5.2 16.7 22 Sudan 308 5,086 15.3 70.5 13 67 1.7 1.8 10.7 15.6 23 China . . 7,020 . . 2.6 . . . . . . . . 24 Haiti 40 534 10.3 27.8 (.) 7 1.0 1.1 7.7 5.8 25 Guinea 313 1,292 47.2 70.2 4 20 2.2 3.6 . 26 Sierra Leone 61 390 14.5 32.6 2 3 3.1 0.8 10.4 5.7 27 Senegal 101 1,989 12.0 82.3 2 44 0.8 3.7 2.9 9.0 28 Ghana 471 1,170 20.8 23.6 12 25 1.1 1.6 5.2 12.2 29 Pakistan 3,081 10,681 30.7 31.7 77 305 1.9 3.2 23.4 29.5 30 Sri Lanka 321 2.815 16.4 47.6 12 lOS 2.1 3.8 10.8 13.9 31 Zambia 627 3,214 36.0 150.8 28 42 3.6 4.0 6.3 10.2 32 Afghanistan . . . . . . . . . . . . . . . 33 Chad 33 150 9.9 . . (.) 2 0.9 . . 4.2 34 Kampuchea, Dem. . . . . . . . . .. . 35 Lao PDR .. 36 Uganda 142 726 7.5 5 27 0.4 . . 2.9 37 VietNam Middle-income economies 34,172 1 535,599 t 12.4w 38.1 w 1,294 I 41,3761 1.6w 5.7w 11.0w 21.6w Lower middle-income 16,131 t 202,541 t 15.8 w 41.4w 4881 11,835 t 1.7w 5.7w 11.3 w 22.9w 38 Mauritania 27 1,363 13.9 208.2 (.) 28 1.8 12.0 3.3 19.0 39 Bolivia 482 3,259 46.3 124.8 7 72 2.2 6.5 11.3 29.1 40 Lesotho 8 172 7.8 30.1 (,) 4 0.5 3.2 6.2 41 Liberia 158 879 39.4 85.3 6 10 4.4 1.7 3.8 42 Indonesia 2,447 26,625 25.2 32.0 24 1,655 0.9 4.8 19.9 43 Yemen, PDR I 1,446 134.7 0 19 10.6 0.0 42.3 44 Yemen, Arab Rep. . . 1,868 . . 45.6 . . 19 . . 3.1 . . 55.8 45 Morocco 716 11,231 18.3 101.3 24 490 1.6 9.3 8.6 32.7 46 Philippines 575 13,561 8.1 42.7 24 831 1.4 4.0 7.3 15.9 47 Egypt, Arab Rep. 1,760 17,751 23.1 61.9 54 567 4.6 7.8 36.8 30.9 48 Cóted'Ivoire 257 5,700 18.8 88.5 12 430 2.9 9.0 7.0 17.4 49 Papua New Guinea 39 1.061 6.2 49.0 I 66 0.2 6.0 . . 10.4 50 Zimbabwe 239 1,526 16.1 31.3 5 115 0.6 6.7 . . 32.2 SI Honduras 95 2,178 13.6 68.8 3 96 0.9 5.4 3.1 17.6 52 Nicaragua 147 4,753 19.5 185.2 7 19 3.0 .6 10.5 53 Dominican Rep. 212 2,521 14.5 58.6 4 136 0.8 5.1 4.4 16.1 54 Nigeria 458 13,016 4.6 17.2 20 1,256 0.6 5.3 4.2 30.8 55 Thailand 326 9,898 5.0 26.8 16 603 0.6 4.1 3.4 14.7 56 Cameroon 132 1,975 12.2 26.0 4 93 0.8 3.1 3.2 10.0 57 El Salvador 88 1,460 8.6 39.6 4 68 0.9 5.3 3.6 16.3 58 Botswana 15 334 18.3 47.3 (.) 23 0.7 6.9 . . 5.4 59 Paraguay 112 1,525 19.2 55.8 4 80 1.8 5.6 11.8 12.9 60 Jamaica 162 2,823 12.0 166.6 9 205 1.1 23.5 2.8 36.5 61 Peru 859 10,527 12.3 66.5 44 146 2.1 1.9 11.6 7.9 62 Turkey 1,875 17,821 14.9 34.7 43 1,253 1.4 6.8 22.! 30.8 63 Mauritius 33 404 14.7 39.8 2 26 1.4 6.6 3.2 11.5 64 Congo, People's Rep. 140 1,760 52.4 86.5 3 107 3.4 15.9 . . 19.6 65 Ecuador 194 7,121 11.8 60.9 7 711 1.4 8.0 8.6 28.8 66 Tunisia 543 4,442 38.7 56.1 18 241 4.6 8.6 19.5 24.9 67 Guatemala 106 2,148 5.7 19.8 6 107 .4 2.3 7.4 21.3 Note: For data comparability and coverage, see the technical notes. Figures in italics are for years other than those specified. 238 External public debt outstanding and disbursed Debt service as percentage of: Interest payments on Millions of As percentage external public debt Exports of dollars of GNP (millions of dollars) GNP goods and services 1970 1985 1970 1985 1970 1985 1970 1985 1970 t985 68 CostaRica 134 3,665 13.8 105.1 7 334 2.9 13.3 10.0 36.6 69 Colombia 1,299 9,377 18.5 28.5 44 760 1.7 4.3 12.0 29.2 70 Chile 2,075 12,735 25.9 90.3 78 1,006 3.0 8.7 19.1 26.2 71 Jordan 120 2,693 23.8 70.9 2 153 0.9 12.0 3.6 22.1 72 SyrianArabRep. 233 2,751 10.8 16.9 6 96 1.7 2.2 11.2 14.8 73 Lebanon 64 172 4.2 1 12 0.2 Upper middle-income 18,042 t 333,057 t 10.4 w 36.3 w 8061 29,541 t 1.5 w 5.7 w 10.8 w 21.0w 74 Brazil 3,432 73,894 8.2 35.5 135 6,280 0.9 3.7 12.5 26.5 75 Uruguay 270 2,686 11.3 57.2 16 282 2.7 8.6 21.7 30.6 76 Hungaiy . . 10,138 . . 51.1 . . 792 . . 13.0 25.0 77 Portugal 487 10,803 7.8 54.6 29 1,003 1.5 12.7 . . 31.5 78 Malaysia 396 13,834 9.7 47.8 22 1,130 1.7 13.7 3.7 22.3 79 South Africa 80 Poland 81 Yugoslavia 1,204 9,919 8.8 21.5 73 738 1.8 2.5 10.0 8.2 82 Mexico 3,196 72,510 9.1 43.0 216 7,502 2.0 6.5 23.6 37.0 83 Panama 194 3,276 19.5 72.2 7 300 3.1 9.5 7.7 6.9 84 Argentina 1,891 35,604 8.5 50.0 121 3,476 2.1 6.1 21.6 41.8 85 Korea, Rep. of 1,844 29,126 21.2 35.0 71 2,151 3.1 6.1 19.5 15.2 86 Algeria 941 13,664 19.4 24.0 10 1,297 0.9 8.1 3.9 33.3 87 Venezuela 729 16,650 6.6 35.2 40 1,372 0.7 4.6 2.9 12.8 88 Greece 916 12,452 9.0 38.3 41 957 1.0 5.4 9.4 24.7 89 Israel 2,284 15,850 41.5 82.4 13 1,323 0.7 11.0 2.8 19.7 90 Trinidad and Tobago 102 1,087 12.4 15.1 6 80 1.9 2.6 4.5 7.1 91 HongKong 3 251 0.1 0.7 0 24 (.) 0.2 (.) 0.2 92 Oman . . 1,946 . . 24.1 . . 112 . . 3.2 . . 4.8 93 Singapore 154 1,791 8.0 10.1 7 155 0.6 4.1 0.6 2.4 94 Iran, Islamic Rep. . . . . . . 95 Iraq . . . . . . . . . . 96 Romania 5,801 . . . . 543 . . 4.3 . . 13.6 Developing economies 49,6621 628.5951 13.5w 31.5w 1Ø* t 43,625 t 1.5w 4.3w 11.2w 19 Oil exporters 10.331 r 176.855 t 12.2w 34.5w 391 t 14,848 I 1.7w 5.9w 12.6w Exportersofmanufactures 17.5171 193.019 t 13.0w 20.3w 522 t 13,8351 1.2w 2.7w 11.8 a Highly indebted countries 17.932 1 304,276 t 10.2 w 40.3 w 876 t 25,889 t 1.6 w 5.1 w 12 4 Sub-Saharan Africa 5,294 t 62,984 t 14.2 w 39.1 w 163 t 2,956 t 1.2 w 4.8 w High-income oil exporters 97 Libya 98 Saudi Arabia 99 Kuwait 100 United Arab Emirates Industrial market economies 101 Spain 102 Ireland 103 Italy 104 New Zealand 105 Belgium 106 United Kingdom 107 Austria 108 Netherlands 109 France 110 Australia 111 Finland 112 Germany, Fed. Rep. 113 Denmark 114 Japan 115 Sweden 116 Canada 117 Norway 118 Switzerland 119 United States Nonreporting nonmember economies 120 Albania 121 Angola 122 Bulgaria 123 Cuba 124 Czechoslovakia 125 German Dem. Rep. 126 Korea, Dem. Rep. 127 Mongolia 128 USSR 239 Table 20. Terms of external public borrowing Public loans w)th Average interest Average Average variable interest Commitments rate matunty grace penod rates, as percentage (millions of dollars) (percent) (years) (years) of public debt 1970 985 1970 1985 970 1985 1970 1985 1970 985 Low-income economies 3,613 t 11,160s 3.0w 4.6w 30 w 30w 9w 7w 0.1w 5.8w China and India Other low-income 2,663 6,492 t 3.2 w 3.4w 28w 33 w 9w 8w 0.1w 4.7w I Ethiopia 21 487 4.4 3.4 32 19 7 4 0.1 5.4 2 Bangladesh 772 . 1.0 . . 41 . . 10 0.1 3 Burkina Faso 9 93 2.3 1.7 37 41 8 9 0.0 0.6 4 Mali 34 120 1.1 1.3 25 43 9 9 0.0 0.4 5 Bhutan 6 Mozambique . . . . . . . . . . . . . . . 7 Nepal 17 196 2.8 0.9 27 44 6 9 0.0 0.0 8 Malawi 14 128 3.8 1.2 29 48 6 10 0.0 9.4 9 Zaire 259 202 6.5 3.1 12 36 4 8 0.0 7.7 10 Burma 50 410 4.1 3.2 17 29 5 8 0.0 0.6 II Burundi 1 139 2.9 1.3 5 38 2 9 0.0 1.5 12 Togo 3 61 4.5 0.8 17 49 4 10 0.0 6.8 13 Madagascar 23 167 2.3 3.0 40 34 9 8 0.0 8.1 14 Niger 19 129 1.2 4.8 40 23 8 7 0.0 13.3 15 Benin 7 45 1.8 3.4 32 34 7 9 0.0 7.6 16 Central African Rep. 7 37 2.0 3.3 36 27 8 7 0.0 0.0 17 India 950 4,668 2.5 6.4 35 26 8 6 0.0 8.4 18 Rwanda 9 60 0.8 4.0 50 27 10 7 0.0 0.0 9 Somalia 2 47 0.0 0.7 4 43 4 9 0.0 0.0 20 Kenya 50 245 2.6 6.9 37 21 8 6 0.1 4.3 21 Tanzania 284 73 1.2 0.5 39 47 II II 1.6 0.1 22 Sudan 95 53 1.8 08 17 50 9 10 0.0 2.0 23 China .. .. .. .. .. .. .. 24 Haiti 5 47 4.8 1.4 10 46 I 10 0.0 2.2 25 Guinea 67 136 2.9 3.1 13 27 5 8 0.0 0.5 26 Sierra Leone 25 21 2.9 0.6 27 26 6 8 10.7 0.6 27 Senegal 7 77 3.8 6.4 24 25 7 6 0.0 7.3 28 Ghana 56 275 2.1 1.6 37 43 10 9 0.0 0.0 29 Pakistan 943 1,776 2.8 5.6 32 27 12 6 0.0 4.9 30 Sri Lanka 80 394 3.0 2.9 27 36 5 9 0.0 11.4 31 Zambia 556 237 4.2 2.3 27 41 9 9 0.0 17.9 32 Afghanistan . . . . . . . . . . . . . . . . . 33 Chad 10 4 5.7 3.5 8 17 I 6 0.0 0.2 34 Kampuchea, Dem. . . . . . . . . . . . . . . 35 Lao PDR 36 Uganda 2 62 3.7 1.7 28 41 7 9 0.0 0.5 37 VietNam . . . . . . . . . Middle-income economies 8,9691 62,417t 6.3 w 8.6 w 17 w 13 w 5w 5w 2.4w 50.9w Lower middle-income 3,723 1 28,191 5.1 w 8.3 w 21 w 15 w 6w 5w 0.5 w 32.2w 38 Mauritania 7 66 6.0 1.9 II 36 3 8 0.0 2.9 39 Bolivia 24 53 1.9 6.8 26 28 4 7 0.0 26.4 40 Lesotho (.) 23 5.5 3.6 27 35 2 7 0.0 0.0 41 Liberia 12 43 6.7 5.1 19 33 5 7 0.0 13.5 42 Indonesia 520 4,016 2.6 8.! 34 16 9 6 0.0 21.7 43 Yemen, PDR 63 836 0.0 2.1 21 23 II 5 0.0 0.0 44 Yemen, Arab Rep. . . 87 . . 34 . . 23 . . 5 . . 0.0 45 Morocco 186 1.020 4.6 8.5 20 IS 3 3 0.0 36.3 46 Philippines 158 1.4 18 7.4 9.1 II II 2 4 0.9 35.2 47 Egypt, Arab Rep. 471 2,009 7.6 8.6 18 25 II 12 0.0 2.3 48 Cole d'Ivoire 72 486 5.8 10.3 19 15 5 5 9.1 47.6 49 Papua New Guinea 80 114 6.3 9.2 22 13 8 4 0.0 37.7 50 Zimbabwe . . 168 . . 6.2 . . 23 . . 7 . . 32.9 SI Honduras 23 263 4.1 6.6 30 20 7 5 0.0 17.7 52 Nicaragua 23 449 7,1 4.0 18 17 4 3 0.0 29.8 53 Dominican Rep. 20 322 2.4 8.1 28 17 5 7 0.0 28.8 54 Nigeria 65 .253 6.0 9.3 14 13 4 4 2.8 41.7 55 Thailand 106 2.398 6.8 8.4 19 18 4 10 0.0 32.6 56 Cameroon 41 294 4.7 8.1 29 18 8 4 0.0 5.3 57 El Salvador 12 185 4.7 4.7 23 28 6 7 0.0 11.6 58 Botswana 37 85 0.6 8.4 39 19 10 4 0.0 10.0 59 Paraguay 14 234 5.7 8.5 25 15 6 4 0.0 15.8 60 Jamaica 24 4.44 6.0 7.7 16 16 3 10 0.0 18.8 61 Peru 125 348 7.4 9.4 II 16 3 4 0.0 40.3 62 Turkey 491 3,588 3.6 8.7 19 II 5 4 0.9 29.1 63 Mauritius 13 75 0.0 7.l 24 18 2 5 5.8 20.6 64 Congo, People's Rep. 34 253 2.6 9.4 18 10 7 3 0.0 17.7 65 Ecuador 78 845 6.2 9.4 20 13 4 3 0.0 71.7 66 Tunisia 143 475 3.5 7.8 27 16 6 5 0.0 16.7 67 Guatemala 50 395 5.5 8.3 26 II 6 3 10.3 36.9 Note.' For data comparability and coverage, see the technical notes. Figures in italics are for years other than those specified. 240 Public loans with Average interest Average Average variable interest Commitments rate maturity grace period rates, as percentage (millions of dollars) (percent) (years) (years) of public debt 1970 1985 1970 1985 1970 1985 1970 1985 1970 1985 68 Costa Rica 58 469 5.7 6.7 28 17 6 6 7.5 56.8 69 Colombia 363 2,600 6.0 9.7 21 12 5 3 0.0 40.7 70 Chile 356 1,884 6.8 9.4 12 13 4 2 0.0 81.5 71 Jordan 34 757 3.8 8.9 12 12 5 2 0.0 18.4 72 SyrianArabRep. 14 236 4.4 5.3 9 13 2 3 0.0 1.2 73 Lebanon 7 0 2.9 0.0 22 0 1 0 0.0 0.0 Upper middle-income 5,246 r 34,2261 7.2 w 8.9 w 14w 12 w 4w 5w 4.0 w 62.3 w 74 Brazil 1,427 3,014 6.8 9.6 14 12 3 3 11.7 71.5 75 Untguay 72 153 7.9 11.4 12 5 3 I 0.7 64.3 76 Hungaty . . 4,011 . . 8.1 . . 9 . . 5 . . 65.4 77 Portugal 59 3,407 4.3 8.8 17 9 4 4 0.0 36.5 78 Malaysia 84 2,743 6.1 8.5 19 22 5 17 0.0 54.3 79 South Africa . . . . . . . . . . . . . . . 80 Poland . . . . . . . . . . . . . . . . . 81 Yugoslavia 199 258 7.1 9.1 17 15 6 3 3.3 61.0 82 Mexico 857 2,309 7.9 9.3 12 II 3 3 5.7 80.1 83 Panama III 207 6.1 8.6 15 IS 4 4 0.0 58.5 84 Argentina 494 3,934 7.3 9.9 12 10 3 4 0.0 60.2 85 Korea, Rep. of 687 5,898 5.8 8.6 19 12 6 5 1.1 49.7 86 Algeria 301 3,140 6.4 7.0 10 II 2 2 2.8 30.0 87 Venezuela 198 34 7.8 9.5 8 20 2 5 2.6 93.4 88 Greece 245 2,884 7.2 9.5 9 II 4 7 3.5 65.4 89 Israel 440 511 10.0 9.1 13 Il 4 7 0.0 1.2 90 Trinidad and Tobago 3 266 7.4 8.7 10 7 1 4 0.0 47.5 9! Hong Kong 0 0 0.0 0.0 0 0 0 0 0.0 33.2 92 Oman . . 886 . . 9.3 . . 10 . . 4 . . 15.5 93 Singapore 69 402 6.9 10.1 18 10 4 5 0.0 21.9 94 Iran,Islamic Rep. . . . . . . . . . . 95 Iraq . . . . . . . . . . . 96 Ro,nania . . 345 . . 9.1 13 . . 3 46.4 Developing economies 12,582 73,577 5.4 w 8.0w 20 w 16 w 6w 6w 1.6w 44.6 w Oil exporters 2,582: 15,5401 6.4 w 8.4w 18w 14w 6w 5w 2.3 w 54.1 w Exporters of manufactures 3,831 1 22,339t 5.9w 8.3 w 20 w 14w 5w 5w 2.6w 48.6w Highly indebted countries 4,756 20,521 7.0w 9.4 w 14 w 12 w 4w 3w 3.9 w 65.6w Sub-Saharan Africa 1,848: 5,643 I 3.6 w 5.8 w 26 w 25 w 8w 6w 0.9 w 17.8 w High-income oil exporters 97 Libya 98 Saudi Arabia 99 Kuwait 100 United Arab Emirates Industrial market economies 101 Spain 102 Ireland 103 Italy 104 New Zealand 105 Belgium 106 United Kingdom 107 Austria 108 Netherlands 109 France 110 Australia Ill Finland 112 Germany, Fed. Rep. 113 Denmark 114 Japan 115 Sweden 116 Canada 117 Norway 118 Switzerland 119 United States Nonreporting nonmember economies 120 Albania 121 Angola 122 Bulgaria 123 Cuba 124 Czechoslovakia 125 German Dem. Rep. 126 Korea, Dem. Rep. 127 Mongolia 128 USSR a. Includes only debt in convertible currencies. 241 Table 21. Official development assistance from OECD & OPEC members Amount 1965 1970 1975 1980 1981 982 983 1984 1985 I986 OECD Millions of US dollars 102 Ireland 0 0 8 30 28 47 33 35 39 62 103 Italy (10 147 182 683 666 811 834 1,133 1,098 2,423 104 New Zealand 14 66 72 68 65 61 55 54 66 105 Belgium 102 120 378 595 575 499 477 442 440 542 106 UnitedKingdom 472 500 904 1,854 2,192 1,800 1,610 1,430 1,530 1,796 107 Austria 10 II 79 178 220 236 158 181 248 197 108 Netherlands 70 196 608 1,630 1,510 1,472 1,195 1,268 1,136 1,738 109 France 752 97! 2,093 4,162 4,177 4,034 3,815 3,788 3,995 5,136 110 Australia 119 212 552 667 650 882 753 777 749 787 Ill Finland 2 7 48 Ill 135 144 153 178 211 313 112 Germany, Fed. Rep. 456 599 1,689 3,567 3,181 3,152 3,176 2,782 2,942 3,879 113 Denmark 13 59 205 481 403 415 395 449 440 695 114 Japan 244 458 1,148 3,353 3,17! 3,023 3,76! 4,319 3,797 5,588 115 Sweden 38 117 566 962 919 987 754 74! 840 1,128 116 Canada 96 337 880 1,075 1,189 1,197 1,429 1,625 1,631 1,700 117 Norway II 37 184 486 467 559 584 540 575 797 118 Switzerland 12 30 104 253 237 252 320 286 303 429 119 United States 4,023 3,153 4,16! 7,138 5,782 8,202 8,08! 8,71! 9,403 9,784 Total 6,480 6,968 13,847 27,267 25,542 27,777 27,589 28,739 29,429 37,060 OECD As percentage of donor GNP 102 Ireland 0.00 0.00 0.09 0.16 0.16 0.27 0.20 0.22 0.24 0.28 103 Italy 0.10 0.16 0.11 0.17 0.19 0.23 0.24 0.33 0.31 0.40 104 New Zealand 0.23 0.52 0.33 0.29 0.28 0.28 0.25 0.25 0.27 105 Belgium 0.60 0.46 0.59 0.50 0.59 0.58 0.58 0.57 0.55 0.48 106 United Kingdom 0.47 0.41 0.39 0.35 0.43 0.37 0.35 0.33 0.33 0.33 107 Austria 0.11 0.07 0.2! 0.23 0.33 0.36 0.24 0.28 0.38 0.2! 108 Netherlands 0.36 0.6! 0.75 1.03 1.08 1.07 0.91 1.02 0.9! 1.00 109 France 0.76 0.66 0.62 0.64 0.73 0.74 0.74 0.77 0.79 0.72 110 Australia 0.53 0.59 0.65 0.48 0.41 0.56 0.49 0.45 0.48 0.49 Ill Finland 0.02 0.06 0.18 0.22 0.28 0.29 0.32 0.35 0.40 0.45 112 Germany, Fed. Rep. 0.40 0.32 0.40 0.44 0.47 0.48 0.48 0.45 0.47 0.43 113 Denmark 0.13 0.38 0.58 0.74 0.73 0.77 0.73 0.85 0.80 0.89 114 Japan 0.27 0.23 0.23 0.32 0.28 0.28 0.32 0.34 0.29 0.28 115 Sweden 0.19 0.38 0.82 0.79 0.83 1.02 0.84 0.80 0.86 0.88 116 Canada 0.19 0.4! 0.54 0.43 0.43 0.4! 0.45 0.50 0.49 0.48 117 Norway 0.16 0.32 0.66 0.85 0.82 1.03 1.10 1.03 1.01 1.20 118 Switzerland 0.09 0.15 0.19 0.24 0.24 0.25 0.31 0.30 0.31 0.30 119 United Stales 0.58 0.32 0.27 0.27 0.20 0.27 0.24 0.24 0.24 0.23 0 1) National currencies 102 Ireland (millions of pounds) 0 0 4 IS 17 33 26 32 37 47 103 Italy (billions of lire) 38 92 119 585 757 1,097 1,267 1,991 2,097 3,612 104 New Zealand (millions of dollars) . . 13 55 74 78 87 91 95 109 125 105 Belgium (millions of francs) 5,100 6,000 13,902 17,399 21,350 22,800 24,390 25,527 26,145 24,201 106 United Kingdom (millions of pounds) 169 208 409 798 1.09! 1.031 1,062 1,070 1.180 1.224 107 Austria (millions of schillings) 260 286 1,376 2,303 3,504 4,026 2,838 3,622 5,132 3,014 108 Netherlands (millions of guilders) 253 710 1,538 3,24! 3,768 3,93! 3,41! 4,069 3,773 4,257 109 France (millions of francs) 3,713 5,393 8,97! 17,589 22,700 26,513 29,075 33,107 35,894 35,572 110 Australia (millions of dollars) 106 189 402 59! 568 798 802 873 966 1,173 Ill Finland (millions of markkaa) 6 29 177 414 583 694 852 1,070 1,308 1,587 112 Germany, Fed. Rep. (millions ofdeutsche marks) 1,824 2,192 4,155 6,484 7,189 7,649 8,109 7,917 8,661 8,424 113 Denmark (millions of kroner) 90 443 1,178 2,711 2,87! 3,458 3.612 4,650 4,657 5,623 114 Japan(billionsofyen) 88 165 34! 760 699 753 893 1.026 906 942 115 Sweden (millions ofkronor) 197 605 2,350 4,069 4,653 6,201 5,781 6,129 7,226 8,035 116 Canada (millions of dollars) 104 353 895 1,257 1,425 1,477 1,76! 2,104 2,227 2,362 117 Norway(millionsofkwner) 79 264 962 2,400 2,680 3608 4,261 4,407 4,946 5,894 118 Switzerland (millions of francs) 52 131 268 424 466 512 672 672 743 772 119 United States (millions of dollars) 4,023 3,153 4,16! 7,138 5,782 8,202 8,08! 8,711 9,403 9,784 OECD Summary ODA (billions of US dollars, nominal prices) 6.48 6.97 13.86 27.30 25.57 27.78 27.59 28.74 29.43 37.06 ODA as percentage of GNP 0.48 0.34 0.35 0.37 0.34 0.37 0.36 0.36 0.35 0.36 ODA (billions of US dollars, constant 1980 prices) 20.68 18.4! 21.84 27.30 25.69 27.99 27.43 28.65 28.80 30.54 GNP (trillions ofUS dollars, nominal prices) 1.35 2.04 3.96 7.39 7.50 7.43 7.70 8.03 8.42 10.24 GDPdeflator5 0.3! 0.38 0.63 1.00 1.00 0.99 1.01 1.00 1.02 1,2! 242 Amount 1976 1977 1978 979 1980 1981 1982 1983 984 l985 OPEC Millions of US dollars 54 Nigeria 80 51 27 29 34 143 58 35 51 45 86 Algeria II 35 39 281 81 55 129 37 48 45 87 Venezuela 109 26 96 110 135 92 125 142 90 32 94 Iran, Islamic Rep. of 751 152 231 -20 -72 -141 -193 20 -13 -171 95 Iraq 123 103 123 658 864 207 52 -30 -33 -26 97 Libya 98 130 132 145 376 257 44 144 20 151 98 Saudi Arabia 2,791 2,900 5,250 3,941 5,682 5,514 3,854 3,304 3,212 2,646 99 Kuwait 706 1,302 1,001 971 1,140 1,163 1,161 997 1,018 749 100 United Arab Emirates 1,028 1,091 889 968 1,118 805 407 348 84 58 Qatar 180 127 95 282 277 246 139 20 10 -2 Total OAPEC 4,937 5,688 7,529 7,246 9,538 8,247 5,786 4,820 4,359 3,621 Total OPEC 5,877 5,917 7.883 7,365 9,635 8,341 5,776 5,017 4,487 3,527 OPEC As percentage of donor GNP 54 Nigeria 0.19 0.11 0.05 0.04 0.04 0.19 0.08 0.05 0.07 0.06 86 Algeria 0.07 0.18 0.15 0.90 0.20 0.13 0.31 0.08 0.10 0.08 87 Venezuela 0.35 0.07 0.24 0.23 0.23 0.14 0.19 0.22 0.19 0.07 94 Iran, Islamic Rep. of 1.16 0.20 0.33 -0.02 -0.08 -0.13 -0.15 0.01 -0.01 -0.11 95 Iraq 0.76 0.55 0.55 t.97 2.36 0.94 0,18 -0.09 -0.10 -0.08 97 Libya 0.66 0.73 0.75 0.60 1.16 0.81 0.15 0.51 0.08 0.59 98 Saudi Arabia 5.95 4.93 8.06 5.16 4.87 3.45 2.50 2.86 3.44 2.88 99 Kuwait 4.82 8.19 5.53 3.52 3.52 3.65 4.34 3.73 3.82 3.16 I00 United Arab Emirates 8.95 7.50 6.38 5.08 4.06 2.57 .39 1.30 0.32 0.24 Qatar 7.35 5.09 3.29 6.07 4.16 3.50 2.13 0.39 0.17 -0.03 Total OAPEC 4.23 3.95 4.5! 3.31 3.22 2.52 1.81 1.70 1.60 1.60 Total OPEC 2.32 1.96 2.39 1.75 1.79 1.45 0.98 0.86 1.13 1.06 Net bilateral flows to low-income economies 965 970 1975 1979 980 1981 1982 1983 1984 1985 OECD As percentage of donor GNP 102 Ireland 0.02 0.03 0.03 0.05 103 Italy o.ó4 0.06 0.01 0.01 0.01 0.02 0.04 0.05 0.09 0.12 104 New Zealand 0.14 0.0! 0.01 0.0! 0.00 0.00 0.00 0.00 105 Belgium 0.56 0.30 0.31 0.27 0.24 0.25 0.2! 0.21 0.20 0.23 106 United Kingdom 0.23 0.15 0.11 0.16 0.11 0.13 0.07 0.10 0.09 0.09 107 Austria 0.06 0.05 0.02 0.03 0.03 0.03 0.01 0.02 0.01 0.02 108 Netherlands 0.08 0.24 0.24 0.26 0.30 0.37 0.3! 0.26 0.29 0.27 109 France 0.12 0.09 0.10 0.07 0.08 0.11 0.10 0.09 0.14 0.14 110 Australia 0.08 0.09 0.10 0.06 0.04 0.06 0.07 0.05 0.06 0.05 Ill Finland 0.06 0.06 0.08 0.09 0.09 0.12 0.13 0.17 112 Germany, Fed. Rep. 0.14 0.10 0.12 0.10 0.08 0.11 0.12 0.13 0.11 0.14 113 Denmark 0.02 0.10 0.20 0.28 0.28 0.2! 0.26 0.31 0.28 0.32 114 Japan 0.13 0.1! 0.08 0.09 0.08 0.06 0.11 0.09 0.07 0.09 115 Sweden 0.07 0.12 0.41 0.41 0.36 0.32 0.38 0.33 0.30 0.3! 116 Canada 0.10 0.22 0.24 0.13 0.11 0.13 0.14 0.13 0.15 0.15 117 Norway 0.04 0.12 0.25 0.37 0.3! 0.28 0.37 0.39 0.34 0.40 118 Switzerland 0.02 0.05 0.10 0.06 0.08 0.07 0.09 0.10 0.12 0.12 119 United States 0.26 0.14 0.08 0.02 0.03 0.03 0.02 0.03 0.03 0.04 Total 0.20 0.13 0.11 0.08 0.07 0.08 0.08 0.08 0.07 0.09 a. Preliminary estimates. b. See the technical notes. 243 Table 22. Official development assistance: receipts Net disbursements of ODA from all sources Per capita As percentage Millions of dollars ofGNP (dollars) 1979 1980 1981 1982 983 1984 1985 985 1985 Low-income economies 9,680: 11,775 t 11,258: 11,375 t 11,064: 11,243 1 12,674 t 5.2 w 2.1 w China and India 1,367: 2,213 t 2,387 t 2,0691 2,412 t 2,340: 2,410 t 1.3 w 0.5 w Other low-income 8,313 t 9,563 t 8,871 t 9,306 1 8,651 t 8,903 t 10,264 t 16.2 w 7.8 w IEthiopia 191 212 245 200 339 364 710 16.8 15.1 2 Bangladesh 1,166 1,283 1,104 1,346 1,067 1,201 1,142 11.4 7.l 3 BurkinaFaso 198 212 217 213 184 189 97 25.0 18.4 4 Mali 193 267 230 210 215 320 380 50.6 34.9 5 Shutan 6 8 10 II 13 8 24 19.4 12.9 6 Mozambique 146 169 144 208 211 259 300 21.8 9.2 7 Nepal 137 163 181 201 201 198 236 14.3 10.1 8 Malawi 142 143 138 121 117 159 113 16.0 11.0 9 Zaire 416 428 394 348 315 313 324 10.6 7.5 10 Burma 364 309 283 319 302 275 356 9.6 5.1 II Burundi 95 117 l22 127 140 141 143 30.4 13.7 12 Togo 110 91 63 77 112 110 114 37.5 17.5 13 Madagascar 138 230 234 242 179 151 182 17.8 8.2 14 Niger 174 170 193 258 175 162 305 47.7 19.8 IS Benin 85 91 82 8! 86 78 96 23.7 9.5 16 Central Afncan Rep. 84 III 102 90 93 114 105 40.5 15.9 17 India 1,350 2,147 1,910 1,545 1,743 1,542 1,470 1.9 0.7 18 Rwanda 148 155 154 151 149 165 181 30.1 10.7 19 Somalia 194 433 375 462 327 363 354 65.7 14.5 20 Kenya 351 397 449 485 401 411 439 21.5 7.9 2! Tanzania 589 679 703 684 594 558 487 21.9 7.9 22 Sudan 687 583 632 740 957 617 1,129 51.5 15.6 23 China 17 66 477 524 670 798 940 0.9 0.4 24 Haiti 93 lOS 107 128 134 135 153 25.8 8.0 25 Guinea 56 90 107 90 68 123 119 19.3 6.5 26 Sierra Leone 54 91 60 82 66 61 66 8.0 5.5 27 Senegal 307 262 397 285 322 368 295 44.9 12.2 28 Ghana 169 193 148 141 110 216 204 16.1 4.1 29 Pakistan 684 1,130 764 849 669 683 750 7.8 2.2 30 Sri Lanka 323 390 379 417 474 468 486 30.7 8.2 31 Zambia 278 318 232 317 217 240 329 49.1 15.4 32 Afghanistan 108 32 23 9 14 7 17 33 Chad 86 35 60 65 95 115 82 36.2 34 Kampuchea.Dem. 108 281 130 44 37 17 13 35 Lao PDR 54 4! 35 38 30 34 37 10.3 2.7 36 Uganda 47 114 136 133 137 64 184 12.5 37 VietNam 336 229 242 36 106 109 114 1.8 Middle-income economies 12,189: 13,811 1 13,822: 12,069: 11,993 1 12.134: 12,930: 11.4w 0.9w Lower middle-income 10,005 t 11,865: 11,609 t 10.242 t 9,7581 9,8271 9,867: 14.6w 2.0 is' 38 Mauritania 167 176 234 187 176 172 205 120.8 31.2 39 Bolivia 161 170 169 147 174 172 202 31.7 6.2 40 Lesotho 66 94 104 93 108 101 94 61.1 16.5 41 Liberia 81 98 109 109 118 133 91 41.! 8.8 42 Indonesia 721 950 975 906 745 673 603 3.7 0.7 43 Yemen, PDR 77 100 87 143 107 84 112 53.7 10.4 44 Yemen, Arab Rep. 268 472 411 413 328 333 288 36.2 7.0 45 Morocco 472 894 1,034 77! 396 351 834 38.0 7.5 46 Philippines 267 300 376 333 429 397 486 8.9 1.5 47 Egypt. Arab Rep. 1.450 1,387 1,292 1,417 1,438 1,768 1,759 36.3 6.1 48 Côted'Ivoire 162 210 124 137 155 28 125 12.4 1.9 49 PapuaNewGuinea 284 326 336 3!! 333 322 259 73.7 12.0 50 Zimbabwe 13 164 212 216 209 298 237 28.2 4.9 SI Honduras 97 103 109 158 192 290 276 63.0 8.7 52 Nicaragua 115 223 172 12! 120 114 102 31.3 4.0 53 Dominican Rep. 78 125 105 137 102 198 222 34.6 5.2 54 Nigeria 27 36 41 37 48 33 32 0.3 (.) 55 Thailand 393 418 407 389 432 475 481 9.3 1.3 56Cameroon 277 265 199 212 129 187 160 15.7 2.1 57 El Salvador 60 97 167 223 295 263 345 72.4 9.4 58 Botswana 100 106 97 102 104 103 97 90.5 13.7 59 Paraguay 3! 31 55 85 51 50 50 13.6 1.8 60 Jamaica 123 136 155 180 18! 170 169 76.0 10.0 61 Peru 200 203 233 188 297 310 316 17.0 2.0 62 Turkey 594 952 724 644 353 241 176 3.5 0.3 63 Mauritius 32 33 58 48 41 36 29 28.2 2.8 64 Congo, People's Rep. 9! 92 81 93 108 98 71 38.0 3.5 65 Ecuador 70 46 59 53 64 136 136 14.5 1.2 66 Tunisia 2!! 232 240 210 205 184 62 22.7 2.! 67 Guatemala 67 73 '75 64 76 65 83 10.4 0.8 Note: For data comparability and coverage, see the technical notes. Figures in italics are for years other than those specified. 