Thomas Farole

Cohesion Policy in the European Union: Growth, Geography, Institutions

Since the reform of the Structural Funds in 1989, the EU has made the principle of cohesion one of its key policies. Much of the language of European cohesion policy eschews the idea of tradeoffs between efficiency and equity, suggesting it is possible to maximise overall growth whilst also achieving continuous convergence in outcomes and productivity across Europe’s regions. Yet, given the rise in inter-regional disparities, it is unclear that cohesion policy has altered the pathway of development from what would have occurred in the absence of intervention. This paper draws on geographical economics, institutionalist social science, and endogenous growth theory, with the aim of providing a fresh look at cohesion policy. By highlighting a complex set of potential tradeoffs and inter-relations – overall growth and efficiency; inter-territorial equity; territorial democracy and governance capacities; and social equity within places – it revisits the rationale of cohesion policy, with particular attention to the geographical dynamics of economic development.

Special Economic Zones in Africa: Comparing Performance and Learning from Global Experience

Economic zones have grown rapidly in the past 20 years. In 1986, the International Labor Organizations (ILOs) database reported 176 zones in 47 countries; by 2006, it reported 3,500 zones in 130 countries. This huge growth occurred despite many zones having failed to meet their objectives; however, many others are contributing significantly to growth in foreign direct investment (FDI), exports, and employment, as well as playing a catalytic role in integration into global trade and structural transformation, including industrialization and upgrading. This study aims to address some of these questions and deliver an analysis that is both data-driven and policy-focused. The objective of the study is to explore the experience of zone programs, with a particular focus on Sub-Saharan Africa, to understand the factors that contribute to static and dynamic outcomes. It aims to provide input to the question of whether and how zones can make a significant contribution to job creation, diversification, and sustainable growth in African and other low-income countries.

Human geography and the institutions that underlie economic growth

Human geography is in a unique position to understand how local structural factors shape social, political, and ultimately economic outcomes. Indeed, the discipline has had much to say about the interaction between local institutions and the economy in general, and about how the broader institutions of society influence local economic development. Yet, to date, geographers have for the most part avoided debates on more generalized theories of economic growth and development. With the increasing recognition — among sociologists, political scientists and even economists — that explaining economic growth robustly requires taking into account the role of both formal society-wide institutions and local and sometimes informal institutions, geographers are in a position to make an important contribution. In order to do so, however, they will need to take greater account of the theories and developments that are taking place outside the discipline. Using the framework of community and society as complementary structural forces shaping development trajectories, this paper presents a broad overview of the principal theoretical and empirical developments in the institutionalist approaches to economic development and identifies areas in which geographical research could contribute to them.

Trade competitiveness diagnostic toolkit

This Trade Competitiveness Diagnostic (TCD) toolkit provides a framework, guidelines, and practical tools needed to conduct an analysis of trade competitiveness. The toolkit can be used to assess the competitiveness of a countrys overall basket of exports, as well as specific traded sectors. It includes guidance on a range of tools and indicators that can be used to analyze trade performance in terms of growth, orientation, diversification, quality, and survival, as well as quantitative and qualitative approaches to analyze the market and supply-side factors that determine competitiveness. The toolkit facilitates the identification of the main constraints to improved trade competitiveness and the policy responses to overcome these constraints. The output of a TCD initiative can be used for a wide variety of purposes. The TCD toolkit is intended for policy makers and practitioners involved in analysis of trade performance and design of trade and industrial policy.

Making foreign direct investment work for Sub-Saharan Africa : local spillovers and competitiveness in global value chains

Foreign Direct Investment (FDI) is becoming an increasingly significant catalyst for output and trade in developing countries, in part due to a major expansion in the scope of Global Value Chains (GVCs). FDI delivers a number of important contributions to economic development in terms of investment, employment, and foreign exchange. However, it is FDIs spillover potential-the productivity gain resulting from the diffusion of knowledge and technology from foreign investors to local firms and workers-that is perhaps its most valuable input to long-run growth and development. While substantial empirical evidence has been amassed over the past decade on the existence and dynamics of FDI spillovers, the results are mixed-simply attracting FDI by no means guarantees that a country will benefit from spillovers. This chapter provides an overview of the objectives of the research for which the results are presented in this book. The aim of the research is to identify the critical factors for the realization of FDI-related spillovers including dynamic interactions between FDI and local suppliers, service providers, workers, local producers, customers, and institutions. The research involved detailed field surveys in three industries, characterized by GVCs, across eight countries, with a specific focus on low-income countries in Sub-Saharan Africa.

Second best ? investment climate and performance in Africa's special economic zones

As an instrument of trade and investment policy, special economic zones have played a catalytic role in processes of industrialization, diversification, and trade integration in many countries, particularly in East Asia. However, in the African context, anecdotal evidence suggests the experience has been disappointing on the whole. Among the reasons why many zones underperform may be that they fail to establish a high quality investment environment -- this is, after all, one of the main promises that economic zones hold for investors. Drawing on original survey research, this paper presents a systematic analysis of the outcomes and the investment climate of economic zones programs in six African countries and four developing countries outside the region. The analysis finds that although performance across zones is mixed -- with Ghana and Lesotho in particular performing well on some measures -- African zones programs on the whole are underperforming in terms of attracting investment, facilitating exports, and creating jobs. Economic zones in Africa offer an improved business environment relative to what is available to firms based outside the zones; however, in comparison with the non-African countries in the survey, both absolute investment climate performance and relative improvements fall well short.

Export Competitiveness in Indonesia's Manufacturing Sector

Through a foundation of sound macroeconomic management and political stability, the Indonesian economy grew by an average of almost 6 percent annually between 2004 and 2008; and despite the global economic crisis, it maintained a 4.5 percent growth rate in 2009. Fuelled by agricultural and natural resource commodities, Indonesias non-oil and gas exports grew 22.6 percent annually between 2004 and 2008, more than double their rate in the 2000-2004 period. This period of growth has contributed to significant job creation for the first time since the Asian crisis, with formal sector employment growing 2.2 percent annually in the 2004-2008 periods. Despite its rich natural resources, Indonesia has not made significant progress in transforming its exports of raw materials into processed products. Thus, in the absence of robust growth from the manufacturing sector, there is a concern that the country will be unable to generate enough jobs. Moreover, in the absence of a competitive, growing manufacturing sector, long-term economic growth is likely to become increasingly dependent upon global commodity markets over which Indonesia has little control. It is therefore critical that Indonesia takes following policy actions: (1) raising productivity by addressing labor market rigidities and improving access to skills development and training, as well as improving the quality of management of firms; (2) improving non-price competitiveness factors, in particular by addressing issues related to infrastructure and trade facilitation; (3) improving the business regulatory environment to promote a more sophisticated domestic market; and (4) improving product quality to meet recognized global and market standards.

Firm Location and the Determinants of Exporting in Developing Countries

Using a cross-section of more than 40,000 manufacturing and services firms in 79 developing countries from the World Banks Enterprise Surveys Database, this paper assesses how firm location determines the likelihood and extent of exporting in developing countries. Descriptive statistics confirm higher export participation (but not intensity) for firms in core versus non-core regions, despite the finding that firms in the core assess many aspects of the investment climate more negatively. Results from a probit model show that, in addition to firm-specific characteristics, both regional investment climate and agglomeration factors have a significant impact on export participation. Specifically, customs clearance and electricity quality matter for export participation for manufacturing firms. Although localization economies and export spillovers are associated with increased exporting, the opposite is found for urbanization economies for both manufacturing and services firms. The analysis finds that firm-level determinants of exporting matter more for firms located in non-core regions, while regional determinants and agglomeration economies play a larger role in core regions. The findings point to the presence of congestion costs in the core, and suggest that policy interventions to target export participation are likely to have a greater impact if they are focused on core regions over non-core regions, where firm-specific factors predominate. Moreover, the importance of export spillovers and localization economies highlights the potential value of efforts to remove barriers to natural agglomeration both in core and non-core regions, for example through investments in infrastructure, the provision of social services, and regional integration arrangements.

The capabilities driving participation in global value chains

Global value chains have altered the nature of global trade and offer significant opportunities for developing countries to expand exports, access technology, and raise productivity. Policy makers rightly seek to understand what it takes to participate in global value chains. In practice, this means understanding what it takes to attract lead firms and upgrade to higher value-added activities. Recent literature has pointed to a range of underlying characteristics that may drive participation in global value chains. Using a modified factor-content methodology, this paper shows that proximity to markets, efficient logistics, and strength of institutions are among the most important capabilities. However, the paper also shows that each sector has a unique mix of capability requirements. Fixed structural characteristics limit the range of sectoral possibilities for a given country, but, by reducing policy-related gaps, a country may be able to increase its competitiveness for participating in global value chains. The paper applies the methodology to Southern African Customs Union countries, and demonstrates that, by filling gaps in underlying capabilities, these countries could increase participation in certain global value chain sectors.

Trade in Global Value Chains : An Assessment of Labor Market Implications

This paper draws on unique datasets – the World Bank Labor Content of Exports (LACEX) and Export Value Added (EVA) databases – to explore how different varieties of trade integration through global value chains (GVCs) may result in different outcomes in the labor market. It highlights five key findings: (i) The net association between trade integration and labor demand is positive, suggesting that while high shares of GVC integration is negatively correlated with labor demand, this is overcome by the larger aggregate output that results; (ii) Exporting (including intermediates) shows a positive correlation with the labor share in the direct export sector, while buying in GVCs is associated with positive returns to labor in the supplying sectors; (iii) Greater use of foreign inputs as a buying-side GVC integrator has overall benefits in terms of the returns to labor (relative to capital), but is likely to be associated with greater polarization of those returns, with skilled workers benefiting over unskilled; (iv) While results generally hold across sectors and income levels, we find evidence of a U-shaped relationship, whereby low and (especially) high income countries appear to have a stronger association between trade integration and labor market outcomes relative to middle income countries; and, (v) trade policy appears to play a significant role in mediating the relationship between trade and labor demand, while the mediating role of labor policy varies across the trade.