244 Net disbursements of ODA from all sources Per capita As percentage Millions of dollars (dollars) ofGNP 1979 1980 1981 1982 1983 1984 1985 1985 1985 68 Costa Rica 56 65 55 80 252 218 280 107.7 8.0 69 Colombia 54 90 102 97 86 88 62 2.2 0.2 70 Chile -27 -10 -7 -8 (.) 3 40 3.3 0.3 71 Jonlan 1,299 1,275 1,065 799 788 697 550 156.8 14.5 72 Syrian Arab Rep. 1,773 1,697 1,500 962 998 863 639 60.8 3.9 73 Lebanon 101 237 455 187 123 78 94 35.3 Upper middle-income 2,184 t 1,946 t 2,213 t 1,828 t 2,235 t 2,307 t 3,062 t 6.6 w 0.4w 74 Brazil 107 85 235 208 101 161 123 0.9 0.1 75 Uruguay 14 10 8 4 3 4 5 1.6 0.1 76 Hungary . . . . . . . . . . . . . . . 77 Portugal 136 I13 82 49 45 98 103 10.0 0.5 78 Malaysia 125 135 143 I35 177 327 229 I4.7 0.8 79 South Africa . . . . . . . 80 Poland . . . . . . . . . . . . . . . 8I Yugoslavia -29 -17 -15 -8 3 3 II 0.5 (.) 82 Mexico 75 56 100 140 132 83 145 1.8 0.1 83 Panama 35 46 39 41 47 72 69 31.7 1.5 84 Argentina 43 19 44 30 47 49 39 1.3 0.1 85 Korea, Rep. of 134 139 331 34 8 -37 -9 -0.2 (.) 86 Algeria 102 176 168 137 145 122 173 7.9 0.3 87 Venezuela 7 15 14 12 10 14 II 0.6 (.) 88 Greece 41 40 14 12 13 13 13 1.3 (.) 89 Israel 1,185 892 772 857 1,345 1,256 1,978 467.4 10.3 90 Trinidad and Tobago 4 5 -I 6 6 5 7 5.6 0.1 91 HongKong 12 II 10 8 9 14 21 3.8 0.1 92 Oman 165 168 231 132 71 67 78 62.8 1.0 93 Singapore 6 14 22 21 IS 41 24 9.3 0.1 94 Iran, Islamic Rep. 6 31 9 3 48 13 17 0.4 95 Iraq 18 8 9 6 13 4 26 1.6 96 Romania veloping econom 25,586 25,080 23,445 23,057 23,377 25,603 7.2 w 1.3 w )il exporters 4,931 4,676 4,116 3,952 4,065 3,856 7.4 w 0.7 w rxporters of manufactures 3,450 3,824 3,239 3,938 3,875 4,660 2.3 w 0.5 w iighly indebted countries 2,309 2,725 2,402 2,376 2,320 3,016 5.4w 0.4 w ,ub-Saharan Africa 6,919 6,933 7,103 6,877 7,140 8,168 19.5 w 0.5 w High-income oil exporters 25 47 50 80 59 49 42 2.3 w (.) w 97 Libya 5 17 11 12 6 5 5 1.4 (.) 98 Saudi Arabia 11 16 30 57 44 36 29 2.5 (.) 99 Kuwait 2 10 9 6 5 5 4 2.5 (.) 100 United Arab Emirates 7 4 I 5 4 3 3 2.3 (.) Industrial market economies 101 Spain 102 Ireland 103 Italy 104 New Zealand 105 Belgium 106 United Kingdom 107 Austria 108 Netherlands 109 France 110 Australia lii Finland 112 Germany, Fed. Rep. 113 Denmark 114 Japan 115 Sweden 116 Canada Ill Norway 118 Switzerland 119 United States Nonreporting nonmember economies 120 Albania 121 Angola 47 53 61 60 75 95 92 10.5 122 Bulgaria 123 Cuba 49 32 14 17 13 12 18 1.8 124 Czechoslovakia 125 German Dem. Rep. 126 Korea, Dem. Rep. 127 Mongolia 128 USSR 245 Table 23. Central government expenditure Percentage of total expenditure Housing, Total amenities; expenditure Overall social security Economic (percentage of surplus/deficit Defense Education Health and welfare services Othera GNP) (percentage of GNP) 1972 1985 1972 1985 1972 1985 1972 1985 1972 1985 1972 1985 1972 1985 1972 1985 Low-income economies China and India Other low-income 172w186w 132w 76w 49w 37w 54w 72w 231w239w 362w391w 180w203w -46w -53ss 1 Ethiopia 14.3 . . 14.4 . . 5.7 4.4 . . 22.9 . 38.3 . . 13.7 . . -1.4 2 Bangladesh 5.1 . . 14.8 . . 5.0 . . 9.8 . . 39.3 . 25.9 . . 9.4 . . 1.9 3 BurkinaFaso 11.5 18.2 20.6 16.9 8.2 5.5 6.6 7.0 15.5 14.4 37.6 37.9 11.1 14.8 0.3 -0.9 4MaIi .. 5 Bhutan 6 Mozambique . . . . . . . . . . . . .. . . . . . . . . . . . 7 Nepal 7.2 6.2 7.2 12.1 4.7 5.0 0.7 6.8 57.2 48.5 23.0 21.5 8.5 19.7 -1.2 -8.1 8 Malawi 3.1 5.7 15.8 12.3 5.5 7.9 5.8 2.5 33.1 35.1 36.7 36.4 22.1 29.5 -6.2 -5.5 9 Zaire 11.1 5.2 15.2 0.8 2.3 1.8 2.0 0.6 13.3 5.3 56.1 86.2 19.8 23.3 -3.8 -2.4 10 Burma 31.6 /8.5 15.0 11.7 6.1 7.3 7.5 9.3 20.1 35.2 19.7 17.8 20.0 15.9 -7.3 -0.2 11 Buntndi 10.3 . . 23.4 . . 6.0 . . 2.7 . . 33.9 .. 23.8 . . 19.9 . . (.) 12 Togo . . 6.9 . . 11.7 . . 3.6 . . 9.2 . . 23.5 . . 45.2 . . 42.0 . . -2.1 13 Madagascar 3.6 . . 9.1 . . 4.2 . . 9.9 . . 40.5 . . 32.7 . . 20.8 . . -2.5 14 Niger . , . . 15 Benin . . . . . . . . . . . . . 16 Central African Rep. . . . . . . . . , . , . . . . . . . . . . . . . .. . 17 India . . 18.8 . . 1.9 . . 2.4 . . 4.4 . . 27.0 . . 45.5 . . 16.7 . . -8.4 18 Rwanda 25.6 . . 22.2 . . 5.7 . . 2.6 . . 22.0 . . 21.9 . . 12.5 . . -2.7 19 Somalia 23.3 . . 5.5 . . 7.2 . . 1.9 . . 21.6 . . 40.5 . . 13.5 . . 0.6 20 Kenya 6.0 12.9 21.9 19.8 7.9 6.7 3.9 0.6 30.1 24.8 30.2 35.3 21.0 26.6 -3.9 -5.2 21 Tanzania 11.9 13.8 17.3 7.2 7.2 4.9 2.1 1.4 39.0 24.0 22,6 48.6 19.7 24.7 -5.0 22 Sudan 24.1 . . 9.3 5.4 1.4 . . 15.8 . . 44.1 . . 19.2 . . -0.8 23 China . . . . . . . . . . . . . . . . . 24 Haiti . . 8.4 6.0 . . 5.7 . . 1.7 . . 11.4 . . 66.8 14.5 18.8 25 Guinea . . . . . . . , . . . . . . . . . . . . . . . 26 Sierra Leone . . 4.4 . . 16.5 . . 7.5 . . 2.6 . . 19.8 . . 49.2 . . 15.4 . . -10.0 27 Senegal . . . . . . . . . . . . . . . . . . . . 18.8 . . -2.8 28 Ghana 7.9 7.5 20.1 18.0 6.3 9.8 4.1 7.0 15.1 23.8 46.6 33.9 19.5 12.5 -5.8 -2.1 29 Pakistan 39.9 32.3 1.2 2.9 1.1 1.1 3.2 10.2 21.4 27.8 33.2 25.7 16.5 19.0 -6.8 -7.2 30 SriLanka 3.1 2.6 13.0 6.4 6.4 3.6 19.5 11.1 20.2 10.2 37.7 66.2 25.4 32.6 -5.3 -6.8 31 Zambia (.) . . 19.0 7.4 . . 1.3 . . 26.7 . . 45.7 . . 34.0 30.3 -13.8 -7.0 32 Afghanistan . . . . . . . . . . . . . . . . . . . . . 33 Chad 24.6 . . 14.8 4.4 1.7 21.8 . . 32.7 . . 12.0 . . -2.7 34 Kampuchea, Dern. 35 Lao PDR 36 Uganda 23.1 16.7 15.3 11.7 5.3 2.5 7.3 2.8 12.4 8.6 36.6 57:7 21.8 -8.1 37 VietNam Middle-income economies 14.4w 11.0w 14.0w 11.5w 6.8w 4.4w 19.4w 16.2w 24.7w 23.6w 20.0w 33.3w 19.6w 23.4w -2.8w -3.5 w Lower middle-income 15.7w 14.2w 16.4w 13.8w 5.2w 3.8w 12.7w 8.9w 25.9w 23.2w 24.0w 36.1 w 19.4w 24.8w -3.3 w -4.0w 38 Mauritania . . . . . . . . . . . . . . . . . . . . .. . . . . . . . 39 Bolivia 18.8 5.4 31.3 12.2 6.2 1.5 (.) 5.4 12.5 5.3 31.2 70.2 9.6 39.9 -1.8 35.4 40 Lesotho (.) 11.8 22.4 14.8 7.4 5.8 6.0 3.4 21.6 45.6 42.7 18.7 14.5 22.7 3.5 -0.9 41 Liberia . . 9.5 . 16.5 .. 5.5 . .1.5 . 31.8 . . . 35.2 28.2 . . . . -8.4 42 Indonesia 18.6 12.9 7.4 11.3 1.4 2.5 0.9 1.4 30.5 37.9 41.2 33.9 15.1 20.2 -2.5 1.5 43 Yemen, PDR . . .. .. . ,. . .. .. 44 YemenArabRep. . 30.1 . . 20.6 .. 4.4 . . . . 8.7 . . 36.1. . . 33.3 . . . . -19.1 45 Morocco 12.3 14.9 19.2 19.2 4.8 3.1 8.4 7.0 25.6 25.8 29.7 30.1 22.8 33.5 3.9 -6.8 46 Philippines 10.9 11.9 16.3 20.1 3.2 6.0 4.3 4.0 17.6 44.9 47.7 13.2 13.4 10.8 -2.0 -1.9 47 Egypt, Arab Rep. . . 17.5 . 10.6 . 2.4 . . 14.4 . 7.9 . . 47.1 48.1 . . . -10.4 48 Côte d'Ivoire . . . . . . . .. . . . . . . . . . . . . . . . . . . 49 PapuaNewGuinea . 4.7 . . 19.1 . . 9.0 . .1.4 . 20.5 . .. 45.2 . 35.8 . . . . 1.0 50 Zimbabwe . 16.2 . . 20.4 . . 6.2 . . .4.8 . 26.0 .. 26.5 . . 39.1 . . . 9.9 51 Honduras 12.4 . . 22.3 . . 10.2 8.7 . 28.3 . 18.1 . 15.4 . . -2.7 . . . 52 Nicaragua 12.3 . 16.6 . . 4.0 . 16.4 . 27.2 . 23.4 . 15.5 . . -3.9 . . . 53 Dominican Rep. 8.5 8.4 14.2 15.1 11.7 10.3 11.8 15.2 35.4 35.2 18.4 15.8 18.5 14.2 -0.2 -1.2 54 Nigeria 40.2 . 4.5 . . 3.6 .. 0.8 . 19.6. . 31.4 . 10.2 . . -0.9 . . . 55 Thailand 20.2 20.2 19.9 19.5 3.7 5.7 7.0 4.6 25.6 22.6 23.5 27.4 17.2 21.8 -4.3 -5.6 56 Cameroon . . 8.8 . . 14.4 . 5.1 . 11.4. . . 33.8 . . 26.6 . 22.8 . . . . 0.9 57 El Salvador 6.6 20.3 21.4 14.5 10.9 5.9 7.6 3.4 14.4 12.6 39.0 43.3 12.8 19.8 -1.0 -0.8 58 Botswana (.) 6.8 10.0 17.5 6.0 4.8 21.7 9.0 28.0 29.9 34.5 32.0 33.7 48.2 -23.8 17.2 59 Paraguay 13.8 10.2 12.1 10.7 3.5 5.8 18.3 32.9 19.6 22.2 32.7 18.1 13.1 10.8 -1.7 -1.7 60 Jamaica . . . . . . . . . . . . . . . .. . . . . . . . . 61 Pem 14.8 . . 22.6 6.1 . . . 2.9 . . 30.6 . . . 23.0 . . 16.7 12.9 -1.0 62 Tltrkey 15.5 10.9 18.1 10.0 3.2 1.8 3.1 3.6 41.8 19.6 18.3 54.1 22.7 25.7 -2.2 -7.6 63 Mauritius 0.8 0.8 13.5 13.8 10.3 7.6 18.0 17.3 13.9 12.8 43.4 47.6 16.3 27.3 -1.2 -5.3 64 Congo, People's Rep. . . . . . . . .. . . . . . . . . . . . . . . . . . . 65 Ecuador 15.7 /1.3 27.5 27.7 4.5 8.3 0.8 1.1 28.9 16.6 22.6 35.0 13.4 14.5 0.2 -0.9 66 Tunisia 4.9 7.9 30.5 14.3 7.4 6.5 8.8 12.4 23.3 33.1 25.1 25.7 23.1 40.4 -0.9 -5.1 67 Guatemala 11.0 . 19.4 . . 9.5 10.4 . . 23.8 . . . 25.8 . . 9.9 . . -2.2 . . Note: For data comparability and coverage, see the technical notes. Figures in italics are for years other than those specified 246 Percentage of total expenditure Housing, Total amenities; expenditure Overall social security Economic (percentage of surplus/deficit Defense Education Health and welfare services Other GNP) (percentage of GNP) 1972 1985 1972 1985 1972 1985 1972 1985 1972 1985 1972 1985 1972 1985 1972 1985 68 CostaRica 2.8 3.0 28.3 19.4 3.8 22.5 26.7 17.1 21.8 20.2 16.7 17.8 18.9 24.5 -4.5 -1.4 69 Colombia S . . . . . . . . . . 0 S 13.0 . . -2.5 70 Chile 10.0 11.5 20.0 13.2 10.0 6.1 40.0 43.8 22.5 7.1 20.0 18.4 43.2 35.5 -13.0 -2.7 71 Jordan 27.7 . . 11.3 . . 4.2 . 14.5 . . 24.8 . . 17.5 . . 42.9 . . -9.9 72 SyrianArabRep. 37.2 . . 11.3 . . 1.4 . . 3.6 . . 39.9 . . 6.7 . . 28.8 . . -3.5 73 Lebanon . . . . . . . . . . . . . . . . . Upper middle-income 14.4 w 9.7 w 12.3 w 10.6w 7.9 w 4.6 w 23.0w 19.0w 24.1 w 23.8 w 18.3 w 32.3 w 19.7 w 22.7 w -2.5 w -3.3 w 74 Brazil 8.3 4.0 8.3 3.2 6.7 7.6 35.0 32.7 23.3 14.5 18.3 38.0 17.6 21.1 -0.3 -4.4 75 Uruguay 5.6 10.8 9.5 6.4 1.6 4.1 52.3 48.6 9.8 8.1 21.2 21.9 25.0 24.8 -2.5 -2.4 76 Hungary . . 6.9 . . 1.6 . . 3.6 . . 25.7 . . 38.8 . . 23.4 . . 55.3 . . -1.0 77 Portugal .. .. .. .. .. .. .. .. .. .. .. .. 78 Malaysia 18.5 . . 23.4 6.8 4.4 . . 14.2 . . 32.7 . . 26.5 . . -9.4 79 South Africa . . . . . . . . . . . . . . . . . . 21.8 -4.2 80 Poland . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81 Yugoslavia 20.5 54.8 (.) (.) 24.8 (.) 35.6 6.8 12.0 17.3 7.0 21.1 21.1 6.7 -0.4 -0.! 82 Mexico 4.2 2.7 16.4 12.4 5.1 1.5 25.0 11.9 34.2 27.2 15.2 44.4 12.0 24.9 -3.0 -7.7 83 Panama (.) . . 20.7 . . 15.1 . . 10.8 . . 24.2 . . 29.1 . . 27.6 . . -6.5 84 Argentina 10.0 8.8 20.0 9.5 (.) 1.8 20.0 38.3 30.0 20.3 20.0 21.3 19.6 18.0 -4.9 -5.4 85 Korea, Rep. of 25.8 29.7 15.9 18.4 1.2 1.4 5.8 6.7 25.6 17.5 25.7 26.3 18.3 18.4 -3.9 -1.3 86 Algeria .. .. .. .. .. .. .. .. .. .. .. .. .. 87 Venezuela 10.3 6.1 18.6 17.7 11.7 7.6 9.2 14.7 25.4 22.8 24.8 31.1 21.3 25.6 -0.3 3.3 88 Greece 14.9 . . 9.1 . . 7.4 . . 30.6 . . 26.4 . . 11.7 . . 27.5 . . -1.7 89 Israel 40.0 27.8 7.1 7.1 3.6 3.5 7.1 20.3 7.! 5.4 35.1 36.0 43.9 97.6 -15.7 -20.7 90 Trinidad and Tobago . . . . . . . . . . . . . 91 Hong Kong . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92 Oman 39.3 43.0 3.7 7.7 5.9 4.2 3.0 1.5 24.4 23.3 23.6 20.3 62.1 62.1 -15.3 -13.1 93 Singapore 35.3 20.1 15.7 20.2 7.8 6.2 3.9 6.5 9.9 15.0 27.3 32.0 16.8 26.3 1.3 4.! 94 Iran, Islamic Rep. 24.1 10.2 10.4 16.2 3.6 7.4 6.1 13.3 30.6 25.0 25.2 28.0 30.8 -4.6 95 Iraq . . . . . . . 96 Romania .. .. .. Developing economies 15.1 w 12.1 w 13.8 w 10.4 w 6.6 w 4.2 w 18.2 w 14.6 w 21.7 w 34.7 w 24.6w 23.9 w 19.3 w 22.3 w -2.9w -4.3 Oil exporters 17.2w 9.8w 12.7w 13.7w 4.9w 4.3w 10.6w 11.0w 30.7w 25.2w 24.4w 36.1 w 16.9w 26.4w -7.6w -4.0 Exporters of manufactures 13.7w 13.4w 9.6w 5.3w 9.7w 4.2w 30.3w 18.4w 20.6w 23.7w 16.0w 34.9w 18.7w 20.1w -0.7w -3.75 Highly indebted countries 12.0 w 6.4w 14.0 w 9.9 w 8.5 w 4.6w 25.5 w 22.4 w 22.0 w 20.4 w 17.9 w 36.6w 17.8 w 20.8 w -2.4w -4.4 Sub-Saharan Africa 20.2w 11.2w 13.2w 14.5w 5.1 w 5,7w 3.1 w 5.0w 21.2w 24.9w 37.2 w 38.8w 16.4w 23.7w -3.1 w -3.3 ii High-income oil exporters 9.0w 23.6w 15.2w 11.1 w 5.5w 6.4w 14.1 w 14.1 w 16.8w 20.3w 39.5w 24.5 w 21.1 w 29.1 w 10.5w 7.0w 97 Libya . . . . . . . 98 Saudi Arabia . . . . . . . . . . . 0 . . . . . . 0 . 99 Kuwait 8.4 14.6 15.0 11.6 5.5 6.5 14.2 17.9 16.6 26.6 40.1 22.8 34.4 43.1 17.4 7.0 100 UnitedArabEmirates 24.4 45.3 16.5 9.7 4.3 6.2 6.1 5.0 18.3 5.1 30.5 28.7 4.3 16.3 0.3 (.) Industrialmarketeconomies 20.9w 16.8w 5.4w 3.8w 10.0w 11.4w 36.6w 35.5w 12.1w 9.1w 15.1w 23.4w 22.9w 29.1w -1.6w -5.4w 101 Spain 6.5 4.4 8.3 6.0 0.9 0.6 49.8 64.2 17.5 10.1 17.0 14.8 19.8 31.5 -0.5 -6.3 102 Ireland . . 3.1 . . 11.7 . . 13.2 . . 30.1 . . 15.0 . 26.9 33.0 57.1 -5.5 -12.1 103 Italy 6.3 3.5 16.1 7.7 13.5 12.1 44.8 32.5 18.4 7.5 0.9 36.8 31.8 55.3 -9.4 -15.9 104 New Zealand 5.8 4.7 16.9 10.9 14.8 12.5 25.6 32.3 16.5 12.3 20.4 27.3 28.5 42.9 -3.8 -4.9 105 Belgium 6.7 5.1 15.5 12.9 1.5 1.7 41.0 42.7 18.9 13.8 16.4 23.8 39.2 55.9 -4.3 -10.6 106 United Kingdom 16.7 . . 2.6 . . 12.2 . . 26.5 . . 11.1 . . 30.8 . . 32.7 41.1 -2.7 -3.! 107 Austria 3.3 3.0 10.2 9.6 10.1 11.7 53.7 47.7 11.3 13.4 11.4 14.6 29.6 39.8 -0.2 -4.5 108 Netherlands . . 5.3 . . 10.9 . . 11.0 . . 41.0 . . 9.9 . . 21.9 40.8 56.6 (.) -5.5 109 France . . . . . . . . . . . . . . . . . . . . . . . . 32.5 45.2 0.7 -3.1 110 Australia 14.1 9.3 4.2 7.5 7.0 9.5 20.8 29.4 14.3 8.3 39.6 36.0 22.5 31.6 -0.5 -3.2 Ill Finland 6.1 5.1 15.3 13.8 10.6 10.4 28.4 35.0 27.9 21.6 11.6 14.0 24.8 30.0 1.3 -1.0 112 Germany, Fed. Rep. 12.4 9.2 1.5 0.7 17.5 18.7 46.9 50.5 11.3 7.1 10.4 13.8 24.2 30.7 0.7 -1.7 113 Denmark 7.3 . . 16.0 . . 10.0 . . 41.6 . . 11.3 . . 13.7 . . 32.7 43.7 2.7 -4.2 114 Japan . . . . . . . . . . . . . . . . . . . . . . . . 12.7 17.8 -1.9 -6.0 115 Sweden 12.5 6.4 14.8 8.6 3.6 1.2 44.3 50.1 10.6 6.8 14.3 26.9 28.0 46.5 -1.2 -7.0 116 Canada . . 7.9 . . 3.5 . . 6.4 . . 35.8 . . 17.2 . . 29.2 . . 26.6 . . -6.9 117 Norway 9.7 8.2 9.9 8.9 12.3 10.8 39.9 36.3 20.2 20.1 8.0 15.7 35.0 38.2 -1.5 (.) 118 Switzerland 15.1 10.3 4.2 3.1 10.0 13.1 39.5 50.6 18.4 12.2 12.8 10.8 13.3 19.9 0.9 -0.1 119 United States 32.2 24.9 3.2 1.8 8.6 11.3 35.3 31.6 10.6 8.3 10.1 22.1 19.4 24.5 -1.6 -5.3 Nonreporting nonmember economies 120 Albania 121 Angola 122 Bulgaria 123 Cuba 124 Czechoslovakia 125 German Dem. Rep. 126 Korea, Dem. Rep. 127 Mongolia 128 USSR a. See the technical notes. 247 Table 24. Central government current revenue Percentage of total cnrrent revenue Tax tevenue Taxes on Domestic Taxes on Total current income, Social taxes international revenue profit, and securtty on goods trade and Nontax (percentage capital gain contnbutions and services transactions Other taxesa revenue of GNP) 1972 1985 1972 1985 1972 1985 1972 1985 1972 1985 1972 1985 1972 1985 Low-income economies . China and India . . . . . . . . . . . . . . . . . . . . . . Other low-income 210w 16.8w 0.5w 0,2w 26.8w 34.9w 33.1 w 29.0w 2.3 w 0.9w 16.3w 18.2w 13.8w 15.6w I Ethiopia 23.0 . . (.) . . 29.8 . . 30.4 . . 5.6 . . 11.1 . . 10.5 2 Bangladesh 3.7 . . . . . 22.4 . . 18.0 . . 3.8 . . 52.2 . . 8.6 3 Burkina Faso 16.8 17.4 (.) 8.5 18.0 16.2 51.8 30.0 3.2 18.5 10.2 9.5 11.4 14.3 4Mali .. .. .. .. .. 5 Bhulan . . . . . . . . . . . . . . . . 6 Mozambique . . . . . . . 0 . . . . . . . . . . . . . 7 Nepal 4.1 8.0 (.) (.) 26.5 40.7 36.7 27.7 19.0 6.2 13.7 17.4 5.2 9.2 8 Malawi 31.4 34.6 (.) (.) 24.2 32.6 20.0 19.6 0.5 0.5 23.8 /2.7 16.0 21.1 9 Zaire 22.2 29.3 2.2 0.9 12.7 24.2 57.9 31.2 1.4 3.3 3.7 11.2 14.3 16.8 10 Burma 28.7 4.0 (.) (.) 34.2 40.5 13.4 14.9 (.) (.) 23.8 40.5 12.4 14.4 II Bumndi 18.1 . . 1.2 . . 18.3 . . 40.3 . . 15.6 . . 6.5 . . /1.5 12 Togo . . 33.2 . . 6.0 . . 8.3 . . 29.2 . . 0.8 . . 22.5 . . 36.5 13 Madagascar 13.1 . . 7.2 . . 29.9 . . 33.6 . . 5.5 . . 10.8 18.3 14 Niger .. .. .. .. .. .. .. .. .. 15 Benin . . . . . . . . . . . . . . . . . . . 16 Central Afncan Rep. 17 India 16.2 (.) 389 244 05 199 140 18 Rwanda '79 4.4 14 1 41.7 /3.8 . . 8.1 . . 9.8 19 Somalia 10.7 (.) 24.7 45.3 . . 5.2 . . 14.0 . . 13.7 20 Kenya 35.6 28.3 (.) (.) 19.9 40.8 24.3 20.4 1.4 0.5 18.8 10.0 18.0 21.7 21 Tanzania 29.9 (.) 29.1 . . 21.7 0.5 . . 18.8 15.8 22 Sudan 11.8 (.) 30.4 . . 40.5 . . 1.5 15.7 . . 18.0 23 China 24 Haiti 25 Guinea 26 Sierra Leone . . 28.0 . . (.) . . 25.0 . . 40.4 . . 1.0 . . 5.6 . . 7.3 27 Senegal 20.0 . . (.) . . 25.9 . . 42.7 . . 7.5 . . 3.8 . . 17.0 28 Ghana 18.4 19.2 (.) (.) 29.4 22.2 40.6 40.9 0.2 0.2 11.5 17.5 15.1 10.5 29 Pakistan 13.6 12.2 (.) (.) 35.9 35.0 34.2 30.9 0.5 0.3 15.8 21.6 12.3 /5.7 30 Sn Lanka 19.1 15.3 (.) (.) 34.7 39.5 35.4 32.3 2.1 1.4 8.7 11.5 20.1 23.8 31 Zambia 49.7 29.5. (.) (.) 20.2 45.9 14.3 16.3 0.1 1.6 15.6 6.6 23.2 23.9 32 Afghanistan . . . . . . . . . . . . . . . 33 Chad 16.7 . . (.) 12.3 45.2 20.5 . . 5.3 . . 10.8 34 Kampuchea, Dem. . . . . . . . . . . . 35LaoPDR .. .. .. .. .. .. 36 Uganda 22.1 6.9 (.) (.) 32.8 24.9 36.3 66.2 0.3 (.) 8.5 2.0 13.7 37 VietNam . . . . . . .. . . . . . . . . . . . . . Middle-income economies 26.1 w 24.4 w 12.4 w 10.6w 27.0 w 25.6 w 12.7 w 9.8 w 5.2 w 4.2 w 16.6 w 25.4 w 18.0 w 22.7 w Lower middle-income 23.8 w 34.8 w 7.0 w 3.6 w 28.9 w 22.9 w 19.1 w 14.3 w 6.4 w 4,9 w 14.8 w 19.7 w 16.5 w 20.9 w 38 Mauritania . . . . . . . . . . . . . . . . . . . . . . . . . 39 Bolivia 13.7 6./ (.) 20.9 27.4 /7.4 41.1 30.0 9.8 2.4 8.0 23.1 7.8 4.3 40 Lesotho 10.2 9.5 (.) (.) 2.3 8.0 73.7 70.8 5.9 0.2 7.8 11.4 15.4 20.5 41 Liberia . . 38.1 . . (.) . . 27.3 . . 28.4 . . 3.3 . . 2.9 . . 20.0 42 Indonesia 45.5 67.0 . . (.) 22.8 9.4 17.6 3.3 3.5 1.6 10.6 18.7 13.4 22.5 43 Yemen, PDR . . . . . . . . . . . . . . . . . . . . . . . . . 44 Yemen Arab Rep. . . 13.3 . . (.) . . 8.! . . 49.4 . . 13.3 . . 15.9 . . 19.6 45 Morocco 16.4 18.8 5.9 4.9 45.7 37.7 13.2 17.9 6.1 7.6 12.6 13.1 18.5 26.5 46 Philippines 13.8 26.6 (.) (.) 24.3 36.4 23.0 23.7 29.7 2.5 9.3 10.8 12.4 11.5 47 Egypt, Arab Rep. . . 15.2 . . 13.6 . . 12.1 15.7 . . 6.5 . . 37.0 . . 39.4 48 COted'Ivoire . . . . . . . . . . . . . . . . . . . . . . . 49 Papua New Guinea 49.2 (.) . . 12.8 . . 23.1 . . 1.6 . . 13.2 . . 23.8 50 Zimbabwe . . 42.1 . . (.) . . 31.9 . . 14.8 . . 1.1 . . 10.1 . . 31.2 SI Honduras 19.2 . . 3.0 33.8 . . 28.2 2.3 . . 13.5 . . 12.6 52 Nicaragua 9.5 . . 14.0 37.3 . . 24.4 . . 9.0 . . 5.8 . 12.6 53 Dominican Rep. 17.9 /9.4 3.9 3.8 19.0 33.8 40.3 28.4 1.8 2.5 17.0 12.1 17.9 12.7 54 Nigeria 43.0 . . (.) . . 26.3 . . 17.5 . . 0.2 . . 13.0 11.6 55 Thailand 12.1 20.7 (.) (.) 46.3 43.9 28.7 22.2 1.8 2.0 11.2 II.! 12.9 16.3 56 Cameroon . . 57.2 . . 5.4 . . 10.9 . . 15.2 . . 3.3 . . 8.0 . . 24.8 57 El Salvador 15.2 16.3 (.) (.) 25.6 37.9 36.1 27.5 17.2 7.8 6.0 10.3 11.6 14.3 58 Botswana 19.9 33.7 (.) (.) 2.4 1.1 47.2 20.9 0.4 0.! 30.0 44.2 30.7 68.4 59 Paraguay 8.8 12.6 10.4 10.8 26.2 25.9 24.8 11.3 17.0 23.6 12.8 15.8 11.5 9.8 60 Jamaica . . . . . . . . . . . . . . . . . . . . . 61 Pens 17.2 . . (.) . . 32.2 . . 15.9 . . 22.1 . . 12.6 . . 15.5 62 Turkey 30.8 38.0 (.) (.) 31.0 7.5 5.9 27.3 14.6 9.8 17.7 17.4 20.6 18.0 63 Mauntius 22.7 11.8 (.) (.) 40.2 51.4 23.3 20.8 5.5 4.2 8.2 11.9 15.6 21.7 64 Congo, People's Rep. 19.4 . . (.) . . . 26.5 40.3 . 6.3. . . . 7.5 . . 18.4 65 Ecuador /9.6 53.5 (.) (.) /9.1 /7.7 52.4 21.4 5.1 3.4 3.8 4.1 13.6 /3.6 66 Tunisia 15.9 12.2 7.1 7.9 31.6 19.8 21.8 28.5 7.8 5.5 15.7 26.2 23.6 37.7 67 Guatemala 12.7 . . (.) . . 36.1 . . 26.2 . . 15.6 . . 9.4 . . 8.9 Note; For data comparability and coverage, see the technical notes. Figures in italics are for years other than those specified. 248 Percentage of total current revenue Tax revenue Taxes on Domestic Taxes on Total current income, Social taxes international revenue profit, and security on goods trade and Nontax (percentage capital gain contributions and services transactions Other tanes revenue of GNP) 1972 1985 1972 1985 1972 1985 1972 985 1972 1985 1972 1985 1972 1985 68 Costa Rica 17.7 16.9 13.4 25.2 38.1 31.0 18.0 22.4 1.6 -0.2 11.2 4.7 15.8 23.3 69 Colombia 37.2 . . 13.9 . . 16.0 . . 20.3 . . 7.2 . . 5.5 . . 10.6 70 Chile 14.3 11.4 28.6 7.3 28.6 39.9 14.3 10.9 . . 7.0 14.3 23.5 30.2 32.8 71 Jordan . . 12.4 . . (.) . . 11.3 . . 35.2 . . 13.9 . . 27.1 . . 27.7 72 Syrian Arab Rep. 6.8 (.) . . 10.4 17.3 . . 12.1 53.4 25.1 73 Lebanon . . . . . . . . . . . Upper middle-income 27.3 w 20.3 w 15.2 w 13.6 w 26.0w 26.7w 9.4w 7.9 w 4.5 w 3.8 w 17.6 w 27.7 w 18.7w 23.6 w 74 Brazil 20.0 17.9 27.7 23.3 35.4 18.0 7.7 4.3 3.1 3.9 6.2 32.6 19.1 24.7 75 Uruguay 4.7 7.9 30.0 25.6 24.5 44.7 6.1 12.2 22.0 5.2 12.6 4.4 22.7 22.9 76 Hungary . . 13.0 . . 24.9 . . 31.8 . . 5.9 . . 9.1 . . 15.3 . . 54.2 77 Portugal .. .. .. .. .. .. .. S .. .. 78 Malaysia 25.2 . . 0.1 . . 24.2 . 27.9 . . 1.4 . . 21.2 . . 20.3 79 SouthAfrica 54.8 . . 1.2 . . 21.5 . . 4.6 . . 5.0 . . 12.8 . . 21.2 80 Poland ., ., .. .. .. .. .. .. .. .. .. .. .. 81 Yugoslavia (.) (.) 52.3 (.) 24.5 62.0 19.5 35.9 (.) (.) 3.7 2.1 20.7 6.7 82 Mexico 36.4 24.7 19.4 12.1 32.1 70.2 13.2 2.7 -9.8 -18.8 8.6 9.1 10.4 17.6 83 Panama 23.3 . 22.4 . . 13.2 . . 16.0 . . 77 . . 17.3 . . 21.8 84 Argentina 12.5 3.1 25.0 24.1 25.0 42.6 12.5 13.3 (.) 6.9 25.0 9.9 14.7 15.9 85 Korea, Rep. of 29.2 25.3 0.8 1.5 41.7 43.2 10.7 14.2 5.2 3.9 12.3 11.9 13.4 19.0 86 Algeria .. .. .. .. .. .. .. .. .. .. .. 87 Venezuela 54.2 59.2 6.0 3.2 6.7 4.3 6.1 18.0 1.1 1.6 25.9 13.7 21.8 31.0 88 Greece 12.2 . . 24.5 . . 35.5 . . 6.7 . . 12.0 . . 9.2 . . 25.4 89 Israel 40.0 36.7 (.) 9.0 20.0 27.4 20.0 4.4 10.0 2.7 10.0 19.7 31.3 0.1 90 Trinidad and Tobago . . . S S S . 91 Hong Kong . . . . . . . . . . . . . . . . . . . . . . . . . 92 Oman 71.1 26.6 (.) (.) (.) 0.8 3.0 3.1 2.3 0.6 23.6 69.0 47.4 47.8 93 Singapore 24.4 30.1 (.) (.) 17.6 14.0 11.1 4.6 15.5 15.7 31.4 35.6 21.6 28.7 94 Iran, Islamic Rep. 7.9 9.5 2.7 8.8 6.4 5.1 14.6 11.5 4.9 4.8 63.6 60.2 26.2 95 Iraq S S S . 96 Romania . . . . .. . . . . . . . . . . . . Developing economies 25.4w 23.4w 11.4w 9.3w 27.0w 27.1 w 14.7w 11.8w 4.9w 3.7w 16.6w 24.7w 17.5 w 21.1 w Oil exporters 30.7w 30.2w 7.1w 7.2w 17.4w 21.9w 13.7w 8.7w 3.2w 2.6w 27.9w 29.4w 15.9w 24.8w Exporters of manufactures 21.2 w 18.8 w 23.6w 13.7 w 35.2 w 28.0 w 8.2 w 10.7 w 3.8w 3.8w 8.0w 25.0w 18.8w 20.9w Highly indebted countries 26.0 w 22.2 w 16.2 w 15.1 w 29.0 w 32.4 w 11.7 w 8.0w 4.2w 3.3 w 10.5 w 19.0w 16.6w 20.8 w Sub-Saharan Africa 30.0w 36.2 w 0.6 w 1.5 w 24.6 w 24.4 w 30.8 w 23.9w 1.9w 1.7w 12.1 iv 12.3 w 14.2w 19.3w High-income oil exporters 97 Libya . . . . . . . . . . . . . . . 98 Saudi Arabia . . . . . . . . . . . . . . . . S . . . . . 99 Kuwait 68.8 0.9 (.) (.) 19.7 0.7 1.5 1.6 0.2 0.! 9.9 96.7 55.2 53.2 100 United Arab Emirates .. .. .. .. .. .. .. .. .. Industrial market economies 40.4 iv 40.8 w 26.9 w 30.5 w 21.4 w 16.8 w 1.8 w 1.3 w 3.3 w 2.1 w 6.2 w 8.5 w 22.1 w 24.5 w 101 Spain 15.9 21.7 38.9 46.2 23.4 15.4 10.0 4.2 0.7 3.1 11.1 9.5 20.0 26.4 102 Ireland 28.1 31.9 8.9 13.5 32.6 32.1 16.6 7.2 3.2 3.9 10.5 11.5 30.6 47.4 103 Italy 16.6 36.5 39.2 33.1 31.7 23.9 0.4 0.2 4.3 2.0 7.7 4.2 26.9 40.7 104 New Zealand 61.4 61.9 (.) (.) 19.9 17.5 4.1 3.5 4.5 1.9 10.0 15.2 27.3 39.5 105 Belgium 31.3 38.0 32.4 32.9 28.9 23.1 1.0 (.) 3.3 1.9 3.1 4.1 35.0 45.8 106 UnitedKingdom 39.4 38.5 15.1 18.3 27.1 29.5 1.7 (.) 5.5 2.5 11.2 11.2 33.5 37.9 107 Austria 20.7 20.2 30.0 35.3 28.3 27.0 5.4 1.4 10.2 7.9 5.5 8.1 29.7 35.6 108 Netherlands 32.5 23.0 36.7 39.4 22.3 20.0 0.5 (.) 3.4 2.1 4.7 15.4 43.2 51.7 109 France 16.9 16.8 37.! 44.5 37.9 30.0 0.3 (.) 2.9 3.7 4.9 4.9 33.5 42.2 110 Australia 58.3 60.4 (.) (.) 21.9 24.0 5.2 5.2 2.1 0.5 12.5 9.9 24.4 28.8 Ill Finland 30.0 30.7 7.8 9.0 47.7 47.1 3.1 1.2 5.8 3.9 5.5 8.0 27.1 29.0 112 Germany, Fed. Rep. 19.7 17.0 46.6 55.5 28.1 21.6 0.8 (.) 0.8 0.1 4.0 5.7 25.2 29.2 113 Denmark 40.0 37.1 5.1 4.6 42.1 41.3 3.1 0.7 2.8 3.! 6.8 13.3 35.5 42.7 114 Japan 64.8 68.8 (.) (.) 22.6 16.7 3.5 2.0 6.8 7.5 2.4 5.0 11.2 /1.9 115 Sweden 27.0 19.4 21.6 30.2 34.0 29.2 1.5 0.5 4.7 5.0 11.3 15.6 32.5 41.7 116 Canada . . 48.5 . . 13.4 . . 19.5 . . 5.3 . . 0.1 . . 13.3 . . 20.4 117 Norway 22.5 25.6 20.5 21.0 47.9 37.8 1.6 0.5 1.0 0.8 6.6 14.2 37.0 44.0 118 Switzerland 13.9 15.4 37.3 49.2 21.5 19.0 16.7 7.7 2.6 3.3 8.0 5.5 14.5 19.6 119 United States 59.4 50.0 23.6 32.9 7.1 4.5 1.6 1.6 2.5 0.8 5.7 10.2 18.0 19.8 Nonreporting nonmember economies 120 Albania 121 Angola 122 Bulgaria 123 Cuba 124 Czechoslovakia 125 German Dem. Rep. 126 Korea, Dem. Rep. 127 Mongolia 128 USSR a. See the technical notes. 249 Table 25. Money and interest rate Monetary holdings, broadly defined Average annual Nominal interest rates of banks Average annual Average outstanding (average annual percentage) nominal growth inflation rate (percent) (percentage of GDP) (GD? deflator) Deposit rate Lending rate 1965-80 1980-85 1965 1980 1985 1980-85 1980 1985 1980 985 Low-income economies China and India Other low-income 1 Ethiopia 12.7 12.8 12.5 25.3 38.0 2.6 . 2 Bangladesh 25.0 18.6 25.7 11.5 8.25 12.00 11.33 12.00 3 Burkina Faso 7.2 6.25 7.25 9.38 10.00 4 Mali 14.4 I 7. i 17.4 23.8 7.4 7.50 7.25 9.38 10.00 5 Bhutan 6 Mozambique . . . . . 0 0 0 25.8 7 Nepal 17.9 18.6 8.4 21.9 28.6 8.4 4.00 4.50 14.00 17.00 8 Malawi 15.4 16.0 17.6 20.3 24.3 11.4 7.92 12.50 16.67 18.38 9 Zaire 28.2 58.5 11.7 9.4 9.6 55.3 10 Burma 11.5 13.5 29.0 23.9 31.7 2.6 II Burundi 32.8 12.8 10.1 12.7 16.6 6.6 2.50 4.50 12.00 12.00 12 logo 20.3 13.1 10.9 29.0 44.6 6.9 6.25 7.25 9.38 10.00 13 Madagascar 12.0 13.1 19.6 27.6 23.9 19.4 . . . . . 14 Niger 18.3 5.4 3.8 13.3 14.8 8.5 6.25 7.25 9.38 10.00 15 Benin 17.3 12.5 10.6 21.1 24.2 9.7 6.25 7.25 9.38 10.00 16 Central African Rep. 12.7 7.8 13.5 18.9 17.8 10.8 5.50 7.50 10.50 12.50 17 India 15.3 16.7 25.7 38.4 44.3 7.8 . . . . 16.50 16.50 18 Rwanda 19.0 8.7 15.8 13.8 11.9 7.6 6.25 6.25 13.50 13.88 19 Somalia 20.4 25.6 12.8 31.0 22.8 45.4 4.50 14.00 7.50 19.00 20 Kenya 18.6 14.1 37.7 39.5 10.0 5.75 11.25 10.58 14.00 21 Tanzania 20.1 37.2 . . 19.6 6.25 4.50 11.50 12.29 22 Sudan 21.0 28.7 14.2 28.2 29.0 31.7 . 23 China 23.0 30.1 46.7 2.4 . . . . . 24 Haiti 20.3 7.3 9.9 26.1 27.5 7.0 . . . . . 25 Guinea 8.3 26 SierraLeone 15.9 36.5 11.7 20.6 22.6 25.0 9.17 11.33 11.00 15.00 27 Senegal 15.6 10.5 15.3 27.0 25.5 9.7 6.25 7.25 9.38 10.00 28 Ghana 25.9 41.4 20.3 16.2 10.5 57.0 11.50 15.00 19.00 20.00 29 Pakistan 14.7 15.0 40.8 38.2 37.6 8.1 . . . . . 30 Sri Lanka 15.1 20.3 31.4 32.9 35.6 14.7 14.50 17.33 19.00 13.00 31 Zambia 12.7 17.6 . . 32.6 33.4 14.7 7.00 7.71 9.50 18.60 32 Afghanistan 14.1 14.5 14.4 26.8 . . . . . . . 33 Chad 12.5 22.3 9.3 20.0 . . 5.50 5.50 11.00 11.50 34 Kampuchea, Dem. .. 35 Lao PDR 36 Uganda 23.1 58.8 . . 7.4 . . . . 6.80 20.00 10.80 24.00 37 VietNam 30.1 . . . . . . . . Middle-income economies Lower middle-income 38 Mauritania 20.7 12.0 5.7 20.5 23.6 8.1 5.50 5.50 12.00 12.00 39 Bolivia 24.7 507.3 11.8 16.2 6.2 569.1 18.00 140.00 28.00 150.00 40 Lesotho 21.1 . . . . 48.8 11.4 9.60 14.80 11.00 19.70 41 Liberia . . . . . . . . 1.6 10.30 9.34 18.40 19.34 42 Indonesia 54.9 23.6 13.7 22.7 10.7 6.00 18.00 9.00 12.00 43 Yemen, PDR 15.2 16.0 . . 114.8 148.2 5.7 44 Yemen, Arab Rep. . . . . . . . . . . 9.7 45 Morocco 16.1 12.4 29.4 46.7 50.7 7.8 4.90 7.00 46 Philippines 17.7 18.0 19.9 19.0 19.2 19.3 47 Egypt, Arab Rep. 17.7 24.4 35.3 47.4 76.0 11.0 48 Côted'Ivoire 20.4 9.6 21.8 25.8 27.3 10.0 6.25 7.25 9.38 10.00 49 Papua New Guinea . . 9.0 33.1 34.4 5.5 6.90 9.49 11.15 10.64 50 Zimbabwe . . 12.1 . . 54.6 45.2 13.2 3.52 10.04 17.54 17.17 SI Honduras 14.6 12.2 15.4 23.3 30.3 5.4 . 52 Nicaragua 15.0 36.9 15.4 21.0 35.2 33.8 7.50 . 53 Dominican Rep. 18.5 17.4 16.7 23.4 24.6 14.6 . . . . . 54 Nigeria 28.5 10.5 13.9 25.1 34 7 11.4 5.27 9.12 8.43 9.52 55 Thailand 17.8 20.3 25.6 35.9 58.9 3.2 12.00 13.00 18.00 19.00 56 Cameroon 19.1 22.4 12.5 20.4 21.4 11.8 7.50 7.50 13.00 14.50 57 El Salvador 14.3 16.2 21.6 28.! 34.9 11.6 . . . . . 58 Botswana . . 18.7 . . 3!.! 29.5 5.2 59 Paraguay 44.0 15.1 12.0 20.4 20.2 5.8 60 Jamaica 17.3 26.5 24.2 35.6 47.8 18.3 10.29 21.3! 13.00 21.90 61 Pent 25.9 102.5 18.7 16.3 16.4 98.6 8.30 60.00 62 Turkey 27.4 51.9 23.0 16.7 24.4 37.! 10.00 49.20 25.67 52.33 63 Mauritius 21.8 14.3 27.3 41.1 42.5 8.5 9.25 9.46 12.19 13.83 64 Congo, People's Rep. 14.2 16.1 16.5 14.8 16.2 12.6 6.50 8.25 11.00 12.00 65 Ecuador 22.6 26.1 15.6 20.2 17.8 29.7 17.20 . . 20.20 66 Tunisia 17.4 16.9 30.2 42.1 48.6 10.0 2.50 5.25 7.25 9.63 67 Guatemala 16.3 11.6 5.2 20.5 25.4 7.4 Note: For data comparability and coverage, see the technical notes. Figures in italics are for years other than those specified. 250 Monetary holdings, broadly defined Average annual Nominal interest rates of banks Average annual (average annual percentage( nominal growth Average outstanding inflation rate (percent( (percentage of GOP) (GOP deflatorl Deposit rate Lending rate 1965-80 1980-85 1965 1980 1985 1980-85 1980 1985 1980 1985 68 Costa Rica 24.6 31.1 19.3 38.8 38.6 36.4 . 16.50 . 20.92 69 Colombia 26.5 27.2 19.8 23.7 28.1 22.5 31.30 29.10 19.00 47.14 70 Chile 71 Jordan 72 Syrian Arab Rep. 165.8 19.1 21.9 22.6 14.0 22.3 . 24.6 . 17.6 89.2 40.5 25.6 115.2 63.6 19.3 3.9 6.1 . 37.50 5.00 7.00 . 38.33 73 Lebanon 16.2 26.7 83.4 176.1 . . . . . . . . Upper middle-income 74 Brazil 43.4 175.6 20.8 17.3 21.8 147.7 . . . . . 75 Uniguay 65.3 44.2 28.6 30.5 38.3 44.6 50.30 81.90 66.60 94.60 76 Hungary 11.3 6.3 . . 46.5 45.2 5.6 3.00 5.00 9.00 2.00 77 Portugal 18.4 21.1 77.7 82.4 78.9 22.7 18.20 26.80 18.50 25.50 78 Malaysia 21.5 15.5 26.3 69.5 104.5 3.1 6.23 8.56 7.75 11.38 79 South Africa 14.0 15.7 56.6 49.5 55.3 13.0 6.00 14.00 9.50 l6.50 80 Poland . 35.2 81 Yugoslavia 25.7 40.9 43.5 59.1 47.8 45.1 5.88 30.75 ll.50 48.00 82 Mexico 21.7 61.4 27.0 28.3 26.6 62.2 26.15 59.48 28.10 54.73 83 Panama . 3.7 84 Argentina 86.3 316.0 . . 22.2 12.7 342.8 88.00 510.50 85 Korea, Rep. of 35.5 18.4 11.1 3l .8 40.0 6.0 l4.80 6.00 18.00 ISO 86 Algeria 22.1 19.7 32.1 58.5 79.7 6.9 87 Venezuela 22.3 16.5 20.5 42.6 65.4 9.2 10.52 :. 88 Greece 21.4 26.6 . . . . 20.6 14.50 15.50 21.30 20.50 89 Israel 40.1 . . 30.2 52.6 196.3 178.80 176.90 496.30 90 Trinidad and Tobago 23.1 l5.8 22.3 29.7 5510 7.6 6.57 6.76 10.00 12.69 91 Hong Kong . . . . 69.3 7.9 92 Oman 29.4 21.7 . . 13.8 23.7 4.9 93 Singapore 17.6 15.2 58.4 75.8 104.5 3.1 9.37 4.99 11.72 7.93 94 Iran, Islamic Rep. 27.0 20.7 21.6 52.1 95 Iraq 16.3 19.7 96 Romania 7.8 Devv. ing economies Oil exporters Exporters of manufactures Highly indebted countries Sub-Saharan Africa High-income oil exporters 97 Libya . . . . . . . . . . -0.3 5.13 5.50 7.00 7.00 98 Saudi Arabia 32.1 13.2 16.4 18.6 43.1 -3.2 . . . . . 99 Kuwait 17.8 8.0 28.1 34.4 68.8 -3.6 4.50 4.50 6.80 6.80 100 United Arab Emirates . . 16.2 . . 19.0 52.1 -1.4 . . . Industrial market economies 101 Spain 19.7 7.7 60.3 75.3 62.3 12.6 13.05 10.53 16.85 13.52 102 Ireland 16.1 7.6 66.0 58.1 48.7 10.8 12.00 6.98 15.96 2.44 103 Italy 17.9 12.9 69.2 88.1 79.8 14.2 12.70 10.90 19.03 18.51 104 New Zealand 12.8 15.7 55.4 48.0 51.7 9.8 11.00 14.71 12.63 /2.53 105 Belgium 10.4 6.2 58.3 56.0 54.8 5.9 7.69 6.69 . . 12.54 106 United Kingdom 13.8 13.5 49.0 46.4 61.0 6.4 14.08 8.87 16.17 12.29 107 Austria 13 3 7.6 49.0 72.6 79.0 4.9 5.00 3.75 . 108 Netherlands 14.7 6.0 55.0 79.0 86.9 3.5 5.96 4.10 13.50 9.25 109 France 15.0 10.4 54.5 70.7 69.9 9.5 6.25 6.80 18.73 17.77 110 Australia 13.1 11.7 53.5 SI .5 51.3 9.1 8.58 10.46 10.58 15.96 Ill Finland 14.7 14.9 39.7 39.5 45.7 8.6 9.00 8.75 9.77 10.41 112 Germany. Fed. Rep. 10.1 5.6 46.1 60.3 63.6 3.2 7.95 4.44 12.04 9.53 113 Denmark 11.5 17.4 45.8 42.6 55.7 8.1 10.80 8.20 17.20 14.70 114 Japan 17.2 8.7 98.9 134.0 157.3 1.2 5.50 3.50 8.32 6.52 115 Sweden 10.5 9.0 55.7 54.6 53.1 8.6 11.25 11.83 15.12 16.72 116 Canada 15.4 6.8 41.3 65.8 63.0 6.3 12.86 8.46 18.25 bOO 117 Norway 12.8 14.0 51.9 52.9 58.8 8.5 5.08 5.35 12.63 13.46 118 Swilzerland 7.0 10.2 102.3 105.6 122.8 4.5 7.75 4.36 5.56 5.43 119 United States 9.2 10.6 65.0 60.6 67.4 5.3 13.07 8.05 15.27 9.93 Nonreporting nonmember economies 120 Albania 121 Angola 122 Bulgaria 123 Cuba 124 Czechoslovakia 125 German Dem. Rep. 126 Korea, Dem. Rep. 127 Mongolia 128 USSR a. See the technical notes. 251 Table 26. Income distribution Percentage share of household income, by percentile gmups of households Lowest Second Third Fourth Highest Highest Year 20 percent quintile quintile qaintile 20 percent tO percent Low-income economies China and India Other low-income I Ethiopia 2 Bangladesh 198 1-82 6.6 10.7 15.3 22.1 45.3 29.5 3 Burkina Faso 4 Mali 5 Bhutan 6 Mozambique 7 Nepal 8 Malawi 9 Zaire 10 Burma II Burundi 12 Togo 13 Madagascar 14 Niger IS Benin 16 Central African Rep. 17 India 1975-76 7.0 9.2 13.9 20.5 49.4 33.6 18 Rwanda 19 Somalia 20 Kenya 1976 2,6 6.3 11.5 19.2 60.4 45.8 21 Tanzania 22 Sudan 23 China 24 Haiti 25 Guinea 26 Sierra Leone 27 Senegal 28 Ghana 29 Pakistan 30 Sri Lanka 1980-81 5.8 10.1 14.1 20.3 49.8 34.7 31 Zambia 1976 3.4 7.4 11.2 16.9 61.1 46.4 32 Afghanistan 33 Chad 34 Karnpuchea, Dem. 35 Lao PDR 36 Uganda 37 VietNam Middle-income economies Lower middle-income 38 Mauritania 39 Bolivia 40 Lesotho 41 Liberia 42 Indonesia 1976 6.6 7.8 12.6 23.6 49.4 34.0 43 Yemen, PDR 44 Yemen Arab Rep. 45 Morocco 46 Philippines 1985 5.2 8.9 13.2 20.2 52.5 47 Egypt, Arab Rep. 1974 5.8 10.7 14.7 20.8 48.0 33.2 48 Côte dIvoire 1985-86 2.4 6.2 10.9 19.1 61.4 43.7 49 Papua New Guinea 50 Zimbabwe SI Honduras 52 Nicaragua 53 Dominican Rep. 54 Nigeria 55 Thailand 1975-76 56 9.6 13.9 21.1 49.8 34.! 56 Camemon 57 El Salvador 1976-77 515 10.0 14.8 22.4 47.3 29.5 58 Botswana 59 Paraguay 60 Jamaica 61 Pens 1972 1.9 5.! 11.0 2110 61.0 42.9 62 Thrkey 1973 3.5 8.0 12.5 19.5 56.5 40.7 63 Mauritius 1980-81 4.0 7.5 11.0 17.0 60.5 46.7 64 Congo, People's Rep. 65 Ecuador 66 Tunisia 67 Guatemala Note: For data comparability and coverage, see the technical notes. Figures in italics are for years other than those specified. 252 Percentage share of household income, by rcentiIe groups of households Lowest Second Third Fourth Highest Highest Year 2Opercent quintile quintile quintile 2Opercent lOpement 68 CostaRica 1971 3.3 8.7 13.3 19.8 54.8 39.5 69 Colombia 70 Chile 71 Jordan 72 Synan Arab Rep. 73 Lebanon Upper middle-income 74 Brazil 1972 2.0 5.0 9.4 17.0 66.6 50.6 75 Unrguay . . . . . . . . 76 Hungary 1982 6.9 13.6 19.2 24.5 35.8 20.5 77 Portugal 1973-74 5.2 10.0 14.4 21.3 49.1 33.4 78 Malaysia 1973 3.5 7.7 12.4 20.3 56.1 39.8 79 South Africa . . . . . 80 Poland . . . . . . . . . 81 Yugoslavia 1978 6.6 12.1 18.7 23.9 38.7 22.9 82 Mexico 1977 2.9 7.0 12.0 20.4 57.7 40.6 83 Panama 1973 2.0 5.2 11.0 20.0 61.8 44.2 84 Argentina 1970 4.4 9.7 14.1 21.5 50.3 35.2 85 Korea, Rep. of 1976 5.7 11.2 15.4 22.4 45.3 27.5 86 Algeria . . . . . . . . . 87 Venezuela 1970 3.0 7.3 12.9 22.8 54.0 35.7 88 Greece 89 Israel 1979-80 6.0 12.0 17.7 24.4 39.9 22.6 90 Trinidad and Tobago 1975-76 4.2 9.1 13.9 22.8 50.0 31.8 91 HongKong 1980 5.4 10.8 15.2 21.6 47.0 31.3 92 Oman . . . 93 Singapore . . . . . . . 94 Iran, Islamic Rep. 95 Iraq 96 Romania veloping economies 'porters rters of manufactures ltghly indebted countries Sub-Saharan Africa High-income oil exporters 97 Libya 98 Saudi Arabia 99 Kuwait 100 United Arab Emirates Industrial market economies 101 Spain 1980-81 6.9 12.5 17.3 23.2 40.0 24.5 102 Ireland 1973 7.2 13.1 16.6 23.7 39.4 25.1 103 Italy 1977 6.2 11.3 15.9 22.7 43.9 28.1 104 New Zealand 1981-82 5.1 10.8 16.2 23.2 44.7 28.7 105 Belgium 1978-79 7.9 13.7 18.6 23.8 36.0 21.5 106 United Kingdom 1979 7.0 11.5 17.0 24.8 39.7 23.4 107 Austria . . . . . . . . . 108 Netherlands 1981 8.3 14.1 18.2 23.2 36.2 21.5 109 France 1975 5.5 11.5 17.1 23.7 42.2 26.4 110 Australia 1975-76 5.4 10.0 15.0 22.5 47.1 30.5 Ill Finland 1981 6.3 12.1 18.4 25.5 37.6 21.7 112 Germany, Fed. Rep. 1978 7.9 12.5 17.0 23.1 39.5 24.0 113 Denmark 1981 5.4 12.0 18.4 25.6 38.6 22.3 114 Japan 1979 8.7 13.2 17.5 23.1 37.5 22.4 115 Sweden 1981 7.4 13.1 16.8 21.0 41.7 28.1 116 Canada 1981 5.3 11.8 18.0 24.9 40.0 23.8 117 Norway 1982 6.0 12.9 18.3 24.6 38.2 22.8 118 Switzerland 1978 6.6 13.5 18.5 23.4 38.0 23.7 119 United States 1980 5.3 11.9 17.9 25.0 39.9 23.3 Nonreporting nonmember economies 120 Albania 121 Angola 122 Bulgaria 123 Cuba 124 Czechoslovakia 125 German Dem. Rep. 126 Korea, Dem. Rep. 127 Mongolia 128 USSR a. These estimates should be treated with caution; see the technical notes. 253 Table 27. Population growth and projections Hypothetical Assumed size of year of Average annual growth of population stationaiy reaching net Population (percent) Population (millions) population reproduction momentum l%5-80 1980-85 l985-28) 1985 l990 2000 (millions) rate of I 1985 Low-income economies 2.3w 1.9w 1.9w 2,439 t 2,662 3,177 China and India 2.2w 1.6w 1.5w 1,805t 1,959t 2,270t Other low-income 2.7 w 2.7 w 2.7w 634 t 730 t 945 I Ethiopia 2.7 2.5 2.9 42 49 65 204 2040 1.9 2 Bangladesh 2.7 2.6 2.3 101 114 141 305 2030 1.9 3 BurkinaFaso 2.0 2.6 2.9 8 9 12 42 2040 1.9 4 Mali 2.6 2.3 2.7 8 9 11 36 2035 1.8 5 Bhutan 1.5 2.2 2.3 I 1 2 4 2035 1.7 6 Mozambique 2.5 2.6 3.1 14 16 21 68 2035 1.8 7 Nepal 2.4 2.4 2.7 17 19 24 73 2040 1.8 8 Malawi 2.9 3.1 3.3 7 8 II 38 2040 1.9 9 Zaire 2.8 3.0 3.0 31 36 47 130 2030 1.9 10 Burma 2.2 2.0 1.9 37 41 49 87 2020 1.7 II Burundi 1.9 2.7 3.1 5 5 7 24 2035 1.8 12 logo 3.0 3.3 3.2 3 4 5 15 2045 2.0 13 Madagascar 2.5 3.2 3.0 10 12 16 48 2035 1.9 14 Niger 2.7 3.0 3.2 6 7 10 36 2040 1.9 15 Benin 2.7 3.! 3.2 4 5 6 20 2035 2.0 16 Central African Rep. 1.8 2.5 2.9 3 3 4 12 2035 1.8 17 India 2.3 2.2 1.8 765 843 996 1,678 2010 1.7 18 Rwanda 3.3 3.2 3.7 6 7 10 40 2040 1.8 19 Somalia 3.3 2.9 3.1 5 6 8 30 2040 1.9 20 Kenya 3.9 4.! 4,0 20 25 36 121 2030 2.0 21 Tanzania 3.3 3.5 3.5 22 27 37 123 2035 1.9 22 Sudan 3.0 2.7 2.9 22 25 34 101 2035 1.8 23 China 2.2 1.2 1.3 1,040 1,116 1,274 1.683 2000 1.6 24 Haiti 2.0 1.8 1.9 6 7 8 16 2025 1.7 25 Guinea 1.9 2.4 1.9 6 7 8 21 2045 1.3 26 Sierra Leone 1.7 2.2 2.6 4 4 5 18 2045 1.8 27 Senegal 2.5 2.9 3.1 7 8 10 31 2035 1.9 28 Ghana 2.2 3.3 3.0 13 15 20 53 2030 1.9 29 Pakistan 3.1 3.1 2.7 96 112 146 395 2035 1.8 30 Sri Lanka 1.8 1.4 1.6 16 17 20 31 2005 1.7 31 Zambia 3.1 3.5 3.5 7 8 II 37 2035 2.0 32 Afghanistan 2.4 . . . . . . . . . . . . . 33 Chad 2.0 2.3 2.5 5 6 7 22 2040 1.8 34 Kannpuchea, Dem. 0.3 .. .. .. .. .. . 35 LI.I.OPDR 1.4 2.0 2.8 4 4 5 17 2040 1.8 36 Uganda 2.9 3.0 3.2 IS 17 23 74 2035 1.9 37 VietNam 2.6 2.4 62 70 88 167 2015 1.8 Middle-income economies 2.4w 2.3 w 2.1 w 1,242 t 1,365 1 1,663 Lower middle-income 2.5 w 2.5 w 2.3 w 675 t 761 t 947 38 Mauritania 2.2 2.1 2.8 2 2 3 8 2035 l.8 39 Bolivia 2.5 2.8 2.5 6 7 9 22 2030 1.8 40 Lesotho 2.3 2.7 2.7 2 2 2 6 2030 1.8 41 Liberia 3.0 3.4 3.2 2 3 4 II 2035 1.9 42 Indonesia 2.3 2.1 1.8 162 179 212 363 2010 1.8 43 Yemen, PDR 2.0 2.6 2.3 2 2 3 7 2035 1.9 44 Yemen, Arab Rep. 2.8 2.5 3.0 8 9 12 39 2040 1.9 45 Morocco 2.5 2.5 2.4 22 25 31 66 2025 l.8 46 Philippines 2.8 2.5 2.2 55 62 75 140 2015 1.8 47 Egypt, Arab Rep. 2.4 2.8 2.2 49 55 67 132 2020 1.8 48 Côted'Ivoire 5.0 3.8 3.1 10 12 16 42 2035 1.9 49 Papua New Guinea 2.4 2.6 2.2 4 4 5 II 2030 1.7 50 Zimbabwe 3.1 3.7 3.1 8 10 13 33 2025 2.0 51 Honduras 3.2 3.5 3.0 4 5 7 IS 2020 1.9 52 Nicaragua 3.1 3.4 2.9 3 4 5 12 2025 2.0 53 Dominican Rep. 2.7 2.4 2.0 6 7 9 15 2010 1.8 54 Nigeria 2.5 3.3 3.4 100 118 163 529 2035 1.9 55 Thailand 2.7 2.1 1.6 52 57 66 99 2000 1.7 56 Cameroon 2.7 3.2 3.4 10 12 17 51 2030 1.9 57 El Salvador 2.7 1.0 2.0 5 5 6 13 2015 1.7 58 Botswana 4.2 3.5 3.2 I 1 2 5 2025 2.0 59 Paraguay 2.9 3.3 2.5 4 4 5 10 2020 1.8 60 Jamaica 1.1 1.6 1.5 2 2 3 4 2005 1.7 6l Peru 2.7 2.3 2.0 19 21 25 45 2015 1.8 62 Turkey 2.4 2.5 1.9 50 56 67 III 2010 1.7 63 Mauritius 1.7 1.3 1.2 1 I 1 2 2000 1.7 64 Congo, People's Rep. 2.7 3.1 3.6 2 2 3 9 2025 1.9 65 Ecuador 3.1 2.9 2.5 9 II 14 26 2015 1.8 66 Tunisia 2.1 2.3 2.2 7 8 10 18 2015 1.8 67 Guatemala 2.8 2.9 2.5 8 9 12 26 2020 1.8 Note: For data comparability and coverage, see the technical notes. Figures in italics are for years other than those specified. 254 Hypothetical Assumed size of yearof Average annual growth of population Population stationary reaching net (percent) Population (millions) population reproduction momentum 1965-80 1980-85 l985-20 1985 l990 2000 (millions) rate of I 1985 68 CostaRica 2.8 2.7 1.9 3 3 3 5 2005 1.8 69 Colombia 2.2 1.9 1.7 28 31 37 59 2010 1.7 70 Chile 1.8 1.7 1.2 12 13 15 20 2000 1.6 71 Jordan 2.6 3.7 3.1 4 4 6 12 2020 1.9 72 SyrianArabRep. 3.4 3.6 3.1 Il 12 17 39 2020 1.9 73 Lebanon 1.6 . . . . . . . Upi eddIe-income 2.2w 2.0 w 1.8 w 567 604 t 716 74 Brazil 2.5 2.3 1.8 136 ISO 178 292 2010 1.7 75 Umguay 0.4 0.7 0.7 3 3 3 4 2000 1.3 76 Hungary 0.4 -0.1 -0.1 II II II 10 2020 1.1 77 Portugal 0.6 0.7 0.5 10 II II 12 2020 1.3 78 Malaysia 2.5 2.5 1.9 16 17 21 33 2005 1.8 79 South Africa 2.3 2.5 2.2 32 37 45 95 2025 1.8 80 Poland 0.8 0.9 0.6 37 38 4! 48 2020 1.3 81 Yugoslavia 0.9 0.7 0.5 23 24 25 26 2020 1.3 82 Mexico 3.2 2.6 2.2 79 89 110 197 2010 1.8 83 Panama 2.6 2.2 1.6 2 2 3 4 2000 1.8 84 Argentina 1.6 1.6 1.2 31 33 37 53 2010 1.5 85 Korea, Rep. of 1.9 1.5 1.2 41 44 49 65 2000 1.6 86 Algeria 3.0 3.3 2.9 22 26 34 81 2025 1.8 87 Venezuela 3.5 2.9 2.6 17 20 24 39 2005 1.8 88 Greece 0.7 0.6 0.3 10 10 10 II 2020 1.2 89 Israel 2.8 1.8 1.4 4 5 5 7 2005 1.6 90 TrinidadandTobago 1.3 1.6 1.5 I I I 2 2005 1.7 91 Hong Kong 2.2 1.4 1.0 5 6 6 7 2010 1.4 92 Oman 3.6 4.8 3.1 1 I 2 5 2030 1.9 93 Singapore 1.6 1.2 0.9 3 3 3 3 2010 1.4 94 Iran, Islamic Rep. 3.2 2.9 3.0 45 52 69 157 2020 1.8 95 Iraq 3.4 3.6 3.7 16 19 27 75 2025 1.9 96 Romania 1.1 0.5 0.6 23 23 25 28 2020 1.3 .:iflOmieS 2.3 w 2.0 Is' 1.9w 4.0271 4,840 ')rters 2.7 is' 2.7 is' 2.5 w "8 t 736 ters of manufactures 2.2w 1.6w 1.4w 2 t 2,624t Highly indebted countries 2.5 w 2.4 is' 2.2 w Sub-Saharan Africa 2.7w 3.3 is' 3.3w High-income oil exporters 5.2w 4.3w 3.7w 18t 22 t 311 97 Libya 4.5 3.9 3.8 4 5 7 8 2025 1.9 98 Saudi Arabia 4.6 4.2 3.8 12 14 20 61 2030 1.8 99 Kuwait 7.0 4.5 2.9 2 2 3 4 2010 1.8 100 UnitedArabEmirates 15.9 6.2 2.8 1 2 2 3 2010 1.4 Industrial market economies 0.9 w 0.6 w 0.4 w 737 1 755 1 781 1 101 Spain 1.0 0.7 0.6 39 40 42 46 2020 1.3 102 Ireland 1.4 0.9 0.8 4 4 4 5 2020 ' 1.4 103 Italy 0.6 0.3 0.1 57 57 58 50 2020 1.1 104 New Zealand 1.3 0.9 0.6 3 3 4 4 2020 1.3 105 Belgium 0.3 0.1 0.1 10 10 10 9 2020 I. 106 United Kingdom 0.2 0. I 0. I 57 57 57 55 2020 I. 107 Austria 0.3 0.0 0.1 8 8 8 8 2020 108 Netherlands 0.9 0.4 0.3 14 IS IS 14 2020 1.2 109 France 0.7 0.6 0.4 55 56 59 60 2020 1.2 110 Australia 1.8 1.4 0.9 16 17 18 20 2020 1.4 III Finland 0.3 0.5 0.3 5 5 5 5 2020 1.1 112 Germany, Fed. Rep. 0.3 -0.2 -0.2 61 60 59 44 2020 1.0 113 Denmark 0.5 0.! -0.1 5 5 5 4 2020 1.1 114 Japan 1.2 0.7 0.4 121 124 129 124 2020 115 Sweden 0.5 0.1 0.0 8 8 8 7 2020 1.0 116 Canada 1.3 1.1 0.7 25 27 28 29 2020 1.3 117 Norway 0.6 0.3 0.2 4 4 4 4 2020 1.2 118 Switzerland 0.5 0.2 0.1 6 6 7 6 2020 1.1 119 UnitedStateu 1.0 1.0 0.6 239 249 262 277 2020 1.3 Nonreporting nonmember economies 1.0w 0.9w 0.8w 363 t 379 t 409 120 Albania 2.5 2.1 1.8 3 3 4 6 2005 1.7 121 Angola 2.8 2.5 2.9 9 10 13 43 2040 1.9 122 Bulgaria 0.5 0.2 0.2 9 9 9 10 2020 1.1 123 Cuba 1.5 0.8 1.1 10 II 12 14 2010 1.5 124 Czechoslovakia 0.5 0.3 0.4 IS 16 16 18 2020 1.2 125 German Dem. Rep. -0.2 -0.1 0.0 17 17 17 16 2020 1.1 126 Korea,Dem. Rep. 2.7 2.5 2.0 20 23 28 46 2010 1.8 127 Mongolia 3.0 2.6 2.5 2 2 3 5 2020 1.8 128 USSR 0.9 0.9 0.7 277 289 308 384 2020 1.3 a. For the assumptions used in the pmjectionu, see the technical notes. 255 Table 28. Demography and fertifity Cnide birth Cnjde death Percentage change in: Percentage of rate per thousand rate per thousand Ce Crude Total married women of childbearing age birth death population population fertility rate using contraception rate rate 1965 1985 1965 1985 1965-85 1965-85 1985 20 1970 1984 Low-income economies 43w 29w 17w lOw -35.0w -41.8w 3.9w 3.2w China and India 42w 24w 16w 9w -43.3w -46.4w 3.2w 2.5w Other low-income 46w 43 w 21 w 15 w -8.3 w -28.6w 5.9w 4.7w IEthiopia 43 46 20 19 5.1 -4.0 6.2 5.5 . . 2 2 Bangladesh 47 40 21 15 -14.6 -29.0 5.7 3.7 . . 25 3 BurkinaFaso 46 49 24 21 5.6 -13.9 6.5 6.0 1 4 Mali 56 48 26 20 -14.6 -25.5 6.5 5.9 1 5 Bhutan 43 43 31 21 -0.7 -34.7 6.2 5.3 . 6 Mozambique 49 45 27 18 -6.8 -33.0 6.3 5.8 . 7 Nepal 46 43 24 18 -5.5 -25.3 6.3 5.4 7 8 Malawi 56 54 29 22 -4.3 -23.7 7.6 6.4 I 9 Zaire 47 45 21 15 -4.2 -28.3 6.1 5.0 . . 1 10 Burma 40 30 18 II -24.7 -40.1 3.9 3.0 . . 5 II Burundi 47 47 24 18 0.4 -24.0 6.5 5.9 . . 12 logo 50 49 22 16 -1.8 -26.3 6.5 5.4 13 Madagascar 44 47 21 15 7.1 -29.2 6.5 4.8 . 14 Niger 48 51 29 21 7.2 -26.5 7.0 6.4 . . IS Benin 49 49 24 17 0.4 -29.5 6.5 5.4 16 Central African Rep. 34 42 24 16 22.4 -32.8 5.6 5.5 . 17 India 45 33 20 12 -27.2 -41.0 4.5 3.0 12 35 18 Rwanda 52 52 17 19 1.0 8.1 8.0 6.7 1 19 Somalia 50 49 26 20 -1.4 -23.5 6.8 6.2 . . (.) 20 Kenya 51 54 21 13 4.7 -37.7 7.8 6.1 6 17 21 Tanzania 49 50 22 15 2.5 -30.3 7.0 5.8 1 22 Sudan 47 45 24 17 -3.8 -28.3 6.6 5.5 . . 5 23 China 39 18 13 7 -53.8 -61.1 2.3 2.1 69 24 Haiti 43 35 20 13 -16.3 -36.6 4.7 3.6 . . 7 25 Guinea 46 50 29 24 8.5 -17.2 6.0 5.6 . . I 26 Sierra Leone 48 48 33 25 0.8 -23.0 6.5 6.1 . . 4 27 Senegal 47 46 23 19 -1.5 -18.9 6.7 5.6 12 28 Ghana 49 46 20 14 -5.8 -29.0 6.4 4.5 . . 10 29 Pakistan 48 44 21 15 -12.5 -30.1 6.1 4.6 6 8 30 Sri Lanka 33 25 8 6 -21.7 -26.8 3.2 2.3 6 57 31 Zambia 49 49 20 15 -0.8 -26.5 6.8 5.6 . . I 32 Afghanistan 54 . . 29 . . . . . . . . . . 2 33 Chad 45 44 28 21 -4.0 -25.8 5.7 5.5 1 34 Kampuchea, Dem. 44 . . 20 . . . . . . 35 Lao PDR . . 42 . . 19 6.4 5.5 . 36 Uganda 49 50 19 17 3.0 -11.7 6.9 5.7 37 VietNam 44 34 17 8 -22.6 -54.2 4.6 3.1 Middle-income economies 40 w 32 w 15 w 10w -22.2 w -30.6 w 4.3 w 3.3 w Lower middle-income 44 w 36w 17 w 11 w -20.6 w -36.7 w 4.8 w 3.6 w 38 Mauritania 44 45 25 19 2.0 -25.1 6.3 5.9 1 39 Bolivia 46 42 21 IS -8.1 -29.9 5.9 4.2 . . 26 40 Lesotho 42 41 18 14 -2.4 -22.2 5.8 4.8 5 41 Libena 46 49 22 16 6.6 -25.0 6.9 5.7 . . 42 Indonesia 43 32 20 12 -24.4 -39.5 4.1 2.8 0 40 43 Yemen, PDR 50 46 26 19 -7.5 -29.4 6.0 4.4 44 Yemen, Arab Rep. 49 48 27 21 -1.4 -23.5 6.8 5.8 . . 45 Morocco 49 36 18 II -27.1 -41.5 4.9 3.6 I 27 46 Philippines 42 33 12 8 -21.3 -34.0 4.3 3.0 2 32 47 Egypt, Arab Rep. 43 36 19 10 -17.7 -47.2 4.7 3.3 10 32 48 Cole d'lvoire 44 45 22 14 2.0 -36.3 6.5 5.2 . . 3 49 Papua New Guinea 43 37 20 13 -13.3 -34.9 5.4 4.0 . . 4 50 Zimbabwe 55 47 17 12 -15.1 -31.6 6.2 4.2 . . 40 51 Honduras 50 42 17 9 -16.6 -45.8 6.0 3.8 . . 35 52 Nicaragua 49 43 16 10 -13.5 -34.2 5.6 3.9 . . 9 53 Dominican Rep. 46 32 14 7 -30.1 -48.6 4.0 2.7 . . 50 54 Nigeria 51 50 23 16 -3.3 -28.4 6.9 5.7 . . 5 55 Thailand 41 26 10 8 -37.4 -24.2 3.2 2.2 15 65 56 Cameroon 40 47 20 14 18.1 -29.5 6.8 5.6 3 57 El Salvador 46 38 13 10 -17.7 -23.1 5.2 3.3 48 58 Botswana 53 46 19 12 -14.2 -33.7 6.7 4.8 . . 29 59 Paraguay 41 35 8 7 -17.1 -13.8 4.4 3.0 39 60 Jamaica 38 25 8 6 -34.2 -32.5 2.8 2.2 52 61 Peru 45 33 16 II -26.1 -34.8 4.3 3.0 . . 43 62 Turkey 41 30 14 8 -26.7 -40.9 3.9 2.7 32 62 63 Mauritius 36 20 8 7 -44.4 -14.7 2.5 2.1 78 64 Congo, People's Rep. 42 45 18 12 7.7 32.0 6.3 5.7 65 Ecuador 45 35 13 7 -21.9 -48.5 4.7 3.1 . . 40 66 Tunisia 44 32 16 9 -27.0 -45.3 4.6 3.1 10 42 67 Guatemala 46 40 17 10 -13.1 -43.7 5.7 3.7 25 Note: For data comparability and coverage, see the technical notes. Figures in italics are for years other than those specified. 256 Crude birth Crude death Percentage change in: Percentage of rate per rate per Crude Crude martsed women of thousand thousand birth Total childbearing age death population population fertility rate using contraception rate rate 1965 1985 1965 1985 1965-85 1965-85 1985 2000 1970 1984 68 Costa Rica 45 29 8 4 -36.5 -47.4 3.3 2.3 . . 66 69 Colombia 45 27 14 7 -38.7 -48.5 3.3 2.5 34 55 70 Chile 32 22 II 7 -33.1 -38.0 2.5 2.1 . 43 71 Jordan . 39 17 7 . . -57.1 6.2 3.9 22 26 72 Syrian Arab Rep. 48 44 16 8 -7.2 -49.4 6.7 4.1 . . 30 73 Lebanon 40 . . 12 55 Upper middle rome 36w 28w 11 w 8w -24.0w -23.3w 3.7w 2.9w 74 Brazil 39 29 II 8 -24.3 -30.5 3.6 2.6 65 75 Umguay 21 19 10 10 -12.1 3.2 2.6 2.1 . 76 Hungary 13 12 II 14 -12.2 27.2 1.7 1.8 67 74 77 Portugal 23 14 10 9 -39.1 -13.5 2.0 1.9 . . 70 78 Malaysia 40 30 12 6 -26.2 -45.5 3.7 2.4 33 SI 79 South Africa 41 37 19 13 -9.9 -32.! 4.9 3.6 . 80 Poland 42 19 7 10 -54.8 28.4 2.3 2.1 60 75 81 Yugoslavia 2! 16 9 9 -23.8 (.) 2.1 2.1 59 55 82 Mexico 44 33 II 7 -26.0 -39.0 4.3 2.8 . . 48 83 Panama 40 26 9 5 -33.3 -41.4 3.2 2.2 . . 61 84 Argentina 22 23 9 9 7.8 (.) 3.3 2.5 . . 74 85 Korea, Rep. of 35 21 II 6 -40.0 -44,8 2.4 2.1 32 70 86 Algeria 50 41 18 10 -18.1 -45.1 6.3 4.2 7 87 Venezuela 42 31 8 5 -26.0 -37.0 3.9 2.4 - . 49 88 Greece 18 13 8 9 -27.8 12.5 2.0 1.9 89 Israel 26 23 6 7 -12.8 7.9 2.9 2.3 . 90 Trinidad and Tobago 33 25 7 7 -18.2 (.) 2.8 2.2 44 55 91 HongKong 27 14 6 5 -48.1 -16.7 1.8 2.0 50 72 92 Oman 50 44 24 13 -12.5 -45.8 6.7 4.6 . - 93 Singapore 31 17 6 5 -44.0 -16.7 1.7 1.9 45 74 94 iran, islamic Rep. 50 41 17 II -18.8 -35.2 5.6 4.3 3 23 95 iraq 49 44 18 8 -9.4 -55.5 6.7 5.2 14 96 Romania IS 14 9 10 -6.7 11.1 2.1 2.0 . . 58 Developing economies 42 w 30 w 16 w 10 w -30.8w -38.0w 4.0 w 3.2w Oil exporters 46 w 38 w 18 w 11w -17.7 w -38.6w 5.1 w 3.9w Exporters of manufactures 40 w 24 w 15w 9w -41.3 w -42.0w 3.1 w 2.5 w Highly indebted countries 41 w 34 w 14 w 9w -19.2 w -32.8w 4.4w 3.4w Sub-Saharan Africa 48 w 48 w 22 w 17w -0.4 w -24.8 w 6.7 w 5.6 w High-income oil exporters 48 w 41 w 18w 8w -12.7w -56.6w 6.9w 5.3w 97 Libya 49 45 17 10 -7.9 -45.4 7.2 5.5 98 Saudi Arabia 48 42 20 8 -12.4 -58.1 7.1 5.7 99 Kuwait 48 34 7 3 -28.5 -56.6 5.2 3.0 100 United Arab Emirates 41 30 14 4 -25.9 -74.8 5.9 3.7 Industrial market economies 20 w 13 w 9w 9w -33.8 w -7.0 w 1.8 w 1.9 w 101 Spain 2! 13 8 7 -38.1 -12.5 2.0 1.9 . . 51 102 Ireland 22 19 12 9 -13.6 -21.7 2.6 2.0 60 103 Italy 19 10 10 9 -47.4 -10.0 1.5 1.7 . . 78 104 NewZealand 23 16 9 8 -30.4 -4.6 2.1 2.0 . 105 Belgium 17 12 12 II -27.9 -7.4 1.6 1.7 . . 85 106 United Kingdom 18 13 12 12 -29.3 3.4 1.8 1.8 69 77 107 Austria 18 12 13 12 -31.8 -4.6 2.1 1.7 . 108 Netherlands 20 12 8 8 -40.2 (.) 1.5 1.7 . . 78 109 France 18 14 II tO -22.2 -9.1 2.0 2.1 64 79 110 Australia 20 15 9 7 -25.0 -22.2 2.0 2.1 67 Ill Finland 17 13 10 9 -22.8 -5.2 1.7 1.8 77 80 112 Germany, Fed. Rep. 18 10 12 II -45.2 -8.3 1.3 1.5 113 Denmark 18 10 10 II -42.2 11.9 1.4 1.6 67 114 Japan 19 13 7 6 -33.2 -14.3 1.8 1.9 56 57 115 Sweden 16 II 10 II -28.9 10.0 1.7 1.8 . . 78 116 Canada 23 15 8 7 -37.2 -12.5 1.7 1.8 . . 73 117 Norway 18 12 10 10 -31.5 (.) 1.7 1.8 . . 71 118 Switzerland 19 II 10 9 -40.3 -10.0 1.5 1.7 . . 70 119 UnitedStates 22 16 9 9 -27.3 -3.6 1.8 1.9 65 68 Nonreporting nonmember economies 20w 19w 8w 10w -3.4 w 25.1 w 2.5 w 2.3 w 120 Albania 35 27 9 6 -23.0 -34.8 3.4 2.4 . 121 Angola 49 48 29 22 -3.5 -25.7 6.4 5.9 1 122 Bulgaria 15 14 8 II -9.2 39.0 2.0 2.0 . . 76 123 Cuba 34 17 8 5 -50.0 -37.5 2.0 2.0 . . 60 124 Czechoslovakia 16 15 10 12 -10.4 18.0 2.1 2.0 95 125 GermanDem. Rep. 17 14 14 13 -17.0 -7.1 1.8 1.9 126 Korea, Dem. Rep. 39 30 12 6 -24.5 -47.4 3.8 2.7 127 Mongolia 42 35 12 8 -16.4 -34.6 4.9 3.4 128 USSR 18 19 7 10 1.1 37.0 2.3 2.2 a. Figures include women whose husbands practice contraception; see the technical notes. 257 Table 29. Life expectancy and related indicators Infant Life expectancy at birth (years) mortality rate Child death rate Male Female (aged under)) (aged -4) 1965 1985 1965 1985 965 985 1965 1985 Low-income economies 37 w 60 w 50w 61w 127 w 72 w 19 w 9w China and India 48 w 63 w 51w 64w 116w 58 w 16 w 6w Other low-income 44 w 51w 45w 53w 150 w 112 w 27 w 19 w 1Ethiopia 42 43 43 47 165 168 37 38 2 Bangladesh 45 50 44 51 153 123 24 18 3 BurkinaFaso 40 44 42 47 193 44 52 29 4 Mali 38 45 40 48 200 174 47 43 5 Bhutan 30 44 32 43 184 I33 30 20 6 Mozambique 36 45 39 48 171 123 31 22 7 Nepal 41 47 40 46 184 133 30 20 8 Malawi 37 44 40 46 199 56 55 35 9 Zaire 42 50 45 53 135 102 30 20 10 Burma 46 57 49 61 122 66 21 II Burundi 42 46 45 49 142 118 38 23 12 logo 40 49 44 52 153 97 36 12 13 Madagascar 41 51 45 54 109 18 21 14 Niger 35 42 38 45 180 140 46 28 IS Benin 4! 48 43 5! 166 115 52 19 16 Central Afncan Rep. 40 47 4! 50 167 137 47 27 17 India 46 57 44 56 151 89 23 II 18 Rwanda 47 46 5! 49 141 127 35 26 19 Somalia 37 44 40 48 165 152 37 33 20 Kenya 43 52 46 56 112 9! 25 16 2! Tanzania 4! 50 45 54 138 110 29 22 22 Sudan 39 47 41 50 160 112 37 18 23 China 54 68 55 70 90 35 II 2 24 Haiti 44 53 47 56 158 123 37 22 25 Guinea 34 39 36 4! 196 153 53 34 26 Sterra Leone 32 39 33 40 220 175 69 43 27 Senegal 40 45 42 48 171 137 42 27 28 Ghana 46 51 49 55 120 94 25 II 29 Pakistan 46 52 44 50 149 115 23 16 30 Sri Lanka 63 68 64 72 63 36 6 2 31 Zambia 43 50 46 54 12! 84 29 IS 32 Afghanistan 35 35 S S - 33 Chad 35 43 38 46 183 138 47 27 34 KampucheaDem. 43 46 134 20 - 35 Lao PDR S - 44 46 - 15! 34 23 36 Uganda 43 45 47 49 121 108 26 21 37 VietNam 48 63 51 67 49 8 4 Middle-income economies 53w 60w 56w 64w 104w 68w 17w 8w Lower middle-income 47w 56w 50w 60w 132w 82w 22w 11w 38 Mauritania 39 45 42 48 170 132 41 25 39 Bolivia 42 5! 47 54 160 117 37 20 40 Lesotho 47 53 50 56 142 106 20 14 41 Liberia 41 49 44 52 171 127 32 23 42 Indonesia 43 53 45 57 138 96 20 12 43 Yemen, PDR 38 45 39 47 194 145 52 30 44 Yemen, Arab Rep. 37 44 38 46 200 54 55 34 45 Morocco 48 57 51 61 145 90 32 10 46 Philippines 54 61 57 65 72 48 II 4 47 Egypt, Arab Rep. 48 59 50 63 172 93 21 II 48 Côtedlvoire 43 5! 45 55 174 105 37 15 49 Papua New Guinea 44 51 44 54 140 68 22 7 50 Zimbabwe 46 55 50 59 103 77 15 7 SI Honduras 48 60 52 64 128 76 24 7 52 Nicaragua 49 57 52 61 121 69 24 6 53 Dominican Rep. 53 63 56 66 102 70 14 6 54 Nigeria 40 48 43 52 177 109 33 2! 55 Thailand 54 62 58 66 88 43 II 3 56 Cameroon 44 53 47 57 143 89 34 10 57 El Salvador 53 60 56 67 120 65 20 5 58 Botswana 46 54 49 60 107 71 21 II 59 Paraguay 63 64 67 68 60 43 7 2 60 Jamaica 63 71 67 76 49 20 4 6! Peru 49 57 52 60 131 94 24 II 62 Turkey 52 62 55 67 152 84 35 63 Mauritius 59 62 63 69 65 25 9 I 64 Congo, People's Rep. 48 56 5! 59 118 77 19 7 65 Ecuador 55 64 57 68 112 67 2! 5 66 Tunisia 51 61 52 64 145 78 30 8 67 Guatemala 48 58 50 63 112 65 16 5 Note: For data comparability and coverage see the technical notes. Figures in italics are for years other than those specified. 258 Infant Life expectancy at birth (years) mortality rate Child death rate Male Female (aged under I) (aged 1-4) 1965 1985 1965 1985 1965 1985 1965 1985 68 Costa Rica 63 71 66 76 72 19 8 (.) 69 Colombia 54 63 59 67 96 48 8 3 70 Chile 57 67 62 74 107 22 14 71 Jordan 49 63 52 66 115 49 19 3 72 Syrian Arab Rep. 51 62 54 65 114 54 18 4 73 Lebanon 60 64 .. 56 4 Upper middle-income 58w 64w 62w 69w 84w 52w 11w 4w 74 Brazil 55 62 59 67 104 67 15 5 75 Umguay 65 70 72 75 47 29 3 1 76 Hungary 67 67 72 74 39 20 3 1 77 Portugal 63 7! 69 77 65 19 6 1 78 Malaysia 56 66 60 70 55 28 5 2 79 South Africa 45 53 48 57 124 78 22 7 80 Poland 66 67 72 76 42 19 3 1 81 Yugoslavia 64 69 68 75 72 27 7 2 82 Mexico 58 64 61 69 82 50 8 3 83 Panama 62 70 65 74 56 25 4 84 Argentina 63 67 69 74 58 34 4 I 85 Korea, Rep. of 55 65 58 72 63 27 6 2 86 Algeria 49 59 51 63 154 81 34 8 87 Venezuela 61 66 65 73 65 37 6 2 88 Greece 69 72 72 78 34 16 2 1 89 Israel 71 73 74 77 27 14 2 (.) 90 Trinidad and Tobago 63 67 67 72 42 22 3 91 Hong Kong 64 73 71 79 28 9 2 (.) 92 Oman 40 52 42 55 173 109 43 17 93 Singapore 64 70 68 75 26 9 1 (.) 94 Iran, IslamicRep. 52 60 52 60 157 Ill 32 17 95 Iraq 51 59 53 63 119 73 21 7 96 Rontania 66 69 70 74 44 24 3 Developing economies 49 w 60 w 52 w 62 w 118 w 71 w 18 w Oil exporters 47 w 56 w 50 w 60 w 140 w 88 w 22 v Exporters of manufactures 50 w 63 w 53 w 65 w 87 w 56 w Highly indebted countries 53 w 60 w 57w 65 w 107 w 66 w Sub-Saharan Africa 41 w 49 w 44 w 53w 167 w 104 w High-income oil exporters 48 w 61 w 51 w 65 w 115 w 61 w 33 w 5 is 97 Libya 48 59 51 62 138 90 29 10 98 Saudi Arabia 47 60 50 64 148 61 38 4 99 Kuwait 61 69 65 74 43 22 5 100 United Arab Emirates 56 68 59 73 100 35 14 Industrial market economies 68 w 73 w 74w 79 w 23 w 9 w 1w (.) w 101 Spain 68 74 73 80 38 10 3 (.) 102 Ireland 69 71 73 76 25 10 I (.) 103 Italy 68 74 73 79 36 12 3 (.) 104 NewZealand 68 71 74 77 20 II I (.) 105 Belgium 68 72 74 78 24 II I (.) 106 United Kingdom 68 72 74 77 20 9 I (.) 107 Austria 66 70 73 77 28 Il 2 (.) 108 Netherlands 71 73 76 80 14 8 I (.) 109 France 68 75 75 81 22 8 I (.) 110 Australia 68 75 74 80 19 9 1 (.) Ill Finland 66 72 73 79 17 6 1 (.) 112 Germany, Fed. Rep. 67 72 73 78 24 10 1 (.) 113 Denmark 71 72 75 78 19 7 I (.) 114 Japan 68 75 73 80 18 6 I (.) 115 Sweden 72 74 76 80 13 6 1 (.) 116 Canada 69 72 75 80 23 8 1 (.) 117 Norway 71 74 76 80 17 8 1 (.) 118 Switzerland 69 73 75 80 18 8 I (.) 119 United States 68 72 74 80 22 II I (.) Nonreporting nonmember economies 65w 65w 72w 72w 33w 32w 3w 4w 120 Albania 65 67 67 73 87 43 10 3 121 Angola 34 43 37 45 192 143 52 30 122 Bulgaria 66 68 73 74 31 16 2 I 123 Cuba 65 73 69 77 38 16 4 (.) 124 Czechoslovakia 64 66 73 74 26 IS I 125 German Dem. Rep. 67 68 74 75 25 10 I (.) 126 Korea,Dem. Rep. 55 65 58 71 63 27 6 2 127 Mongolia 55 61 58 65 88 49 10 4 128 USSR 66 65 74 74 28 29 2 (.) 259 Table 30. Health-related indicators Population per: Daily calorie supply Physician Nursing person per capita 1965 1981 1965 1981 1965 1985 Low-income economies 8,390w 5,770 w 4,880 w 3,880 w 2,046 w 2,339 w China and India 4,230 w 2,530 w 4,440 w 2,890 w 2,061 w 2,428 w Other low-income 26,110w 17,350w 7,350 w 7,620 w 1,997w 2,073 w I Ethiopia 70,190 88,120 5,970 5,000 1,832 1,681 2 Bangladesh 8,400 9,700 19,400 1,964 1,899 3 BurkinaFaso 74,100 55,860 4,170 3,070 2,009 1,924 4 Mali 49,200 26,450 3,200 2,320 1,860 1,788 5 Bhutan 18,200 7,960 2,904 2,571 6 Mozambique 17,990 37,000 5,370 5,610 1,982 1,678 7 Nepal 46,200 28,770 . . 33,430 1,931 2,034 8 Malawi 46,900 53,000 49,240 2,980 2,132 2,448 9 Zaire 35,100 . . . . . . 2,188 2,154 10 Burma 11,900 4,900 11,410 4,890 1,928 2,547 II Burundi 56,320 . . 7,310 . . 2,391 2.116 12 logo 23,200 21,200 4,990 1,640 2,378 2,236 13 Madagascar 10,540 9,940 3,620 1,090 2,486 2,469 14 Niger 65,460 . . 6,210 . . 1,996 2,250 15 Benin 32,390 17,000 2,540 1,660 2,008 2,173 16 Central African Rep. 34,250 22,430 3,000 2,120 2,130 2,050 17 India 4,880 3,700 6,500 4,670 2,100 2,189 18 Rwanda 72,330 32,100 7,450 10,260 1,665 1,919 19 Somalia 33,900 17,500 3,630 2,550 2,145 2,072 20 Kenya 12,820 10,140 1,860 990 2,287 2,151 21 Tanzania 21,700 . . 2,100 1,970 2,335 22 Sudan 23,500 9,800 3,360 1,440 1,874 1,737 23 China 3,780 1,730 3,040 1,670 2,034 2,602 24 Haiti 14,000 820 12,870 2,007 1,855 25 Guinea 54,610 4,750 1,899 1,728 26 Sierra Leone 17,700 19,300 4,700 2,110 1,836 1,817 27 Senegal 21,100 14,200 2,640 1,990 2,474 2,342 28 Ghana 13,670 7250 3,710 630 1,949 1,747 29 Pakistan . . 2,910 9,910 5,870 1,747 2,159 30 Sri Lanka 5,800 7,460 3,210 1,260 2,155 2,385 31 Zambia 11,400 7,800 5,820 1,660 2,073 2,137 32 Afghanistan 15,770 . . 24,450 . . 2,203 33 Chad 72,440 . . 13,620 2,393 1,504 34 Kampuchea, De,n. 22,400 . . 3,670 .. 2,276 35 L.aoPDR 26,500 . . 5,320 . . 1,958 2,228 36 Uganda 11,100 24,500 3,130 2,000 2,383 2,083 37 VietNam . . 4,310 1,040 2,031 2,240 Middle-income economies 11,240w 5,080w 3,300w 1,380w 2,357 w 2,731 w Lower middle-income 20,800 w 8,230 w 4,790w 1,810w 2,115 w 2,514 w 38 Mauritania 36,890 . 2,070 2,078 39 Bolivia 3,300 2,000 3,990 1,868 2,146 40 Lesotho 19,880 . . 4,700 2,065 2,358 41 Liberia 12,400 9,400 2,300 2,940 2,155 2,311 42 Indonesia 31,740 12,300 9,500 1,792 2,533 43 Yemen, PDR 12,870 7,120 1,850 820 1,999 2,337 44 Yemen, Arab Rep. 58,200 7,100 . . 3,440 2,002 2,250 45 Morocco 12,120 18,600 2,290 900 2,182 2,678 46 Philippines . . 6,710 1,130 2,590 1,936 2,341 47 Egypt, Arab Rep. 2,300 760 2,030 790 2,435 3,263 48 Côte d'lvoire 19,080 . . 1,850 . . 2,357 2,505 49 Papua New Guinea 12,600 16,070 620 960 1,908 2,181 50 Zimbabwe 8,000 7,100 990 1,000 2,089 2,054 SI Honduras 5,400 3,120 1,540 . . 1,963 2,211 52 Nicaragua 2,560 2,230 1,390 590 2,398 2,425 53 Dominican Rep. 1,700 1,400 1,640 1,240 1,870 2,461 54 Nigeria 44,230 12,000 5,780 2,420 2,185 2,038 55 Thailand 7,230 6,870 5,020 2,140 2,200 2,462 56 Cameroon 26,680 . . 1,970 2,043 2,089 57 El Salvador 2,720 1,300 . . 1,859 2,148 58 Botswana 24,300 7,380 16,210 700 2,015 2,219 59 Paraguay 1.850 1,750 1,550 650 2,627 2,796 60 Jamaica 1,980 2,700 340 2,232 2,585 61 Peru 1,620 . . 880 . 2,324 2,171 62 Turkey 2,900 1,530 2,290 1,240 2,636 3,167 63 Mauritius 3,860 1,800 1,990 570 2,272 2,740 64 Congo, People's Rep. 14,210 950 2,255 2,549 65 Ecuador 3,000 . . 2,320 . . 1,942 2,054 66 Tunisia 8,000 3,900 1,150 950 2,296 2,836 67 Guatemala 3,690 . . 8,250 1,360 2,028 2,294 Note: For data comparability and coverage, see the technical notes. Figures in italics are for yeam other than those specified. 260 Population per: Daily calorie sapply Physician Nursing person per capita 1965 1981 1965 1981 1965 1985 Ott LOSt Kica 2,tX)IJ 630 2,366 2,803 69 Colombia 2,500 . . 890 2,174 2,574 70 Chile 2,100 . . 600 . . 2,591 2,602 71 Jordan 4,700 1,200 1,810 1,170 2,282 2,947 72 Syrian Arab Rep. 5,400 2,240 11,764) 1,370 2,144 3,168 73 Lebanon 1,240 640 2,500 . Upper middle-income 2,170w 1,340w 1,690w 900w 2,622w 2,987w 74 Brazil 2,500 1,300 1,550 1,140 2,405 2,633 75 Uruguay 880 500 590 . . 2,811 2,695 76 Hungary 630 300 240 140 3,186 3,482 77 Portugal 1,240 500 1,160 . . 2,531 3,161 78 Malaysia 6,220 3,920 1,320 1,390 2,249 2,684 79 South Africa 2,100 . . 500 2,643 2,979 80 Poland 800 550 410 3,238 3,280 81 Yugoslavia 1,200 700 850 300 3,287 3,602 82 Mexico 2,020 1,200 950 2,643 3,177 83 Panama 2,130 1,010 680 2,255 2,419 84 Argentina 600 6l0 3,209 3,22! 85 Korea, Rep. of 2,700 1,390 2,990 350 2,255 2,841 86 Algeria 8,590 11,770 1,682 2,677 87 Venezuela 1,210 1,000 560 2,32! 2,583 88 Greece 710 400 600 370 3,086 3,721 89 Israel 400 400 300 130 2,795 3,060 90 Trinidad and Tobago 3,820 1,500 560 390 2,497 3,006 91 HongKong 2,460 1,300 1,220 800 2,502 2,698 92 Oman 23,790 1,410 6,380 440 . 93 Singapore 1,900 1,1(X) 600 340 2,214 2,771 94 Iran,Islamic Rep. 3,800 2,900 4,170 1,160 2,140 3,122 95 Iraq 5,000 2,000 2,910 2,250 2,138 2,926 96 Romania 760 700 400 280 2,994 3,385 Developing economies 9,310w 5,560w 4,320w 3,300 w 2,150w 2,470 w Oil exporters 21,250 w 7,370 w 5,830 w 1,720w 2,113 w 2,671 w Exporters of manufactures 3,870 w 2,330 w 3,980w 2,650 w 2,155w 2,499w Highly indebted countries 10,710 w 5,020w 2,010w 1,670w 2,424w 2,613 w Sub-Saharan Africa 36,570w 26,760 w 5,340w 2,570 w 2,094 w 2,024 w High-income oil exporters 7,530w 1,380w 4,440 w 620 w 1,969w 3,265 w 97 Libya 3,950 620 850 360 1,923 3,612 98 Saudi Arabia 9,400 1,800 6,060 730 1,866 3,128 99 Kuwait 800 700 270 180 2,963 3,138 100 United Arab Emirates . . 720 390 2,672 3,625 Industrial market economies 860w 530w 460w 180w 3,114w 3,417w 101 Spain 800 360 1,220 280 2,844 3,358 102 Ireland 950 780 170 120 3,530 3,831 103 Italy 1,850 750 790 250 3,113 3,538 104 New Zealand 820 610 980 110 3,311 3,386 105 Belgium 700 370 590 130 . . 3,679 106 United Kingdom 870 680 200 120 3,346 3,131 107 Austria 720 440 350 170 3,303 3.514 108 Netherlands 860 480 270 . . 3,149 3,343 109 France 830 460 . . 110 3,303 3,359 lit) Australia 720 500 110 100 3,174 3,389 III Finland 1,300 460 180 00 3,119 3,026 112 Germany, Fed. Rep. 640 420 500 170 3,143 3,474 113 Denmark 740 420 190 140 3,417 3,547 114 Japan 970 740 410 210 2,669 2,856 115 Sweden 910 410 310 100 2,922 3,097 116 Canada 770 550 190 120 3.289 3,432 117 Norway 790 460 340 70 3,047 3,239 118 Switzerland 710 390 270 130 3,413 3,432 119 United States 670 500 310 180 3,292 3,663 Nonreporting nonmember economies 760w 330w 640w 3,152 w 3,389 ii 120 Albania 2,100 550 . . 2,398 2,726 121 Angola 13,140 . . 3,820 . . 1,912 1,969 122 Bulgaria 600 400 410 190 3,434 3,663 123 Cuba 1,150 720 820 . . 2,371 3,122 124 Czechoslovakia 540 350 200 130 3,406 3,465 125 German De,,a. Rep. 870 490 . . . . 3,222 3,79! 126 Korea,Dem. Rep. . . . . . . . . 2,255 3,151 127 Mongolia 710 400 310 240 2,594 2,807 128 USSR 480 270 280 3,23! 3,440 261 Table 31. Education Number enrolled in school as percentage of age group Total F- Female Total Secondary Male Female Higher edacation Total Male 1965 1984 1965 1984 1965 1984 1965 1984 1965 1984 1965 1984 1965 1984 Low-income economies 74w 97w 76w 109w 46w 84w 21w 32w 29w 41w lOw 25w 4w 4w China and India 83 w 106w 119w 93 w 25 w 36w 41w 43w 13w 28w 5w 4w Other low-income 44w 70w 58w 77w 31w 59w 9w 23w 13w 27w 4w 15w 1w 3w 1 Ethiopia 11 32 16 6 2 12 . 3 14 1 8 (.) (.) 2 Bangladesh 49 62 67 67 3! 55 13 19 23 26 3 11 I 5 3 BurkinaFaso 12 29 16 37 8 22 1 4 2 6 1 3 (.) I 4 Mali 24 . . 32 . . 16 . . 4 . .. 5 . . 2 . (.) I 5 Bhutan 7 25 13 32 1 17 (.) 4 I 6 (.) I (.) (.) 6 Mozambique 37 83 48 94 26 71 3 6 3 8 2 4 (.) (.) 7 Nepal 20 77 36 104 4 47 5 23 9 35 2 11 I 5 8 Malawi 44 62 55 71 32 53 2 4 3 6 I 2 (.) 1 9 Zaire 70 98 95 112 45 84 5 57 8 81 2 33 (.) I 10 Burma 71 102 76 65 . . IS 24 20 II . . 1 5 II Burundi 26 49 36 58 15 40 1 4 2 5 1 3 (.) I 12 Togo 55 97 78 118 32 75 5 21 8 32 2 10 (.) 2 13 Madagascar 65 121 70 125 59 118 8 36 10 43 5 30 1 5 14 Niger II 28 15 34 7 19 I 7 I . . (.) . . . . 15 Benin 34 64 48 86 21 42 3 19 5 28 2 II (.) 2 16 Central African Rep. 56 77 84 98 28 51 2 16 4 . . I . . . . 17 India 74 90 89 105 57 73 27 34 4! 44 13 23 5 9 18 Rwanda 53 62 64 64 43 60 2 2 3 3 1 1 (.) (.) 19 Somalia 10 25 16 32 4 18 2 17 4 23 I 12 .) I 20 Kenya 54 97 69 101 40 94 4 19 6 22 2 16 (.) I 21 Tanzania 32 87 40 91 25 84 2 3 3 4 I 2 (.) (.) 22 Sudan 29 49 37 57 21 41 4 19 6 23 2 16 I 2 23 China 89 118 . . 129 . . 107 24 37 . . 43 .. 31 (.) I 24 Haiti 50 76 56 81 44 72 5 16 6 16 3 16 (.) 1 25 Guinea 31 32 44 44 19 20 5 13 9 20 2 7 (.) 2 26 Sierra Leone 29 45 37 . . 21 . . 5 14 8 . . 3 . . (.) I 27 Senegal 40 55 52 66 29 44 7 13 10 17 3 8 1 2 28 Ghana 69 67 82 75 57 59 13 36 19 45 7 27 1 2 29 Pakistan 40 42 59 54 20 29 12 15 18 . . 5 . . 2 2 30 Sri Lanka 93 103 98 105 86 101 35 61 34 58 35 64 2 4 31 Zambia 53 100 59 105 46 95 7 17 Il 22 3 12 2 32 Afghanistan 16 . . 26 . . 5 . . 2 . . 4 . . I (.) 33 Chad 34 38 56 55 13 21 1 6 3 II (.) 2 (.) 34 Kampuchea, Dem. 77 . . 98 . . 56 . . 9 . . 14 . . 4 35 LaO PDR 40 90 50 103 30 77 2 19 2 22 1 15 (.) 36 Uganda 67 57 83 65 50 49 4 8 6 2 (.) I 37 VietNam 113 . . 120 . . 105 48 Middle-income economies 85 w 104 w 92 w 109 w 79 w 99w 22 47 w 25 w 56 w 19w 49w 6w 13 w Lower middle-income 75 w 103 w 83 w 110 w 66 a' 97 w 16 w 40 w 20 w 48 w 12 w 39 w 5w 12 w 38 Mauritania 13 37 19 45 6 29 I 12 2 . . (.) . 39 Bolivia 73 91 86 96 60 85 18 37 21 40 15 34 5 16 40 Lesotho 94 111 74 97 114 126 4 21 4 17 4 26 (.) 2 41 Liberia 41 76 59 95 23 57 5 23 8 . . 3 . . I 2 42 Indonesia 72 118 79 121 65 116 12 39 18 45 7 34 I 7 43 Yemen, PDR 23 66 35 96 10 35 II 19 17 26 5 11 44 Yemen, Arab Rep. 9 67 16 112 I 22 (.) 10 . . 17 . . 3 S 45 Morocco 57 80 78 97 35 62 II 3! 16 37 5 25 I 8 46 Philippines 113 107 115 106 III 107 41 68 42 65 40 71 19 29 47 Egypt, Arab Rep. 75 84 90 94 60 72 26 58 37 70 15 46 7 21 48 Côted'lvoire 60 77 80 91 41 63 6 20 10 28 2 12 (.) 2 49 Papua New Guinea 44 61 53 68 35 55 4 11 6 . . 2 .. . . 2 50 Zimbabwe 110 131 128 135 92 127 6 39 8 46 5 31 (.) 3 51 Honduras 80 102 81 102 79 101 10 33 II 31 9 36 I 9 52 Nicaragua 69 99 68 1(X) 69 106 14 43 IS 39 13 48 2 Il 53 Dominican Rep. 87 112 87 107 87 /17 12 45 II 12 . . 2 10 54 Nigeria 32 92 39 103 24 8/ 5 29 7 3 . . (.) 3 55 Thailand 78 97 82 . . 74 . . 14 30 16 . . II . . 2 23 56 Cameroon 94 107 114 116 75 97 5 23 8 29 2 18 (.) 2 57 El Salvador 82 70 85 69 79 70 17 24 18 23 17 26 2 12 58 Botswana 65 97 59 91 71 103 3 25 5 23 3 27 . . 2 59 Paraguay 102 101 109 107 96 99 13 31 13 .. 13 .. 4 10 60 Jamaica 109 106 112 106 106 107 51 58 53 56 50 60 3 6 61 Peru 99 116 108 120 90 112 25 61 29 . . 21 . . 8 22 62 Turkey 101 113 118 116 83 109 16 38 22 47 9 28 4 9 63 Mauritius 101 106 105 105 97 106 26 51 34 54 IS 48 3 I 64 Congo, People's Rep. 114 . . 134 . . 94 . . 10 . . IS . . 5 . . I 6 65 Ecuador 91 114 94 117 88 117 17 55 19 51 16 53 3 33 66 Tunisia 91 116 116 127 65 105 16 32 23 37 9 26 2 6 67 Guatemala 50 76 55 80 45 69 8 17 10 17 7 16 2 7 Note: For data comparability and coverage; see the technical notes. Figures in italics refer to years other than those specified. 262 Number enrolled in school as percentage of age group Primaiy Secondaiy Higher education Total Male Female Total Male Female Total 1965 1984 1965 1984 1965 1984 1965 1984 1965 1984 1965 1984 1965 1984 68 CostaRica 106 101 107 102 105 100 24 42 23 40 25 45 6 22 69 Colombia 84 119 83 119 86 119 17 49 18 48 16 49 3 13 70 Chile 124 107 125 108 122 106 34 66 31 63 36 69 6 15 71 Jordan 95 99 lOS 98 83 99 38 79 52 80 23 78 2 37 72 SyrianArab Rep. 78 107 103 115 52 98 28 59 43 70 13 47 8 16 73 Lebanon 106 118 93 26 14 Upper middle-income 96 w 105 w 100 w 108 w 92 w 101 w 29 w 56w 31 w 64w 26w 61 w 7w 15 w 74 Brazil 108 103 109 108 108 99 16 35 16 16 2 11 75 Unaguay 106 109 106 110 106 107 44 67 42 46 8 26 76 Hungaty 101 99 102 98 100 99 73 73 73 13 15 77 Portugal 84 120 84 120 83 119 42 47 49 43 34 51 5 12 78 Malaysia 90 97 96 98 84 97 28 53 34 53 22 53 2 6 79 South Africa 90 . . 91 . 88 . . 15 . 16 . . 14 . . 4 80 Poland 104 101 106 102 102 100 58 77 52 75 64 80 18 16 81 Yugoslavia 106 98 108 98 103 98 65 82 70 84 59 80 13 20 82 Mexico 92 116 94 118 90 115 17 55 21 56 13 53 4 15 83 Panama 102 105 104 107 99 102 34 59 32 56 36 63 7 25 84 Argentina 101 107 101 107 102 107 28 65 26 62 31 69 14 29 85 Korea, Rep. of 101 99 103 99 99 99 35 91 44 94 25 88 6 26 86 Algeria 68 94 81 106 53 83 7 47 10 54 5 39 1 6 87 Venezuela 94 109 93 109 94 108 27 45 27 40 28 49 7 23 88 Greece 110 105 III 105 109 105 49 82 57 41 10 17 89 Israel 95 98 95 97 95 99 48 74 46 70 51 78 20 34 90 Trinidad and Tobago 93 96 97 94 90 98 36 76 39 75 34 78 2 4 91 Hong Kong 103 105 106 106 99 104 29 69 32 66 25 72 5 13 92 Oman . . 83 . . 93 . . 72 . . 30 . . 40 . . 19 . 93 Singapore lOS 115 110 118 100 113 45 71 49 70 41 73 10 12 94 Iran, Islamic Rep. 63 107 85 117 40 95 18 43 24 51 II 35 2 4 95 Iraq 74 104 102 111 45 98 28 53 42 67 14 37 4 10 96 Romania 101 98 102 99 tOO 98 39 73 44 72 32 74 10 12 Developing economies 78 w 99 w 84 w 109 w 62 w 90 w 22 w 38 w 28 w 45 w 14 w 32 w 5w 7w Oil exporters 72 w 93 w 85 w 106 w 56 w 79 w 12w 37 w 35 w 47 w 12w 28 w 5w 10 w Exporters of manufactures 86 w 106 w 94 w 117w 71w 94 w 9w 39 w 40 w 46 w 18w 32 w 6w 6w Highly indebted countries 88 w 104 w 91 w 108 w 84 w 99 w 20 w 47 w 23 w 56 w 20 w 56 w 7w 14w Sub-Saharan Africa 41w 77 w 52 w 87 w 30 w 68 w 2w 21 w 6w 27 w 3w 14 w 1w 2w High-income oil exporters 43 w 75 w 60 w 82 w 25 w 67 w 10 w 45 w 14 w 52 w 5w 38 w 1w 10 w 97 Libya 78 . . Ill . . 44 . . 14 . . 24 . . 4 . . 1 11 98 Saudi Arabia 24 68 36 77 11 58 4 38 7 47 1 29 1 10 99 Kuwait 116 103 129 105 103 102 52 82 59 85 43 79 . . 16 100 United Arab Emirates 97 97 97 58 52 65 (.) 8 Industrial market economies 107 w 102 w 107 w 102 w 106w 101 w 63 w 90w 64w 89w 60 w 91 w 21 w 38 w 101 Spain 115 108 117 108 114 107 38 89 46 88 29 91 6 26 102 Ireland 108 97 107 97 108 97 51 93 53 . . 50 . . 12 22 103 Italy 112 99 113 99 110 99 47 74 53 74 41 73 II 26 104 New Zealand 106 106 107 107 104 105 75 85 76 84 74 86 15 29 105 Belgium 109 98 110 98 108 99 75 91 . . . 15 31 106 United Kingdom 92 101 92 101 92 101 66 83 67 . . 66 . . 12 20 107 Austria 106 97 106 97 105 97 52 76 52 73 52 79 9 26 108 Netherlands 104 95 104 94 104 96 61 102 64 103 57 100 17 31 109 France 134 108 135 109 133 107 56 90 53 84 59 96 18 27 110 Australia 99 107 99 107 99 106 62 94 63 92 61 95 16 27 Ill Finland 92 103 95 104 89 103 76 101 72 94 80 109 II 31 112 Germany, Fed. Rep. . . 99 . . 100 . . 99 . . 74 . . 72 . . 76 9 29 113 Denmark 98 101 97 101 99 101 83 104 98 105 67 104 14 29 114 Japan 100 100 100 100 100 101 82 95 82 94 81 94 13 30 115 Sweden 95 98 94 98 96 98 62 83 63 79 60 88 13 38 116 Canada 105 106 106 107 104 105 56 102 57 102 55 102 26 44 117 Norway 97 97 97 98 98 98 64 96 66 62 II 29 118 Switzerland 87 . . 87 . . 87 . . 37 . . 38 . . 35 . . 8 21 119 United States 101 102 100 95 95 95 40 57 Nonreporting nonmember economies 102 w 105 w 103 w 104 w 102 w 100 w 66 w 93 w 61 w 60 w 73 w 71 w 14 w 21 w 120 Albania 92 98 97 100 87 96 33 63 40 67 26 58 8 7 121 Angola 39 134 53 146 26 121 5 12 . . . . . . . . (.) 2 122 Bulgaria 103 102 104 102 102 101 54 90 54 90 55 91 17 17 123 Cuba 121 106 123 110 119 102 23 75 23 71 24 79 3 20 124 Czechoslovakia 99 87 100 87 97 88 29 42 23 31 35 54 14 16 125 GermanDem. Rep. 109 98 107 97 Ill 98 60 87 62 57 19 30 126 Korea, Dem. Rep. . . . . . . . . . . . . . . . . . . . . . . . . . 127 Mongolia 98 105 98 104 97 lOb 66 88 65 84 66 92 8 26 128 USSR 103 106 103 . . 103 . . 72 100 65 . . 79 . . 21 263 Table 32. Labor force Percentage of population of Percentage of labor force in: wotting age Average annual growth (15-64 years) Agriculture Industry Services of labor force (percent) 1965 1985 1965 1980 1965 1980 965 1980 1965-80 1980-85 l985-2t0 Low-income economies 54w 59w 77 w 72w 9 ss 13 w 14 w 15 w 2.1 w 2.3 w 1.9w China and India 55 w 61 w 77 w 72w 9w 14w 14w 14w 2.1 w 2.3 w 1.6w Other low-income 52 w 52 w 79 w 71 w 8w 10 w 13 w 19w 2.2 w 2.5 w 2.6 w I Ethiopia 52 51 86 80 5 8 9 12 2.1 1.7 2.2 2 Bangladesh 51 53 84 75 5 6 II 19 1.9 2.8 3.0 3 Burkina Faso 48 44 89 87 3 4 7 9 1.6 1.9 2.2 4 Mali 53 50 90 86 I 2 8 13 1.7 2.5 2.7 5 Bhulan 55 55 95 92 2 3 4 5 1.8 1.9 1.9 6 Mozambique 55 51 87 85 6 7 7 8 3.2 . 7 Nepal 56 54 94 93 2 I 4 7 1.6 2.3 2.3 8 Malawi 51 47 92 83 3 7 5 9 2.2 2.6 2.6 9 Zaire 52 51 82 72 9 13 9 16 1.7 2.3 2.5 10 Burma 57 54 64 53 14 19 23 28 2.2 1.9 1.8 II Bunjndi 53 52 94 93 2 2 4 5 1.2 2.0 2.4 12 logo 52 50 78 73 9 10 13 17 2.7 2.3 2.5 13 Madagascar 54 51 85 81 4 6 II 13 2.1 1.9 2.3 14 Niger SI 51 95 91 I 2 4 7 1.8 2.3 2.6 IS Benin 52 49 83 70 5 7 12 23 1.9 2.0 2.5 16 Central African Rep. 57 55 88 72 3 6 9 21 1.2 1.3 1.8 17 India 54 56 73 70 12 13 15 17 1.7 2.0 1.8 18 Rwanda 51 49 94 93 2 3 3 4 2.9 2.8 2.9 19 Somalia 49 53 81 76 6 8 13 16 3.1 2.0 1.7 20 Kenya 48 45 86 81 5 7 9 12 3.6 3.5 3.7 21 Tanzania 53 50 92 86 3 5 6 10 2.8 2.8 3.0 22 Sudan 53 52 82 71 5 8 14 21 2.4 2.8 3.1 23 China 55 65 81 74 8 14 II 12 2.4 2.5 1.4 24 Haiti 52 51 77 70 7 8 16 22 1.0 2.0 2.2 25 Guinea 55 52 87 81 6 9 7 10 1.7 1.6 1.8 26 Sierra Leone 54 55 78 70 II 14 II 16 0.9 1.1 1.4 27 Senegal 53 52 83 81 6 6 II 13 3.1 1.9 2.1 28 Ghana 52 48 61 56 15 18 24 26 1.9 2.7 2.9 29 Pakistan 50 53 60 55 18 16 22 30 2.6 3.2 2.8 30 Sn Lanka 54 62 56 53 14 14 30 33 2.2 1.6 1.6 31 Zambia 51 48 79 73 8 10 13 17 2.7 3.2 3.5 32 Afghanistan 55 . 69 . . II . . 20 . . 1.7 . 33 Chad 55 55 92 83 3 5 5 12 1.6 1.8 2.1 34 Kampuchea,Dem. 52 . . 80 . . 4 . . 16 . . 1.2 . 35 Lao PDR 56 53 81 76 5 7 IS 17 1.6 1.8 2.2 36 Uganda 52 52 91 86 3 4 6 10 3.0 2.7 3.0 37 VietNam 55 79 68 6 12 15 21 1.8 . Middle-income economies 54w 57w 56w 43w 17w 23w 27w 34w 2.5w 2.5w 2.4w Lower middle-income 52w 55w 65w 55w 12w 16w 23 w 29w 2.4w 2.6w 2.5 w 38 Mauritania 52 53 89 69 3 9 8 22 1.8 2.7 3.! 39 Bolivia 53 53 54 46 20 20 26 34 2.0 2.7 2.7 40 Lesotho 56 52 92 86 3 4 6 10 1.8 2.0 2.1 41 Liberia 51 52 79 74 10 9 II 16 2.6 2.2 2.7 42 Indonesia 53 56 71 57 9 13 21 30 2.1 2.4 2.2 43 Yemen, PDR 52 51 54 41 12 18 33 41 1.6 2.8 3.1 44 Yemen, Arab Rep. 54 51 79 69 7 9 14 22 0.7 2.6 3.4 45 Morocco 50 52 61 46 15 25 24 29 2.9 3.3 3.1 46 Philippines 52 56 58 52 16 16 26 33 2.5 2.5 2.4 47 Egypt, Arab Rep. 54 55 55 46 15 20 30 34 2.2 2.6 2.7 48 Côted'Ivoire 54 54 81 65 5 8 IS 27 2.7 2.7 2.6 49 Papua New Guinea 55 54 87 76 6 10 7 14 1.9 2.2 2.0 50 Zimbabwe 5! 45 79 73 8 II 13 17 3.0 2.7 3.0 SI Honduras 50 50 68 61 12 16 20 23 2.8 3.9 3.9 52 Nicaragua 48 50 57 47 16 16 28 38 2.9 3.8 3.9 53 Dominican Rep. 47 53 59 46 14 IS 27 39 2.8 3.5 2.9 54 Nigeria SI 49 72 68 10 12 18 20 3.0 2.6 2.9 55 Thailand SI 59 82 71 5 10 13 19 2.8 2.5 1.7 56 Cameroon 55 50 86 70 4 8 9 22 1.7 1.8 2.2 57 El Salvador 50 60 59 43 16 19 26 37 3.3 2.9 3.3 58 Botswana 50 48 89 70 4 13 8 17 2.4 3.5 3.4 59 Paraguay 49 51 55 49 20 21 26 31 3.2 3.1 2.8 60 Jamaica 51 56 37 31 20 16 43 52 2.0 2.9 2.4 6! Peru 51 56 50 40 19 18 32 42 2.9 2.9 2.8 62 Turkey 53 57 75 58 II Il 14 25 1.7 2.3 2.0 63 Mauntius 52 63 37 28 25 24 38 48 2.6 3.3 2.1 64 Congo, People's Rep. 55 51 66 62 II 12 23 26 2.0 1.8 2.2 65 Ecuador 50 53 55 39 19 20 26 42 2.7 3.1 2.9 66 Tunisia 50 56 49 35 21 36 29 29 2.8 3.1 2.8 67 Guatemala 50 53 64 57 IS 17 21 26 2.3 2.8 3.3 Note: For data comparability and coverage. see the technical notes. Figures in italics are for years other than those specified. 264 Percentage of population of Percentage of labor force rn working age Aveesge annual growth (15-64 years) Agricultuix Industry Services of labor force (percent) 1965 1985 1965 1980 1965 1980 1965 1980 1965-80 1980-85 1985-2000 68 CostaKica 49 59 47 31 19 23 34 46 3.8 3.1 2.4 69 Colombia 49 59 45 34 21 24 34 42 2.6 2.8 2.3 70 Chile 56 63 27 17 29 25 44 58 2.2 2.6 1.7 71 Jotian 27 49 37 10 26 26 37 64 1.7 4.4 4.2 72 Syrian Arab Rep. 46 48 52 32 20 32 28 36 3.3 3.5 4.0 73 Lebanon 51 29 24 47 1.7 Upper middle-income 56 w 59 w 45 w 29 w 23 w 31 w 32 w 40w 2.6 w 2.3 w 2.3 w 74 Brazil 53 59 49 31 20 27 31 42 3.3 2.3 2.1 75 Umguay 63 63 20 16 29 29 51 55 0.4 0.6 0.9 76 Hungary 66 66 32 18 40 44 29 38 0.1 0.0 0.3 77 Portugal 62 64 38 26 30 37 32 38 1.2 1.0 0.8 78 Malaysia 50 59 59 42 13 19 29 39 3.4 2.9 2.6 79 South Africa 54 55 32 17 30 35 39 49 1.8 2.8 2.8 80 Poland 62 66 44 29 32 39 25 33 1.1 0.7 0.7 81 Yugoslavia 63 68 57 32 26 33 17 34 0.9 1.0 0.7 82 Mexico 49 54 50 37 22 29 29 35 3.9 3.2 3.0 83 Panama 51 58 46 32 16 18 38 50 2.7 3.0 2.6 84 Argentina 63 60 18 13 34 34 48 53 1.1 1.1 1.5 85 Korea, Rep. of 53 64 55 36 IS 27 30 37 2.8 2.7 1.9 86 Algeria 50 49 57 31 17 27 26 42 2.2 3.6 3.7 87 Venezuela 49 56 30 16 24 28 47 56 4.2 3.5 3.0 88 Greece 65 65 47 31 24 29 29 40 0.5 0.6 0.3 89 Israel 59 60 12 6 35 32 53 62 3.0 2.2 2.1 90 Trinidad and Tobago 53 61 20 10 35 39 45 51 1.9 2.5 2.1 91 HongKong 56 68 6 2 53 51 41 47 3.9 2.5 1.4 92 Oman 53 50 62 50 15 22 23 28 3.8 5.2 2.7 93 Singapore 53 67 6 2 27 38 68 61 4.2 1.9 0.8 94 Iran, Islamic Rep. 50 53 49 36 26 33 25 31 3.2 3.3 3.2 95 Iraq 51 50 50 30 20 22 30 48 3.6 3.7 4.0 96 Romania 65 66 57 31 26 44 18 26 0.2 0.7 0.7 Developing economies 54 w 58 w 70 w 62 w 12 w 16 w 18 w 22 w w 2.4 w 2.1 W Oilexporters 52w 53w 61w 49w 15w 19w 24w 31w .8w 2.8w 2.8w Exporters of manufactures 55w 61 w 71w 66w 11 w 16w 16w 17w 2.2w 2.2w 1.6w Highly indebted countries 53 w 56w 51 w 40 w 18w 23 w 31 w 37 w 2.9w 2.5 w 2.5 w Sub-Saharan Africa 52 w 50w 79w 75 w 8w 9w 13 w 16w 2.5 w 2.4 w 2.7 w High-income oil exporters w 54 w 58 w 35 w 15 w 21 w 28 w 44 w 5.6 w 4.4w 3.4w 97 Libya 53 50 41 18 21 29 38 53 3.6 3.7 3.5 98 SaudiArabia 53 54 68 48 Il 14 21 37 4.9 4.4 3.5 99 Kuwait 60 58 2 2 34 32 64 67 6.9 6.2 3.5 100 United Arab Emirates 67 21 5 32 38 47 57 . . 5.2 2.1 Industrial market economies 63 w 67 w 14w 7w 38 w 15 w 48 w 58 w 1.3 1.0 w 0.5 w 101 Spain 64 65 34 17 35 37 32 46 0.6 1.3 0.8 102 Ireland 57 60 31 19 28 34 41 48 0.8 1.6 1.6 103 Italy 66 67 25 12 42 41 34 48 0.3 0.7 0.2 104 New Zealand 59 65 13 II 36 33 51 56 1.9 1.8 1.2 105 Belgium 63 68 6 3 46 36 48 61 0.7 0.7 0.1 106 United Kingdom 65 65 3 3 47 38 50 59 0.3 0.5 0.2 107 Austria 63 67 19 9 45 41 36 50 0.2 0.8 0.1 108 Netherinds 62 69 9 6 41 32 51 63 1.4 1.4 0.5 109 France 62 66 18 9 39 35 43 56 0.8 0.9 0.5 110 Australia 62 66 10 7 38 32 52 61 2.4 1.8 1.3 Ill Finland 65 67 24 12 35 35 41 53 0.7 0.9 0.3 112 Germany, Fed. Rep. 65 70 II 6 48 44 41 50 0.3 0.7 -0.5 113 Denmark 65 66 14 7 37 32 49 61 1.2 0.6 0.2 114 Japan 67 68 26 II 32 34 42 55 1.0 0.9 0.5 115 Sweden 66 65 II 6 43 33 46 62 1.1 0.3 0.3 116 Canada 59 68 10 5 33 29 57 65 3.2 1.4 0.9 117 Norway 63 64 16 8 37 29 48 62 1.8 0.8 0.7 118 Switzerland 65 67 9 6 49 39 41 55 0.8 0.7 -0.1 119 UnitedStates 60 66 5 4 35 31 60 66 2.2 1.2 0.8 Nonreporting nonmember economies 61w 65w 34w 22w 34w 39w 32w 39w 1.3w 1.1w 0.8w 120 Albania 52 59 69 56 19 26 12 18 2.8 2.9 2.4 121 Angola 54 52 79 74 8 10 13 17 2.2 1.7 2.1 122 Bulgaria 67 67 46 18 31 45 23 37 0.2 0.0 0.2 123 Cuba 59 66 33 24 25 29 41 48 2.3 2.3 1.7 124 Czechoslovakia 65 64 21 13 47 49 31 37 0.9 0.4 0.7 125 German Dem. Rep. 61 67 IS II 49 50 36 39 0.5 0.9 0.2 126 Korea, Dem. Rep. 52 58 57 43 23 30 20 27 2.7 3.0 2.8 127 Mongolia 54 56 54 40 20 21 26 39 2.7 3.0 2.8 128 USSR 62 66 34 20 33 39 33 41 1.2 0.9 0.5 265 Table 33. Urbanization Urban population Number of As percentage Average annual Percentage of urban population cities of of total growth rate In cities of over over 500,0J population (percent) In largest city persons persons 1965 1985 1965-80 1980-85 1960 1980 1960 1980 1960 1980 Low-income economies 17w 22w 3.6w 4.0w lOw 16w 31w 55w 5Sf 1481 China and India 18w 23w 3.0w 3.6w 7w 6w 33w 59w 49t 114f Other low-income 13w 20w 4.9w 5.4w 26w 30w 19w 40w 6t 341 IEthiopia 8 15 6.6 3.7 30 37 0 37 0 1 2 Bangladesh 6 18 8.0 7.9 20 30 20 51 I 3 3 BurkinaFaso 6 8 3.4 5.3 . 41 0 0 0 0 4 Mali 13 20 4.9 4.5 32 24 0 0 0 0 5 Bhutan 3 4 3.7 5.2 . . . 0 0 0 0 6 Mozambique 5 19 11.8 5.3 75 83 0 83 0 I 7 Nepal 4 7 5.1 5.6 41 27 0 0 0 0 8 Malawi 5 . . 7.8 . . . . 19 0 0 0 0 9 Zaire 19 39 7.2 8.4 14 28 14 38 1 2 10 Burma 21 24 2.8 2.8 23 23 23 23 1 2 II Bunindi 2 2 1.8 2.7 . . . . 0 0 0 0 12 Togo II 23 7.2 6.4 . . 60 0 0 0 0 13 Madagascar 12 21 5.7 5.3 44 36 0 36 0 I 14 Niger 7 15 6.9 7.0 . . 31 0 0 0 0 15 Benin II 35 10.2 4.4 . . 63 0 63 0 I 16 Central African Rep. 27 45 4.8 3.9 40 36 0 0 0 0 17 India 19 25 3.6 3.9 7 6 26 39 II 36 18 Rwanda 3 5 6.3 6.7 . . 0 0 0 0 19 Somalia 20 34 6.1 5.4 . . 34 0 0 0 0 20 Kenya 9 20 9.0 6.3 40 57 0 57 0 I 21 Tanzania 6 14 8.7 8.3 34 50 0 50 0 I 22 Sudan 13 21 5.1 4.8 30 31 0 31 0 I 23 China 18 22 2.6 3.3 6 6 42 45 38 78 24 Haiti 18 27 4.0 4.1 42 56 0 56 0 I 25 Guinea 12 22 6.6 4.3 37 80 0 80 0 I 26 Sierra Leone 15 25 4.3 5.1 37 47 0 0 0 0 27 Senegal 27 36 4.1 4.0 53 65 0 65 0 I 28 Ghana 26 32 3.4 3.9 25 35 0 48 0 2 29 Pakistan 24 29 4.3 4.8 20 21 33 51 2 7 30 Sn Lanka 20 21 2.3 8.4 28 16 0 16 0 1 31 Zambia 24 48 7.1 5.5 0 35 0 35 0 I 32 Afghanistan 9 . . 6.0 . . 33 17 0 17 0 I 33 Chad 9 27 9.2 3.9 39 0 0 0 0 34 Kampuchea,Dem. II . . 1.9 . . . . . . . . . . . 35 Lao PDR 8 15 4.8 5.6 69 48 0 0 0 0 36 Uganda 6 7 4.1 3.0 38 52 0 52 0 I 37 VietNam 16 20 4.1 3.4 32 21 32 50 1 4 Middle-income economies 37w 48w 4.4w 3.5w 28w 27w 37w 49w 59t 131t Lower middle-income 27w 36w 4.5 w 3.7w 29w 31 w 31w 46w 22t 55t 38 Mauntania 7 31 12.4 3.4 . 39 0 0 0 0 39 Bolivia 40 44 2.9 5.6 47 44 0 44 0 1 40 Lesotho 2 17 14.6 5.3 0 0 0 0 41 Liberia 23 37 6.2 4.3 0 0 0 0 42 Indonesia 16 25 4.7 2.3 20 23 34 50 3 9 43 Yemen, PDR 30 37 3.2 4.9 61 49 0 0 0 0 44 Yemen, Arab Rep. 5 19 10.7 7.3 . . 25 0 0 0 0 45 Morocco 32 44 4.2 4.2 16 26 16 50 I 4 46 Philippines 32 39 4.0 3.2 27 30 27 34 I 2 47 Egypt, Arab Rep. 41 46 2.9 3.4 38 39 53 53 2 2 48 Côled'lvoire 23 45 8.7 6.9 27 34 0 34 0 I 49 Papas New Guinea 5 14 8.4 4.9 . . 25 0 0 0 0 50 Zimbabwe 14 27 7.5 5.0 40 50 0 50 0 I 51 Honduras 26 39 5.5 5.2 31 33 0 0 0 0 52 Nicaragua 43 56 4.6 4.5 41 47 0 47 0 I 53 Dominican Rep. 35 56 5.3 4.2 50 54 0 54 0 I 54 Nigeria IS 30 4.8 5.2 13 17 22 58 2 9 55 Thailand 13 18 4.6 3.2 65 69 65 69 1 56 Cameroon 16 42 8.1 7.0 26 21 0 21 0 I 57 El Salvador 39 43 3.5 4.0 26 22 0 0 0 0 58 Botswana 4 20 15.4 4.5 . . . . . . . . . 59 Paraguay 36 41 3.2 3.7 44 44 0 44 0 I 60 Jamaica 38 53 3.4 3.2 77 66 0 66 0 1 61 Pens 52 68 4.1 3.8 38 39 38 44 I 2 62 Turkey 32 46 4.3 4.4 18 24 32 42 3 4 63 Mauritius 37 54 4.0 2.1 . . . . . . . 64 Congo, Peoples Rep. 35 40 3.5 3.6 77 56 0 0 0 0 65 Ecuador 37 52 5.1 3.7 31 29 0 51 0 2 66 Tunisia 40 56 4.2 3.7 40 30 40 30 I 67 Guatemala 34 41 3.6 4.2 41 36 41 36 I Note: For data comparability and coverage; see the technical notes. Figures in italics are for years other than those specified. 266 Urban population Number of As percentage Average annual Percentage of urban population cities of of total gmwth rate In cities of over over 500,rgJO population (percent) In largest city 500,0 persons persons 1965 1985 1965-80 1980-85 1960 1980 960 1980 1960 1980 68 Costa Rica 38 45 3.7 3.8 67 64 0 64 0 I 69 Colombia 54 67 3.5 2.8 17 26 28 51 3 4 70 Chile 72 83 2.6 2.1 38 44 38 44 I 71 Jordan 47 69 5.3 4.0 31 37 0 37 0 1 72 SyrianArab Rep. 40 49 4.5 5.5 35 33 35 55 1 2 73 Lebanon 49 4.6 64 79 64 79 I Upper middle-income 49w 65 w 3.8 w 3.2w 27 w 26w 39w 50w 37 t 76 74 Brazil 50 73 4.5 4.0 14 15 35 52 6 14 75 Uniguay 81 85 0.7 0.9 56 52 56 52 I 76 Hungaty 43 55 1.8 1.3 45 37 45 37 I 1 77 Portugal 24 31 2.0 3.3 47 44 47 44 1 1 78 Malaysia 26 38 4.5 4.0 19 27 0 27 0 1 79 South Africa 47 56 2.6 3.3 16 13 44 53 4 7 80 Poland 50 60 1.8 1.6 17 IS 41 47 5 8 81 Yugoslavia 31 45 3.0 2.5 II 10 II 23 I 3 82 Mexico 55 69 4.5 3.6 28 32 36 48 3 7 83 Panama 44 50 3.4 2.6 61 66 0 66 0 1 84 Argentina 76 84 2.2 1.9 46 45 54 60 3 5 85 Korea, Rep. of 32 64 5.7 2.5 35 41 61 77 3 7 86 Algeria 38 43 3.8 3.7 27 12 27 12 1 87 Venezuela 72 85 4.5 3.5 26 26 26 44 I 4 88 Greece 48 65 2.5 1.9 51 57 51 70 I 2 89 Israel 81 90 3.5 2.4 46 35 46 35 I 90 Trinidad and Tobago 30 64 5.0 3.3 . . . . 0 0 0 0 91 HongKong 89 93 2.3 1.3 100 100 100 100 I I 92 Oman 4 9 8.1 7.3 .. .. .. 93 Singapore 100 100 1.6 1.2 100 100 100 100 I 94 Iran,IslamicRep. 37 54 5.5 4.6 26 28 26 47 I 6 95 Iraq 5! 70 5.3 6.3 35 55 35 70 I 3 96 Ronjania 34 51 3.4 1.0 22 17 22 17 I Developing economies 24 w 31w 3.9w 3.8w 19 w 21 w 34 w 46 w 114 1 279 1 Oil exporters 29 w 41 w 4.3 w 3.5w 24 w 24 w 34 w 48 w 17 1 471 Exporters of manufactures 23 w 29 w 3.2 w 3.5 w 12w 12w 37 w 46 w 70 1 154 1 Highly indebted countries 44w 57 w 3.5 w 3.5 w 23 w 23 w 35 w 50 w 29 1 67 I Sub-Saharan Africa 13w 25 w 6.2 w 5.7w 22 w 32 w 8w 42 w 21 14 t High-income oil exporters 40 w 73 w 9.5 w 29w 28w Ow 34w 01 97 Libya 29 60 9.7 6.7 57 64 0 64 0 I 98 Saudi Arabia 39 72 8.5 6.1 15 18 0 33 0 2 99 Kuwait 78 92 8.2 5.1 75 30 0 0 0 0 100 United Arab Emirates 56 79 18.9 5.5 . Industrial market economies 70w 75 w 1.4 w 1.5 w 18 w 18 w 48 w 55 w 104 I 152 1 101 Spain 61 77 2.4 1.6 13 17 37 44 5 6 102 Ireland 49 57 2.2 2.7 51 48 51 48 1 103 Italy 62 67 1.0 0.9 13 17 46 52 7 9 104 New Zealand 79 83 1.5 0.9 25 30 0 30 0 1 105 Belgium 93 96 0.5 0.4 17 14 28 24 2 2 106 United Kingdom 87 92 0.5 0.3 24 20 61 55 15 17 107 Austria 51 56 0.1 0.7 51 39 51 39 I I 108 Netherlands 86 88 1.5 0.9 9 9 27 24 3 3 109 France 67 73 2.7 1.0 25 23 34 34 4 6 110 Australia 83 86 0.2 1.4 26 24 62 68 4 5 Ill Finland 44 60 2.5 2.9 28 27 0 27 0 1 112 Germany, Fed. Rep. 79 86 0.8 0.1 20 18 48 45 II II 113 Denmark 77 86 1.1 0.3 40 32 40 32 I 114 Japan 67 76 2.1 1.8 18 22 35 42 5 9 115 Sweden 77 86 1.0 1.2 15 15 15 35 I 3 116 Canada 73 77 1.5 1.7 50 32 50 32 I 117 Norway 37 73 5.0 0.9 14 18 31 62 2 9 118 Switzerland 53 60 1.2 0.9 19 22 19 22 I 119 UnitedStates 72 74 1.2 2.3 13 12 61 77 40 65 Nonreporting nonmember economies 52 w 65 w 2.4 w 1.8 w 9w 8w 23 w 32 w 311 59 120 Albania 32 34 3.4 3.3 27 25 0 0 0 0 121 Angola 13 25 6.4 5.8 44 64 0 64 0 I 122 Bulgaria 46 68 2.8 1.7 23 18 23 18 1 123 Cuba 58 71 2.7 0.8 32 38 32 38 I 124 Czechoslovakia 51 66 1.9 1.4 17 12 17 12 I 125 GernnanDem. Rep. 73 76 0.1 0.6 9 9 14 17 2 3 126 Korea,Dem.Rep. 45 63 4.6 3.8 15 12 15 19 I 2 127 Mongolia 42 55 4.5 3.3 53 52 0 0 0 0 128 USSR 52 66 2.2 1.6 6 4 21 33 25 50 267 Technical notes This tenth edition of the World Development Indi- origin. The data on area are from the FAO Produc- cators provides economic and social indicators for tion Yearbook, 1985. For basic indicators for U.N. periods or selected years in a form suitable for and World Bank member countries with popula- comparing economies and groups of economies. It tions of less than 1 million, see the table in Box A. 1. contains two new tables, one presenting a picture Gross national product (GNP) measures the total of industrial output and earnings, the other intro- domestic and foreign output claimed by residents ducing a number of monetary indicators. This and is calculated without making deductions for makes a total of 33 main tables. The statistics and depreciation. It comprises gross domestic product measures have been carefully chosen to give an (see the note for Table 2) adjusted by net factor extensive picture of development. Considerable ef- income from abroad, That income comprises the fort has been made to standardize the data; never- income residents receive from abroad for factor theless, statistical methods, coverage, practices, services (labor and capital) less similar payments and definitions differ widely. In addition, the sta- made to nonresidents who contributed to the do- tistical systems in many developing economies are mestic economy. still weak, and this affects the availability and relia- The GNP per capita figures are calculated accord- bility of the data. Readers are urged to take these ing to the World Bank Atlas method. The Bank rec- limitations into account in interpreting the indica- ognizes that perfect cross-country comparability of tors, particularly when making comparisons across GNP per capita estimates cannot be achieved. Be- economies. yond the classic, strictly intractable "index number All growth rates shown are in constant prices problem," two obstacles stand in the way of ade- and, unless otherwise noted, have been computed quate comparability. One concerns GNP numbers by using the least-squares method. The least- themselves. There are differences in the national squares growth rate, r, is estimated by fitting a accounting systems and in the coverage and relia- least-squares linear trend line to the logarithmic bility of underlying statistical information between annual values of the variable in the relevant pe- various countries. The other relates to the conver- riod. More specifically, the regression equation sion of GNP data, expressed in different national takes the form of log X1 = a + bt + e, where this is currencies, to a common numerairecon- equivalent to the logarithmic transformation of the ventionally the U.S. dollarto compare them compound growth rate equation, X = X,, (1 + r)t. across countries. The Bank's procedure for con- In these equations, X is the variable, t is time, and verting GNP to U.S. dollars generally uses a three- a = log X. and b = log (1 + r) are the parameters to year average of the official exchange rate. For a few be estimated; e is the error term. If b* is the least- countries, however, the prevailing official ex- squares estimate of b, then the annual average change rate does not fully reflect the rate effec- growth rate, r, is obtained as [antilog (b*)] 1. tively applied to actual foreign exchange transac- tions and in these cases an alternative conversion Table 1. Basic indicators factor is used. Recognizing that these shortcomings affect the The estimates of population for mid-1985 are based comparability of the GNP per capita estimates, the on data from the U.N. Population Division or from World Bank has introduced several improvements World Bank sources. In many cases the data take in the estimation procedures. Through its regular into account the results of recent population cen- review of member countries' national accounts, suses. Note that refugees not permanently settled the Bank systematically evaluates the GNP esti- in the country of asylum are generally considered mates, focusing on the coverage and concepts em- to be part of the population of their country of ployed and, where appropriate, making adjust- 268 ments to improve comparability. The Bank also ing the simple arithmetic average of the actual ex- undertakes a systematic review to assess the ap- change rate for 1985 and of adjusted exchange propriateness of the exchange rates as conversion rates for 1983 and 1984. To obtain the deflated ex- factors. An alternative conversion factor is used change rate for 1983, the actual exchange rate for when the official exchange rate is judged to di- 1983 is multiplied by the relative rate of inflation verge by an exceptionally large margin from the for the country and the United States between rate effectively applied to foreign transactions. 1983 and 1985. For 1984, the actual exchange rate is This applies to only a small number of countries. multiplied by the relative rate of inflation for the The estimates of 1985 GNP and 1985 GNP per country and the United States between 1984 and capita are calculated on the basis of the 1983-85 1985. base period. With this method the first step is to This averaging of the actual and deflated ex- calculate the conversion factor. This is done by tak- change rates is intended to smooth the impact of ox A.1 Basic indicators for U.N. and World Bank member countries with populations I less than I million GNP per capita' Life Area Average annual Average annual expectancy Population (thousands growth rate rate of inflation' at birth (thousands) of square Dollars (percent) (percent) (years) U.N/World Bank member mid-1955 kilometerA 1985 1965_85h 1965-80 1980-85 1985 Guinea-Bissau 886 36 180 -1.5 . . 30.4 39 Gambia, The 748 11 230 1.1 8.3 8.8 43 Comoros 454 2 240 -0.3 55 Maldives 182 (.) 290 1.9 . . . . 53 São Tome and Principe 108 1 320 0.8 . . 5.8 65 Cape Verde 325 4 430 5.0 . . 17.6 63 Guyana 790 215 500 -0.2 8.0 9.4 65 olomon Islands 267 28 510 3.5 7.1 10.9 58 estern Samoa 163 3 660 . . 15.9 65 'vaziland 757 17 670 2.7 9.1 9.6 54 Tonga 97 1 730 . . . . . . 64 St. Vincent and the Grenadines 119 (.) 850 1.2 10.8 5.9 69 Vanuatu 134 15 880 . . . . 56 Grenada 96 (.) 970 -0.1 11.2 6.6 68 Dominica 78 1 1,150 0.4 12.7 4.8 75 Belize 159 23 1,190 2.7 7.2 1.2 66 St. Lucia 136 1 1,240 2.8 9.3 3.8 70 St. Kitts and Nevis 43 (.) 1,550 2.4 9.8 5.0 64 Fiji 696 18 1,710 2.9 10.4 5.2 65 Antigua and Barbuda 79 (.) 2,020 0.2 9.1 4.0 73 Suriname 393 163 2,580 3.4 11.8 4.2 66 Malta 358 (.) 3,310 8.1 3.5 1.7 73 Gabon 997 268 3,670 1.5 12.7 10.1 51 Cyprus 665 9 3,790 . . -2.1 8.1 74 Barbados 254 (.) 4,630 2.3 11.3 8.4 73 Bahamas, The 231 14 7,070 -0.5 6.4 5.2 70 Bahrain 417 1 9,420 . . . . 0.2 69 Iceland 241 103 10,710 2.4 27.1 49.2 77 Luxembourg 366 3 14,260 4.0 6.3 10.0 74 Qatar 315 11 16,270 -7.0 . . . . 72 Brunei 224 6 17,570 -1.2 . . -2.7 74 Djibouti 362 22 . . . . . . . . 48 Equatorial Guinea 373 28 . . . . . . 45 Kiribati 64 1 . . . . . 6.9 53 Seychelles 65 (.) . . . . 12.1 . . 69 Note: Countries with italicized names are those for which no GSJP per capita can be calculated. a. See the technical notes. b. Figures in italics are for years other than those specified. 269 Box A.2 Gross product per capita by ICP and Atlas methods (United States = 100) 1980 1984 1985 Economy ICP Atlas ICP Atlas ICP Atlas Argentina 33.5 17.1 27.9 14.0 25.9 13.0 Austria 75.4 86.6 74.6 58.9 75.5 55.8 Belgium 82.4 103.9 78.5 55.5 78.3 51.5 Bolivia 14.2 4.4 10.0 3.2 9.5 2.9 Botswana 13.9 8.0 17.8 6.0 18.7 5.1 Brazil 29.3 17.2 25.3 11.1 26.4 10.0 Cameroon 7.9 6.5 9.4 5.2 9.8 4.9 Canada 101.5 90.3 98.4 85.6 99.8 83.4 Chile 31.9 20.6 26.9 11.0 26.6 8.8 Colombia 24.8 11.0 23.4 9.1 23.3 8.0 Costa Rica 27.7 17.3 23.5 7.7 22.8 7.9 Côte d'Ivoire 12.0 9.5 8.7 4.1 8.7 3.8 Denmark 85.9 108.4 87.5 72.1 88.3 68.5 Dominican Rep. 17.3 9.2 16.0 6.2 15.2 4.9 Ecuador 22.6 11.8 20.2 7.4 20.0 7.1 El Salvador 12.4 6.3 9.9 4.6 9.8 4.3 Ethiopia 2.4 0.9 2.2 0.7 2.0 0.7 Finland 75.5 91.2 77.3 69.5 78.5 66.3 France 85.4 105.4 82.0 63.1 81.3 58.2 Germany, Fed. Rep. 89.1 114.1 86.6 71.8 87.4 66.7 Greece 44.5 36.9 41.9 24.3 42.0 21.6 Guatemala 20.3 9.7 16.3 7.7 15.4 7.6 Honduras 10.6 5.5 8.8 4.5 8.7 4.5 Hong Kong 62.4 47.0 72.3 41.0 70.9 37.9 Hungary 40.4 16.7 41.8 13.3 41.0 11.8 India 5.0 2.1 5.3 1.7 5.4 1.5 Indonesia 9.6 4.4 9.7 3.6 9.6 3.2 Ireland 47.9 46.7 47.7 32.0 46.8 29.5 Israel 59.4 40.9 55.8 32.8 55.1 30.0 Italy 68.0 60.3 64.5 41.4 64.7 39.8 Japan 73.4 77.9 79.0 68.5 81.1 69.1 Kenya 5.6 3.5 4.9 2.0 4.8 1.8 Korea, Rep. of 22.5 13.6 27.3 13.8 27.9 13.3 Luxembourg 92.8 131.9 86.6 84.9 87.4 81.6 Madagascar 5.0 3.2 3.8 1.7 3.7 1.5 Malawi 3.7 1.6 3.1 1.2 3.0 1.0 Mali 3.0 1.7 2.4 0.9 2.3 0.9 Morocco 10.5 8.1 9.8 4.3 9.8 3.7 Netherlands 81.4 102.5 75.5 61.4 75.5 56.0 Nigeria 7.8 8.8 5.3 4.8 5.2 4.6 Norway 99.0 117.1 100.4 89.9 101.5 84.7 Pakistan 9.6 2.7 10.0 2.4 10.3 2.3 Panama 27.9 14.6 26.4 12.7 26.4 12.3 Paraguay 18.6 12.6 16.6 7.0 16.5 5.7 Peru 21.9 9.6 17.9 6.6 17.5 5.9 Philippines 15.2 6.3 13.2 4.2 12.1 3.7 Poland 37.7 . . 33.4 13.6 33.2 12.9 Portugal 33.4 20.8 31.4 12.7 31.7 12.0 Senegal 6.0 4.3 5.7 2.4 5.6 2.3 Spain 55.5 48.2 52.4 28.6 52.2 26.6 Sri Lanka 10.7 2.3 11.7 2.3 11.7 2.3 Tanzania 3.1 2.4 2.6 1.9 2.5 1.6 Tunisia 17.4 11.8 17.4 8.2 17.6 7.4 United Kingdom 72.1 81.3 71.2 55.3 72.3 51.2 United States 100.0 100.0 100.0 100.0 100.0 100.0 Uruguay 37.2 29.6 28.9 12.4 28.4 10.1 Venezuela 47.4 33.6 37.2 22.4 35.7 19.0 Yugoslavia 35.3 27.9 33.3 14.6 32.7 12.6 Zambia 6.4 5.5 5.3 3.1 5.2 2.4 Zimbabwe 7.8 6.4 7.5 4.9 7.7 4.0 United States (US$) 11,450 11,650 15,330 15,540 16,160 16,400 Note: ICP values for 1980 are actual Phase IV results; for other years they are extrapolated from the 1980 values. Atlas estimates are based on the current Atlas method applied to current data and are GNP per capita. ICP values relate to GDP per capita. 270 fluctuations in prices and exchange rates. The sec- are actual results of the ICP Phase IV; those for ond step is to convert the GNP at current pur- 1984 and 1985 are estimated by adjusting the 1980 chaser values and in national currencies of the year PPPs by relative rates of inflation in the country 1985 by means of the conversion factor as derived and the U.S., and using the estimated PPPs as above. Then the resulting GNP in U.S. dollars is conversion factors. divided by the midyear population to derive the Information on ICP has been published in four 1985 per capita GNP. The estimates of GNP per reports, which are listed in the bibliography to this capita for 1985 are shown in this table. report. The following formulas describe the procedures The average annual rate of inflation is that mea- j for computing the conversion factor for year t: sured by the growth rate of the GDP implicit defla- * 1 P, P P, 1', tor, for each of the periods shown. The GDP defla- (-2t) = [e,_ + + e,j tor is first calculated by dividing, for each year of 1 the period, the value of GDP at current purchaser and for calculating per capita GNP in U.S. dollars values by the value of GDP at constant purchaser for year t: values, both in national currency. The least- (Ii) = Y / N, squares method is then used to calculate the where, growth rate of the GDP deflator for the period. = current GNP (local currency) for year This measure of inflation, like any other, has limi- P, = GNP deflator for year tations. For some purposes, however, it is used as e, = annual average exchange rate (local currency/U.S. an indicator of inflation because it is the most dollars) for year N, = mid-year population for year broadly based deflator, showing annual price = U.S. GNP deflator for year movements for all goods and services produced in an economy. Because of problems associated with the avail- Life expectancy at birth indicates the number of ability of data and the determination of conversion years a newborn infant would live if patterns of factors, information on GNP per capita is not mortality prevailing for all people at the time of its shown for nonreporting nonmarket economies. birth were to stay the same throughout its life. The use of official exchange rates to convert na- Data are from the U.N. Population Division, sup- tional currency figures to the U.S. dollar does not plemented by World Bank estimates. attempt to measure the relative domestic purchas- The summary measures for GNP per capita and life ing powers of currencies. The United Nations In- expectancy in this table are weighted by popula- ternational Comparison Project (ICP) has devel- tion. Those for average annual rates of inflation are oped measures of real gross domestic product weighted by the share of country GDP valued in (GDP) on an internationally comparable scale by current U.S. dollars. using purchasing power parities (PPP) instead of exchange rates as conversion factors. This project Tables 2 and 3. Growth and structure has covered 60 countries in four phases, at 5-year of production intervals. Phase V. now underway, is expected to cover about 70 countries. The United Nations, the Most of the definitions used are those of the U.N. U.N. Economic Commissions for Europe, for Latin System of National Accounts, series F, no. 2, revi- America, and for Asia and the Pacific, and other sion3. international agencies such as the European Com- GDP measures the total final output of goods munity, the Organisation for Economic Co- and services produced by an economythat is, by operation and Development, the Asian Develop- residents and nonresidentsregardless of the allo- ment Bank, the Inter-American Development cation to domestic and foreign claims It is calcu- Bank, and the World Bank are engaged in research lated without making deductions for depreciation. on improving the methodology and extending an- For most countries, GDP by industrial origin is nual purchasing power comparisons to all coun- measured at producer prices; for some countries, tries. Until such coverage is complete, exchange purchaser values series are used. GDP at producer rates remain the only generally available means of prices is equal to GDP at purchaser values, less converting GNP from national currencies to U.S. import duties. Note that in editions before 1986 dollars. The table in Box A.2 gives examples of GDP at producer prices and GDP at purchaser val- gross product per capita as computed by the Atlas ues were referred to as GDP at factor cost and GDP method and the ICP method. The ICP data for 1980 at market prices, respectively. The figures for GDP 271 are dollar values converted from domestic cur- cludes imputed rent for owner-occupied rency by using the single-year official exchange dwellings. rates. For a few countries where the official ex- Gross domestic investment consists of the outlays change rate does not reflect the rate effectively ap- for additions to the fixed assets of the economy, plied to actual foreign exchange transactions, an plus net changes in the value of inventories. alternative conversion factor is used. Note that this Gross domestic savings are calculated by deducting procedure does not use the three-year averaging total consumption from gross domestic product. computation used for calculating GNP per capita Exports of goods and nonfactor services represent the in Table 1. value of all goods and nonfactor services sold to The agricultural sector comprises agriculture, for- the rest of the world; they include merchandise, estry, hunting, and fishing. In developing coun- freight, insurance, travel, and other nonfactor tries with high levels of subsistence farming, much services. The value of factor services, such as in- of the agricultural production is either not ex- vestment income, interest, and labor income, is changed or not exchanged for money. This in- excluded. creases the difficulties of measuring the contribu- The resource balance is the difference between ex- tion of agriculture to GDP. Industry comprises ports of goods and nonfactor services and imports mining, manufacturing (for which subgroup, data of goods and nonfactor services. are entered in a separate column), construction, National accounts series in national currency and electricity, water, and gas. All other branches units were used to compute the indicators in these of economic activity are categorized as services. tables. The growth rates in Table 4 were calculated National accounts series in domestic currency from constant price series; the shares of GDP in units were used to compute the indicators in these Table 5, from current price series. tables. The growth rates in Table 2 were calculated The summary measures are calculated by the from constant price series; the sectoral shares of method explained in the notes for Tables 2 and 3. GDP in Table 3, from current price series. In calculating the summary measures for each indi- cator in Table 2, rescaled constant 1980 U.S. dollar Table 6. Agriculture and food values for each country are first calculated for each of the years of the periods covered, the values ag- The basic data for value added in agriculture are from gregated for each year, and the least-squares pro- the World Bank's national accounts series in na- cedure used to compute the summary measure. tional currencies. The 1980 value added in current The average sectoral percentage shares in Table 3 prices in national currencies is converted to U.S. are computed from group aggregates of sectoral dollars by applying the single-year conversion pro- GDP in current U.S. dollars. In this year's edition, cedure, as described in the technical notes for Ta- for many of the economic indicators, the summary bles 2 and 3. The growth rates of the constant price measures include an overall estimate for countries series in national currencies are applied to the 1980 against which the "n.a." symbol is shown. This value added in U.S. dollars to derive the values, in gives a more consistent aggregate measure by 1980 U.S. dollars, for 1970 and 1985. standardizing country coverage for each time pe- The figures for the remainder of this table are riod shown. from the Food and Agriculture Organization (FAO). Cereal imports and food aid in cereals are measured Tables 4 and 5. Growth of consumption in grain equivalents and defined as comprising all and investment; structure of demand cereals under the Standard International Trade Classi- GDP is defined in the note for Table 2. fication (SITC), Revision 1, Groups 041-046. The General government consumption includes all cur- figures are not directly comparable since cereal im- rent expenditure for purchases of goods and ser- ports are based on calendar-year and recipient- vices by all levels of government. Capital expendi- country data, whereas food aid in cereals is based ture on national defense and security is regarded on data for crop years from donor countries and as consumption expenditure. international organizations. The earliest available Private consumption is the market value of all food aid data are for 1974. goods and services purchased or received as in- Fertilizer consumption is measured in relation to come in kind by households and nonprofit institu- arable land. This includes land under temporary tions. It excludes purchases of dwellings, but in- crops (double-cropped areas are counted once), 272 temporary meadows for mowing or pastures, land Table 8. Manufacturing earnings and output under market or kitchen gardens, land temporarily fallow or lying idle, as well as land under perma- In this new table, four indicators are showntwo nent crops. relate to real earnings per employee, one to labor's The index of food production per capita shows the share in total value added generated, and one to average annual quantity of food produced per cap- labor productivity in the manufacturing sector; all ita in 1983-85 in relation to that in 1979-81. The based on data from the UNIDO database. estimates are derived by dividing the quantity of Earnings per employee are in constant prices and food production by total population. For this in- are derived by deflating nominal earnings per em- dex, food is defined as comprising cereals, starchy ployee from UNIDO by the consumer price index roots, sugar cane, sugar beet, pulses, edible oils, (CPI). The CPI is from the IMP International Finan- nuts, fruits, vegetables, livestock, and livestock cial Statistics (IFS). Total earnings as percentage of products. Quantities of food production are mea- value added are derived by dividing total nominal sured net of animal feed, seeds for use in agricul- earnings of employees by nominal value added, to ture, and food lost in processsing and distribution. show labor's share in income generated in the The summary measures for fertilizer consumption manufacturing sector. Gross output per employee is are weighted by total arable land area; the summary also in constant prices and is presented as a mea- measures for food production are weighted by po- sure of labor productivity. To derive this indicator, pulation. UNIDO data on gross out put per employee in current prices are deflated by implicit deflators for value added in manufacturing or in industry, which are Table 7. Structure of manufacturing from the World Bank's data files. To improve cross-country comparability UNIDO The basic data for value added in manufacturing are has, where possible, standardized the coverage of from the World Bank's national accounts series in establishments to a cutoff point of those with 5 or national currencies. The 1980 value added in cur- more employees. rent prices in national currencies is converted to The concepts and definitions are in accordance U.S. dollars by applying the conversion procedure with the International Recommendations for Industrial described in the notes for Tables 2 and 3. The Statistics, published by the United Nations. Earn- growth rates of the constant price series in national ings (wages and salaries) cover all payments in currencies are applied to the 1980 value added in cash or kind made by the employer during the U.S. dollars to derive the values, in 1980 U.S. dol- year, in connection with the work done. The pay- lars, for 1970 and 1984. ments include (a) all regular and overtime cash The percentage distribution of value added among payments and bonuses and cost of living allow- manufacturing industries is provided by United ances; (b) wages and salaries paid during vacation Nations Industrial Development Organization and sick leave; (c) taxes and social insurance con- (UNIDO). UNIDO industrial statistics are used for tributions and the like, payable by the employees calculating the shares, with the base values ex- and deducted by the employer and (d) payments pressed in 1980 dollars. in kind. The value of gross output is estimated on The classification of manufacturing industries is the basis of either production or shipments. On in accord with the U.N. International Standard In- the production basis it consists of (a) the value of dustrial Classification of All Economic Activities (ISIC). all products of the establishment; (b) the value of Food and agriculture comprise ISIC Division 31; tex- industrial services rendered to others; (c) the value tiles and clothing Division 32; machinery and transport of goods shipped in the same condition as re- equipment Major Group 382-384; and chemicals Ma- ceived; (d) the value of electricity sold; (e) the net jor Group 351 and 352. Other comprises wood and change between the value of work-in-progress at related products (Division 33), paper and related the beginning and the end of the reference period. products (Division 34), petroleum and related In the case of estimates compiled on a shipment products (Major Group 353-356), basic metals and basis, the net change between the beginning and mineral products (Division 36-37), fabricated metal the end of the reference period in the value of products and professional goods (Major Group 381 stocks of finished goods is also included. Value and 385), and other industries (Major Group 390). added is defined as the current value of gross out- When data for textiles, machinery or chemicals are put less the current cost of (a) materials, fuels and not available, they are included in other. other supplies consumed; (b) contract and com- 273 mission work done by others; (c) repair and main- system, which accords with the U.N. Yearbook of tenance work done by others; (d) goods shipped in International Trade Statisticsthat is, the data are the same condition as received. The term employees based on countries' customs returns. Values in in this table combines two categories defined by these tables are in current U.S. dollars. the U.N.: regular employees and persons engaged. To- For the value data in Table 10, however, statistics gether these groups comprise regular employees, are also used from the International Monetary working proprietors, active business partners, and Fund (IMF), and in a few (footnoted) cases, World unpaid family workers; they exclude homework- Bank estimates are reported. Secondary sources ers. The data refer to the average number of em- and World Bank estimates are based on aggregated ployees during the year. reports that become available before the detailed reports that are submitted to the U.N. In some Table 9. Commercial energy cases, they also permit coverage adjustments for significant components of a country's foreign trade The data on energy are from U.N. sources. They that do not pass through customs. refer to commercial forms of primary energy: pe- Merchandise exports and imports, with some excep- troleum and natural gas liquids, natural gas, solid fuels (coal, lignite, and so on), and primary elec- tions, cover international movements of goods across customs borders. Exports are valued f.o.b. tricity (nuclear, geothermal, and hydroelectric (free on board), imports c.i.f. (cost, insurance, and power)all converted into oil equivalents. Figures freight), unless otherwise specified in the forego- on liquid fuel consumption include petroleum de- rivatives that have been consumed in nonenergy ing sources. These values are in current dollars; uses. For converting primary electricity into oil note that they do not include trade in services. The growth rates of merchandise exports and imports equivalents, a notional thermal efficiency of 34 per- cent has been assumed. The use of firewood and are in constant terms and are calculated from other traditional fuels, though substantial in some quantum indexes of exports and imports. Quan- developing countries, is not taken into account be- tum indexes are obtained from the export or im- cause reliable and comprehensive data are not port value index as deflated by the corresponding price index. To calculate these quantum indexes for available. developing countries, the World Bank uses its own Energy imports refer to the dollar value of energy importsSection 3 in the Standard International price indexes, which are based on international Trade Classification (SITC), Revision 1and are ex- prices for primary commodities and unit value in- pressed as a percentage of earnings from merchan- dexes for manufactures. These price indexes are dise exports. both country-specific and disaggregated by broad Because data on energy imports do not permit a commodity groups, which ensures consistency be- distinction between petroleum imports for fuel tween data for a group of countries and those for individual countries. Such data consistency will in- and for use in the petrochemicals industry, these percentages may overestimate the dependence on crease as the World Bank continues to improve its imported energy. trade price indexes for an increasing number of countries. For industrial economies the indexes are The summary measures of energy production and from the U.N. Yearbook of International Trade Statis- consumption are computed by aggregating the re- tics and Monthly Bulletin of Statistics, and the IMF spective volumes for each of the years covered by International Financial Statistics. the time periods, and then applying the least- squares growth rate procedure. For energy con- The terms of trade, or the net barter terms of sumption per capita, population weights are used to trade, measure the relative level of export prices compute summary measures for the specified compared with import prices. Calculated as the ra- years. tio of a country's index of average export price to The summary measures of energy imports as a per- the average import price index, this indicator centage of merchandise exports are computed from shows changes over a base year in the level of group aggregates for energy imports and merchan- export prices as a percentage of import prices. The dise exports in current dollars. terms-of-trade index numbers are shown for 1983 and 1985, where 1980 = 100. The price indexes are from the sources cited above for the growth rates Table 10. Growth of merchandise trade of exports and imports. The statistics on merchandise trade, Tables 10 The summary measures are calculated by aggregat- through 14, are primarily from the U.N. trade data ing the 1980 constant U.S. dollar price series for 274 each year, and then applying the least-squares by total merchandise exports of individual coun- growth rate procedure for the periods shown. tries in current dollars; those in Table 12, by total Note again that these values do not include trade merchandise imports of individual countries in in services. current dollars. (See note to Table 10.) Tables 11 and 12. Structure of merchandise trade Table 13. Origin and destination of merchandise exports The shares in these tables are derived from trade values in current dollars reported in the U.N. trade Merchandise exports are defined in the note for Table data system and the U.N. Yearbook of International 10. Trade shares in this table are based on statistics Trade Statistics, supplemented by other regular sta- from the U.N. and the IMF on the value of trade in tistical publications of the U.N. and the IMF. Note current dollars. Industrial market economies also in- that, unlike Table 10, no World Bank estimates are clude Gibraltar, Iceland, and Luxembourg; high- used in these tables. income oil exporters also include Bahrain, Brunei, Merchandise exports and imports are defined in the and Qatar. note for Table 10. The summary measures are weighted by the value The categorization of exports and imports fol- of total merchandise exports of individual coun- lows the Standard International Trade Classification tries in current dollars. (SITC), series M, no. 34, Revision 1. In Table 11, fuels, minerals, and metals are the com- Table 14. Origin and destination of manufactured modities in SITC Section 3 (mineral fuels, lubri- exports cants and related materials), Divisions 27 and 28 (minerals and crude fertilizers, and metalliferous The data in this table are from the U.N. and are ores) and Division 68 (nonferrous metals). Other among those used to compute Special Table B in primary commodities comprise SITC Sections 0, 1, 2, the U.N. Yearbook of International Trade Statistics. and 4 (food and live animals, beverages and to- Manufactured goods are the commodities in SITC, bacco, inedible crude materials, oils, fats, and Revision 1, Sections 5 through 9 (chemicals and waxes) less Divisions 27 and 28. Machinery and related products, basic manufactures, manufac- transport equipment are the commodities in SITC tured articles, machinery and transport equip- Section 7. Other manufactures represent SITC Sec- ment, and other manufactured articles and goods tions 5 through 9 less Section 7 and Division 68. In not elsewhere classified) excluding Division 68 this edition textiles and clothing, representing SITC (nonferrous metals). Note, again, that because of a Divisions 65 and 84 (textiles, yarns, fabrics, and lack of detailed information for many countries, clothing), are shown as a subgroup of other manu- this definition is not the same as that used for ex- factures. Note that because of a lack of detailed in- porters of manufactures defined on page xi. formation for many countries, this definition is not The country groups are the same as those in Ta- the same as that used for exporters of manufac- ble 13. The summary measures are weighted by man- tures defined on page xi. ufactured exports of individual countries in cur- In Table 12, food commodities are those in SITC rent dollars. Sections 0, 1, and 4 and Division 22 (food and live animals, beverages, oils and fats, and oilseeds and Table 15. Balance of payments and reserves nuts), less Division 12 (tobacco). Fuels are the com- modities in SITC Section 3 (mineral fuels, lubri- Values in this table are in current U.S. dollars. cants and related materials). Other primary commod- The current account balance is the difference be- ities comprise SITC Section 2 (crude materials, tween (a) exports of goods and services plus in- excluding fuels), less Division 22 (oilseeds and flows of unrequited official and private transfers nuts) plus Division 12 (tobacco) and Division 68 and (b) imports of goods and services plus unre- (nonferrous metals). Machinery and transport equip- quited transfers to the rest of the world. The cur- ment are the commodities in SITC Section 7. Other rent account balance estimates are primarily from manufactures, calculated as the residual from the IMF data files and conform to the IMF Balance of total value of manufactured imports, represent Payments Manual definitions. SITC Sections 5 through 9 less Section 7 and Divi- Workers' remittances cover remittances of income sion 68. by migrants who are employed or expect to be em- The summary measures in Table 11 are weighted ployed for more than a year in their new economy, 275 where they are considered residents. Those de- additional twenty-nine countries. rived from shorter-term stays are included in pri- Public loans are external obligations of public vate transfers. debtors, including the national government, its Net direct private investment is the net amount in- agencies, and autonomous public bodies. Publicly vested or reinvested by nonresidents in enter- guaranteed loans are external obligations of private prises in which they or other nonresidents exercise debtors that are guaranteed for repayment by a significant managerial control. Including equity public entity. These two categories are aggregated capital, reinvested earnings, and other capital, in the tables. Private nonguaranteed loans are exter- these net figures also take into account the value of nal obligations of private debtors that are not guar- direct investment abroad by residents of the re- anteed for repayment by a public entity. porting country. These estimates were compiled Use of IMF credit denotes repurchase obligations primarily from IMF data files. to the IMF for all uses of IMF resources, excluding Gross international reserves comprise holdings of those resulting from drawings in the reserve monetary gold, special drawing rights (SDRs), the tranche and on the IMF Trust Fund. It is shown for reserve position of IMF members in the Fund, and the end of the year specified. It comprises pur- holdings of foreign exchange under the control of chases outstanding under the credit tranches, in- monetary authorities. The data on holdings of in- cluding enlarged access resources, and all of the ternational reserves are from IMF data files. The special facilities (the buffer stock, compensatory fi- gold component of these reserves is valued nancing, extended Fund, and oil facilities). Trust throughout at year-end London prices: that is, Fund loans are included individually in the Debtor $37.37 an ounce in 1970 and $327.30 an ounce in Reporting System and are thus shown within the 1985. The reserve levels for 1970 and 1985 refer to total of public long-term debt. Use of IMF credit the end of the year indicated and are in current outstanding at year-end (a stock) is converted to dollars at prevailing exchange rates. Due to differ- U.S. dollars at the dollar-SDR exchange rate in ef- ences in the definition of international reserves, in fect at year-end. the valuation of gold, and in reserve management Short-term external debt is debt with an original practices, the levels of reserve holdings published maturity of one year or less. Available data permit in national sources do not have strictly comparable no distinctions between public and private non- signfficance. Reserve holdings at the end of 1985 guaranteed short-term debt. are also expressed in terms of the number of Total external debt is defined for the purpose of months of imports of goods and services they this report as the sum of public, publicly guaran- could pay for, with imports at the average level for teed, and private nonguaranteed long-term debt, 1985. use of IMF credit, and short-term debt. The summary measures are computed from group aggregates for gross international reserves and to- Table 17. Flow of public and private external tal imports of goods and services in current dol- capital lars. Data on disbursements and repayment of principal Table 16. Total external debt (amortization) are for public, publicly guaranteed, and private nonguaranteed long-term loans. The The data on debt in this and successive tables are net flow estimates are disbursements less the repay- from the World Bank Debtor Reporting System, ment of principal. supplemented by World Bank estimates. That sys- tem is concerned solely with developing econo- mies and does not collect data on external debt for Table 18. Total external public and private debt other groups of borrowers, nor from economies and debt service ratios that are not members of the World Bank. The dol- lar figures on debt shown in Tables 16 through 21 Total long-term debt data in this table cover public are in U.S. dollars converted at official exchange and publicly guaranteed debt and private non- rates. guaranteed debt. The ratio of debt service to ex- In this edition, the data on debt include private ports of goods and services is one of several con- nonguaranteed debt reported by twenty develop- ventional measures used to assess the ability to ing countries and complete or partial estimates service debt. The average ratios of debt service to (depending on the reliability of information) for an GNP for the economy groups are weighted by 276 GNP in current dollars. The average ratios of debt and the date of the first repayment of principal. service to exports of goods and services are Public loans with variable interest rates, as a percent- weighted by exports of goods and services in cur- age of public debt, refer to interest rates that float rent dollars. with movements in a key market rate; for example, the London interbank offered rate (LIBOR) or the U.S. prime rate. This column shows the borrow- Table 19. External public debt and debt service er's exposure to changes in international interest ratios rates. The summary measures in this table are weighted External public debt outstanding and disbursed repre- by the amounts of the loans. sents public and publicly guaranteed loans drawn at year-end, net of repayments of principal and write-offs. For estimating external public debt as a Table 21. Official development assistance percentage of GNP, the debt figures are converted from OECD and OPEC members into U.S. dollars from currencies of repayment at Official development assistance (ODA) consists of net end-of-year official exchange rates. GNP is con- disbursements of loans and grants made on con- verted from national currencies to U.S. dollars by cessional financial terms by official agencies of the applying the conversion procedure described in members of the Development Assistance Commit- the technical notes for Tables 2 and 3. tee (DAC) of the Organisation for Economic Co- Interest payments are actual payments made on operation and Development (OECD) and members the outstanding and disbursed public and publicly of the Organization of Petroleum Exporting Coun- guaranteed debt in foreign currencies, goods, or tries (OPEC), with the object of promoting eco- services; they include commitment charges on Un- nomic development and welfare. It includes the disbursed debt if information on those charges is value of technical cooperation and assistance. All available. data shown are supplied by the OECD, and all Debt service is the sum of actual repayments of U.S. dollar values converted at official exchange principal (amortization) and actual payments of in- rates. terest made in foreign currencies, goods, or ser- Amounts shown are net disbursements to devel- vices on external public and publicly guaranteed oping countries and multilateral institutions. The debt. Procedures for estimating total long-term disbursements to multilateral institutions are now debt as a percentage of GNP average ratios of debt reported for all DAC members on the, basis of the service to GNP, and average ratios of debt service date of issue of notes; some DAC members previ- to exports of goods and services are the same as ously reported on the basis of the date of encash- those described in the notes for Table 18. ment. Net bilateral flows to low-income economies ex- The summary measures are computed from group clude unallocated bilateral flows and all aggregates of debt service and GNP in current dol- disbursements to multilateral institutions. lars. The nominal values shown in the summary for ODA from OECD countries are converted into Table 20. Terms of external public borrowing 1980 prices using the dollar GDP deflator. This de- flator is based on price increases in OECD coun- Commitments refer to the public and publicly guar- tries (excluding Greece, Portugal, and Turkey) anteed loans for which contracts were signed in measured in dollars. It takes into account the par- the year specified. They are reported in currencies ity changes between the dollar and national cur- of repayment and converted into U.S. dollars at rencies. For example, when the dollar appreciates, average annual official exchange rates. price changes measured in national currencies Figures for interest rates, maturities, and grace pe- have to be adjusted downward by the amount of riods are averages weighted by the amounts of the the appreciation to obtain price changes in dollars. loans. Interest is the major charge levied on a loan The table, in addition to showing totals for and is usually computed on the amount of princi- OPEC, shows totals for the Organization of Arab pal drawn and outstanding. The maturity of a loan Petroleum Exporting Countries (OAPEC). The do- is the interval between the agreement date, when a nor members of OAPEC are Algeria, Iraq, Kuwait, loan agreement is signed or bonds are issued, and Libya, Qatar, Saudi Arabia, and United Arab Emir- the date of final repayment of principal. The grace ates. ODA data for OPEC and OAPEC are also period is the interval between the agreement date obtained from the OECD. 277 Table 22. Official development assistance: Central government expenditure comprises the ex- receipts penditure by all government offices, departments, establishments, and other bodies that are agencies Net disbursements of ODA from all sources consist of or instruments of the central authority of a coun- loans and grants made on concessional financial try. It includes both current and capital (develop- terms by all bilateral official agencies and multilat- ment) expenditure. eral sources, with the object of promoting eco- Defense comprises all expenditure, whether by nomic development and welfare. The disburse- defense or other departments, on the maintenance ments shown in this table are not strictly of military forces, including the purchase of mili- comparable with those shown in Table 21 since the tary supplies and equipment, construction, re- receipts are from all sources; disbursements in Ta- cruiting, and training. Also in this category is ex- ble 21 refer to those made by members of the penditure on strengthening public services to meet OECD and OPEC only. Net disbursements equal wartime emergencies, on training civil defense gross disbursements less payments to donors for personnel, on supporting research and develop- amortization. Net disbursements of ODA are ment, and on funding administration of military shown per capita and as a percentage of GNP. aid and programs. The summary measures of per capita ODA are Education comprises expenditure on the provi- computed from group aggregates for population sion, management, inspection, and support of pre- and for ODA. Summary measures for ODA as a per- primary, primary, and secondary schools; of uni- centage of GNP are computed from group totals versities and colleges; and of vocational, technical, for ODA and for GNP in current U.S. dollars. and other training institutions by central govern- ments. Also included is expenditure on the general Table 23. Central government expenditure administration and regulation of the education system; on research into its objectives, organiza- The data on central government finance in Tables tion, administration, and methods; and on such 23 and 24 are from the IMF Government Finance subsidiary services as transport, school meals, and Statistics Yearbook, 1986, and IMF data files. The ac- medical and dental services in schools. counts of each country are reported using the sys- Health covers public expenditure on hospitals, tem of common definitions and classifications medical and dental centers, and clinics with a ma- found in the IMF Manual on Government Finance jor medical component; on national health and Statistics (1986). Due to differences in coverage of medical insurance schemes, and on family plan- available data, the individual components of cen- fling and preventive care. Also included is expen- tral government expenditure and current revenue diture on the general administration and regula- shown in these tables may not be strictly compara- tion of relevant government departments, ble across all economies. The shares of total expen- hospitals and clinics, health and sanitation, and diture and revenue by category are calculated from national health and medical insurance schemes; national currencies. and on research and development. The inadequate statistical coverage of state, pro- Housing and community amenities and social security vincial, and local governments has dictated the use and welfare cover public expenditure on housing, of central government data only. This may seri- such as income-related schemes, on provision and ously understate or distort the statistical portrayal support of housing and slum clearance activities, of the allocation of resources for various purposes, on community development, and on sanitary ser- especially in large countries where lower levels of vices; and public expenditure on compensation to government have considerable autonomy and are the sick and temporarily disabled, for loss of in- responsible for many social services. come on payments to the elderly, the permanently It must be emphasized that the data presented, disabled, and the unemployed, and on family, ma- especially those for education and health, are not ternity, and child allowances. They also include comparable for a number of reasons. In many the cost of welfare services such as care of the economies private health and education services aged, the disabled, and children, as well as the are substantial; in others public services represent cost of general administration, regulation, and re- the major component of total expenditure but may search associated with social security and welfare be financed by lower levels of government. Great services. caution should therefore be exercised in using the Economic services comprise public expenditure as- data for cross-country comparisons. sociated with the regulation, support, and more 278 efficient operation of business, economic develop- dude import duties, export duties, profits of ex- ment, redress of regional imbalances, and creation port or import monopolies, exchange profits, and of employment opportunities. Research, trade pro- exchange taxes. Other taxes include employers' motion, geological surveys, and inspection and payroll or manpower taxes, taxes on property, and regulation of particular industry groups are among other taxes not allocable to other categories. the activities included. The five major categories of Nontax revenue comprises all government reve- economic services are industry, agriculture, fuel nue that is not a compulsory nonrepayable pay- and energy, transportation and communication, ment for public purposes. Receipts from public en- and other economic affairs and services. terprises and property income are included in this Other covers expenditure on the general admin- category. Proceeds of grants and borrowing, funds istration of government not included elsewhere; arising from the repayment of previous lending by for a few economies it also includes amounts that governments, incurrence of liabilities, and pro- could not be allocated to other components. ceeds from the sale of capital assets are not in- Overall surplus/deficit is defined as current and cluded. capital revenue and grants received, less total ex- The summary measures for the components of cur- penditure less lending minus repayments. rent revenue are computed from group totals for The summary measures for the components of cen- revenue components and total current revenue in tral government expenditure are computed from current dollars; those for current revenue as a per- group totals for expenditure components and cen- centage of GNP are computed from group totals tral government expenditure in current dollars. for total current revenue and GNP in current dol- Those for total expenditure as a percentage of GNP lars. and for overall surplus/deficit as a percentage of GNP are computed from group totals for the above Table 25. Money and interest rates total expenditures and overall surplus/deficit in current dollars, and GNP in current dollars, re- The data on monetary holdings are based on data spectively. reported in the IMF's International Financial Statis- tics (IFS). Monetary holdings, broadly defined, com- Table 24. Central government current revenue prise the monetary and quasi-monetary liabilities of a country's financial institutions to residents Information on data sources and comparability is other than the central government. For most coun- given in the note for Table 23. Current revenue by tries, monetary holdings are the sum of money (IFS source is expressed as a percentage of total current line 34) and quasi-money (IFS line 35). Money com- revenue, which is the sum of tax revenue and non- prises the economy's means of payment: currency tax revenue and is calculated from national curren- outside banks and demand deposits. Quasi-money cies. comprises time and savings deposits and similar Tax revenue is defined as all government revenue bank accounts that the issuer wifi readily exchange from compulsory, unrequited, nonrepayable re- for money. Where nonmonetary financial institu- ceipts for public purposes, including interest col- tions are important issuers of quasi-monetary lia- lected on tax arrears and penalties collected on bilities, these are also included in the measure of nonpayment or late payment of taxes. Tax revenue monetary holdings. is shown net of refunds and other corrective trans- The growth rates for monetary holdings are cal- actions. Taxes on income, profit, and capital gain are culated from year-end figures while the ratios of taxes levied on the actual or presumptive net in- monetary holdings to GDP are based on the mid- come of individuals, on the profits of enterprises, point between the year-end figures for the speci- and on capital gains, whether realized on land fied year and the preceding year. sales, securities, or other assets. Social Security con- The nominal interest rates of banks, also from IFS, tributions include employers' and employees' so- are representative of the rates paid by commercial cial security contributions as well as those of self- or similar banks to holders of their quasi-monetary employed and unemployed persons. Domestic taxes liabilities (deposit rates) and charged by the banks on goods and services include general sales, turnover, on loans to prime customers (lending rate). They or value added taxes, selective excises on goods, are, however, of limited international comparabil- selective taxes on services, taxes on the use of ity partly because coverage and definitions vary, goods or property, and profits of fiscal monopo- but also because countries differ in the scope avail- lies. Taxes on international trade and transactions in- able to banks for adjusting interest rates to reflect 279 market conditions. a few selected countries to improve their collection Since interest rates (and growth rates for mone- and analysis of data on income distribution. Some tary holdings) are expressed in nominal terms, of the data is used in this table. much of the variation between countries stems from differences in inflation. For ease of reference, Table 27. Population growth and projections the Table 1 indicator of recent inflation is repeated in this table. The growth rates of population are period averages calculated from midyear populations. Table 26. Income distribution The estimates of population for mid-1985 are based on data from the U.N. Population Division The data in this table refer to the distribution of and from World Bank sources. In many cases the total disposable household income accruing to per- data take into account the results of recent popula- centile groups of households ranked by total tion censuses. Note again that refugees not perma- household income. The distributions cover rural nently settled in the country of asylum are gener- and urban areas and refer to different years be- ally considered to be part of the population of their tween 1970 and 1985. country of origin. The data for income distribution are drawn from The projections of population for 1990 and 2000, a variety of sources, including the Economic Com- and to the year in which the population will even- mission for Latin America and the Caribbean tually become stationary, are made for each econ- (ECLAC), Economic and Social Commission for omy separately. Starting with information on total Asia and the Pacific (ESCAP), International Labour population by age and sex, fertility rates, mortality Organisation (ILO), the Organisation for Economic rates, and international migration in the base year Co-operation and Development (OECD), the U.N. 1985, these parameters are projected at five-year National Account Statistics: Compendium of Income intervals on the basis of generalized assumptions Distribution Statistics, 1985, the World Bank, and until the population becomes stationary. The base- national sources. year estimates are from updated computer print- Collection of income distribution data is not sys- outs of the U.N. World Population Prospects as As- tematically organized or integrated with the official sessed in 1984, from the most recent issues of the statistical system in many countries, and the data U.N. Population and Vital Statistics Report, from are derived from surveys designed for other pur- World Bank country data, and from national cen- poses, most often consumer expenditure surveys, suses. that also collect some information on income. The net reproduction rate (NRR) indicates the These surveys use a variety of income concepts number of daughters a newborn girl will bear dur- and sample designs, and in many cases their geo- ing her lifetime, assuming fixed age-specific fertil- graphic coverage is too limited to provide reliable ity and mortality rates. The NRR thus measures nationwide estimates of income distribution. the extent to which a cohort of newborn girls will Therefore, while the estimates shown are consid- reproduce themselves under given schedules of ered the best available, they do not avoid all these fertility and mortality. An NRR of 1 indicates that problems and should be interpreted with extreme fertility is at replacement level: at this rate child- caution. bearing women, on average, bear only enough The scope of the indicator is similarly limited. daughters to replace themselves in the population. Because households vary in size, a distribution in A stationary population is one in which age- and which households are ranked according to per cap- sex-specific mortality rates have not changed over ita household income, rather than according to to- a long period, while age-specific fertility rates have tal household income, is superior for many pur- simultaneously remained at replacement level poses. The distinction is important because (NRR = 1). In such a population, the birth rate is households with low per capita incomes fre- constant and equal to the death rate, the age struc- quently are large households, whose total income ture is constant, and the growth rate is zero. may be high, and conversely many households Population momentum is the tendency for popula- with low household incomes may be small house- tion growth to continue beyond the time that holds with high per capita incomes. Information replacement-level fertility has been achieved; that on the distribution of per capita household income is, even after NRR has reached 1. The momentum exists for only a few countries. The World Bank's of a population in a given year is measured as a Living Standards Measurement Study is assisting ratio of the ultimate stationary population to the 280 population of that year, given the assumption that population will not remain stationary if its net re- fertility remains at replacement level. For example, production rate is other than 1, it is assumed that the 1985 population of India is estimated at 765 fertility rates in these economies will regain re- million. If NRR was 1 in 1985, the projected sta- placement levels in order to make estimates of the tionary population would be 1,349 million stationary population for them. For the sake of reached in the middle of the 22nd centuryand consistency with the other estimates, the total fer- the population momentum would be 1.8. tility rates in industrial economies are assumed to A population tends to grow even after fertility remain constant until 1985-90 and then to increase has declined to replacement level because past to replacement level by 2010. high growth rates will have produced an age distri- International migration rates are based on past bution with a relatively high proportion of women and present trends in migration flow. The esti- in, or still to enter, the reproductive ages. Conse- mates of future net migration are speculative. For quently, the birth rate will remain higher than the most economies the net migration rates are as- death rate and the growth rate will remain positive sumed to be zero by 2000, but for a few they are for several decades. It takes at least 50-75 years, assumed to be zero by 2025. depending on the initial conditions, for a popula- The estimates of the hypothetical size of the sta- tion's age distribution to adjust fully to changed tionary population and the assumed year of reach- fertility rates. ing replacement-level fertility are speculative. They To make the projections, assumptions about fu- should not be regarded as predictions. They are in- ture mortality rates are made in terms of female life cluded to show the long-run implications of recent expectancy at birth (that is, the number of years a fertility and mortality trends on the basis of highly newborn girl would live if subject to the mortality stylized assumptions. A fuller description of the risks prevailing for the cross-section of population methods and assumptions used to calculate the es- at the time of her birth). Economies are divided timates is available from the World Bank publica- according to whether their primary school enroll- tion: World Population Projections 1985--Short- and ment ratio for females is above or below 70 per- Long-term Estimates by Age and Sex with Related De- cent. In each group a set of annual increments in mographic Statistics. female life expectancy is assumed, depending on the female life expectancy in 1980-85. For a given Table 28. Demography and fertility life expectancy at birth, the annual increments dur- ing the projection period are larger in economies The crude birth and death rates indicate the number with a higher primary school enrollment ratio and of live births and deaths per thousand population a life expectancy of up to 62.5 years. At higher life in a year. They come from the sources mentioned expectancies, the increments are the same. in the note for Table 27. Percentage changes are To project fertility rates, the year in which fertil- computed from unrounded data. ity will reach replacement level is estimated. These The total fertility rate represents the number of estimates are speculative and are based on infor- children that would be born per woman, if she mation on trends in crude birth rates (defined in were to live to the end of her childbearing years the note for Table 28), total fertility rates (also de- and bear children at each age in accordance with fined in the note for Table 28), female life expect- prevailing age-specific fertility rates. The rates ancy at birth, and the performance of family plan- given are from the sources mentioned in the note ning programs. For most economies it is assumed for Table 27. that the total fertility rate will decline between 1985 The percentage of married women of childbearing age and the year of reaching a net reproduction rate of using contraception refers to women who are prac- 1, after which fertility will remain at replacement ticing, or whose husbands are practicing, any form level. For most countries in Sub-Saharan Africa, of contraception. These generally comprise con- and for a few countries in Asia and the Middle doms, diaphragms, spermicides, intrauterine de- East, total fertility rates are assumed to remain vices (JUD5), injectable and oral contraceptives, fe- constant for some time and then to decline until male and male sterilization, rhythm, withdrawal replacement level is reached; for a few countries and abstinence. Women of childbearing age are gener- they are assumed to increase and then to decline. ally women aged 15-44, although for some coun- In some countries, fertility is already below re- tries contraceptive usage is measured for other age placement level or will decline to below replace- groups: 18-44, 15-49, and 19-49. ment level during the next 5 to 10 years. Because a Data are mainly derived from the World Fertility 281 Survey, the Contraceptive Prevalence Survey, cause definitions of nursing personnel varyand World Bank country data, and the U.N. report Re- because the data shown are for a variety of years, cent Levels and Trends of Contraceptive Use as Assessed generally not more than three years distant from in 1983. For a few countries for which no survey those specifiedthe data for these two indicators data are available, program statistics are used: are not strictly comparable across countries. these include Bangladesh, India, Indonesia, and The daily calorie supply per capita is calculated by several African countries. Program statistics may dividing the calorie equivalent of the food supplies understate contraceptive prevalence because they in an economy by the population. Food supplies do not measure use of methods such as rhythm, comprise domestic production, imports less ex- withdrawal, or abstinence, or contraceptives not ports, and changes in stocks; they exclude animal obtained through the official family planning pro- feed, seeds for use in agriculture, and food lost in gram. The data refer to a variety of years, generally processing and distribution. These estimates are not more than three years distant from those speci- from the Food and Agriculture Organization fied. (FAO). All summary measures are country data weighted The summary measures in this table are country by each country's share in the aggregate popula- figures weighted by each country's share in the tion. aggregate population. Table 29. Life expectancy and related indicators Table 31. Education Life expectancy at birth is defined in the note for The data in this table refer to a variety of years, Table 1. generally not more than three years distant from The infant mortality rate is the number of infants those specified, and are mostly from Unesco. who die before reaching one year of age, per thou- The data on number enrolled in primary school are sand live births in a given year. The data are from a estimates of children of all ages enrolled in primary variety of U.N. sources"Infant Mortality: World school. Figures are expressed as the ratio of pupils Estimates and Projections, 1950-2025" in Popula- to the population of school-age children. While tion Bulletin of the United Nations (1983), recent is- many countries consider primary school age to be sues of U.N. Demographic Yearbook, and Population 6-11 years, others do not. The differences in coun- and Vital Statistics Reportand from the World try practices in the ages and duration of schooling Bank. are reflected in the ratios given. For some countries The child death rate is the number of deaths of with universal primary education, the gross enroll- children aged 1-4 per thousand children in the ment ratios may exceed or fall below 100 percent same age group in a given year. Estimates are because some pupils are younger or older than the based on the data on infant mortality and on the country's standard primary school age. The data relationship between the infant mortality rate and on number enrolled in secondary school are calculated the child death rate implicit in the appropriate in the same manner, but again the definition of Coale-Demeny model life tables; see Ansley J. secondary school age differs among countries. It is Coale and Paul Demeny, Regional Model Life Tables most commonly considered to be 12-17 years. and Stable Populations (Princeton, NJ: Princeton The estimates of number enrolled in higher educa- University Press, 1966). tion are calculated similarly, using the 20-24 age The summary measures in this table are country cohort. figures weighted by each country's share in the The summary measures in this table are country aggregate population. enrollment rates weighted by each country's share in the aggregate population. Table 30. Health-related indicators Table 32. Labor force The estimates of population per physician and nursing person are derived from World Health Organization The population of working age refers to the popula- (WHO) data. They take into account more recent tion aged 15-64. The estimates are from the Inter- estimates of population. Nursing persons include national Labour Organisation (ILO) based on U.N. graduate, practical, assistant, and auxiliary nurses; population estimates. the inclusion of auxiliary nurses allows for a better The summary measures are weighted by popula- estimation of the availability of nursing care. Be- tion. 282 The labor force comprises economically active per- Table 33. Urbanization Sons aged 10 years and over, including the armed forces and the unemployed, but excluding house- The data on urban population as a percentage of total wives, students, and other economically inactive population are from the U.N. Estimates and Projec- groups. Agriculture, industry, and services are de- tions of Urban, Rural and City Populations 1950-2025: fined as in Table 2. The estimates of the sectoral The 1982 Assessment, 1985, supplemented by data distribution of the labor force are from the ILO, from various issues of the U.N. Demographic Year- Labour Force Estimates and Projections, 1950-2000, book and from the World Bank. 1986. The growth rates of urban population are calculated The summary measures are weighted by labor from the World Bank's population estimates; the force. estimates of urban population shares are calcu- The labor force growth rates are from ILO data and lated from the sources cited above. Data on urban are based on age-specific activity rates reported in agglomeration are from the U.N. Patterns of Urban the source cited above. and Rural Population Growth, 1980. The application of ILO activity rates to the Because the estimates in this table are based on Bank's latest population estimates may be inap- different national definitions of what is "urban," propriate for some economies in which there are cross-country comparisons should be interpreted important changes in unemployment and under- with caution. employment, in international and internal migra- The summary measures for urban population as a tion, or in both. The labor force projections for percentage of total population are calculated from 1985-2000 should thus be treated with caution. country percentages weighted by each country's The summary measures are country growth rates share in the aggregate population; the other sum- weighted by each country's share in the aggregate mary measures in this table are weighted in the labor force in 1980. same fashion, using urban population. 283 Bibliography National International Monetary Fund. 1986. Government Finance Statistics Yearbook, Vol. 9. accounts and Washington, D.C.. economic U.N. Department of International Economic and Social Affairs. Various years. Statistical indicators Yearbook. New York. 1985. National Accounts Statistics: Compendium of income Distribution Statistics. Statistical Papers, series M, no. 79. New York. FAQ, IMF, and UNIDO data files. National sources. World Bank country documentation. World Bank data files. Energy U.N. Department of International Economic and Social Affairs. Various years. World Energy Supplies. Statistical Papers, series J. New York. World Bank data files. Trade International Monetary Fund. Various years. Direction of Trade Statistics. Washington, D.C.. Various years. International Financial Statistics. Washington, D.C.. U.N. Conference on Trade and Development. Various years. Handbook of International Trade and Development Statistics. Geneva. U.N. Department of International Economic and Social Affairs, Various years. Monthly Bulletin of Statistics. New York, Various years. Yearbook of International Trade Statistics. New York. FAQ, IMF, and World Bank data files. U.N. trade tapes. World Bank country documentation. Balance of The Organisation for Economic Co-operation and Development. Various years. payments, Development Co-operation. Paris. capital flows, 1986. Geographical Distribution of Financial Flows to Developing Countries. Paris. and debt IMF balance of payments data files. World Bank Debtor Reporting System. Labor force International Labour Office. 1986. Labour Force Estimates and Projections, 1950-2000. 3rd ed. Geneva. International Labour Organisation tapes. Population U.N. Department of International Economic and Social Affairs. Various years. Demographic Yearbook. New York. Various years. Population and Vital Statistics Report. New York. 1980. Patterns of Urban and Rural Population Growth. New York. 1982. "Infant Mortality: World Estimates and Projections, 1950-2025." Population Bulletin of the United Nations, no. 14. New York. Updated printouts. World Population Prospects as Assessed in 1982. New York. 1983. World Population Trends and Policies: 1983 Monitoring Report. New York. 1984. Recent Levels and Trends of Contraceptive Use as Assessed in 1983. New York. 1985. Estimates and Projections of Urban, Rural and City Populations, 1950-2025; The 1982 Assessment. New York. World Bank data files. Social Food and Agriculture Organization. 1986. Food Aid Bulletin (April). Rome. indicators 1981. Fertilizer Yearbook 1982. Rome, 1983. Food Aid in Figures (December). Rome. 1985a. Fertilizer Yearbook 1984. Rome. 1985b. Trade Yearbook 1984. Rome. 1986. Production Yearbook 1985. Rome. U.N. Department of International Economic and Social Affairs. Various years. Demographic Yearbook. New York. Various years. Statistical Yearbook. New York. U.N. Educational Scientific and Cultural Organization. Various years. Statistical Yearbook. Paris. World Health Organization. Various years. World Health Statistics Annual. Geneva. Various years. World Health Statistics Report. Geneva. FAQ and World Bank data files. 284 International Kravis, Irving B., Zoltan Kenessey, Alan Heston, Robert Summers. 1975. Phase I: A System Comparison of International Comparisons of Gross Product and Purchasing Power. Baltimore, Md.: Johns Project reports Hopkins University Press. Kravis, Irving B., Alan Heston, Robert Summers. 1978. Phase II: International Comparisons of Real Product and Purchasing Power. Baltimore, Md.: Johns Hopkins University Press. 1982. Phase III: World Product and Income: International Comparisons of Real Gross Product. Baltimore, Md.: Johns Hopkins University Press. 1986. Phase IV: World Comparisons of Purchasing Power and Real Product for 1980. New York: United Nations. 285 The World Bank MANY FACTORS OTHER THAN TRADE POLICY affect the ability of a country to industrialize. Among them are its size, natural resources, and the skills of its people; the stability of its government and institutions and their ability to promote change; and the government's fiscal, monetary, and exchange rate policies. Yet the role played by foreign trade in the process of a country's industrialization, the theme of this tenth annual World Development Report, is crucial, and empirical studies over the past thirty years make it possible to draw useful lessons concerning the advantages and disadvantages of differ- ent trade policies. The importance of the subject is magnified in today's economic climate by the continued sluggish growth worldwide and the rising protectionism in industrial countries. These factors threaten the pros- pects of developing countries, many of which have begun to reduce their trade barriers from very high levels to expand exports and obtain net earn- ings of foreign exchange that are needed to maintain adequate growth and to service external debt. The Report considers four principal sets of issues: LI What conditions in the world economy support the industrialization efforts of the developing countries? What factors will influence the growth of the global economy in the long term? LI What is the role of government in bringing about efficient industrialization? What are the effects of different trade strategies on indus- trialization? LI How have countries accomplished reform of their trade and other policies in such a way as to lead to efficient industrialization? How should trade liberalization measures be coordinated with appropriate macroeconomic policies in order for trade liberalization to have the desired effects? LI How can developing countries respond to the growing pressure on the governments of industrial countries to protect their domestic indus- tries? What underlies the growing threat of protectionism in the face of clear historical evidence that the consequences are damaging to all parties? Treatment of these issues, enriched by frequent comparisons of the expe- riences of many countries, leads to consideration of the new multilateral trade negotiationsthe Uruguay Roundthat have begun under the auspi- ces of the General Agreement on Tariffs and Trade. The Report discusses the stake of the developing countries in these negotiations and the issues rele- vant to their progress toward industrialization. ISBN 0-19-520562-6 (HC) ISBN 0-19-520563-4 (PB) Cover design by Bill Fraser ISSN 0163-5085