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Developing Countries:
Chances and Challenges
Hans-Werner Sinn
Presidential Address
IIPF, Cape Town 2009
August 2009
H.-W. Sinn
The Current Crisis
Globalisation and Convergence
Income Inequality
Capital Flows
Migration
Nutrition and Biofuel
H.-W. Sinn
The Current Crisis
H.-W. Sinn
World economy, GDP 1951-2009
%
Constant prices, annual percentage change
8.0
7.0
6.0
2007
5.1%
5.1%
5.0
4.0
2008
3.1%
3.1%
2010
3.0
2.0
2.5%
1.0
0.0
-1.0
2009
-2.0
-1.4%
-3.0
1950
1960
1970
1980
1990
2000
Sources: International Monetary Fund, World Economic Outlook April 2009 Database (1980-2006); 2007-2010:
Update July 2009; 1951-1969: Angus Maddisson, The World Economy, OECD, 2006.
2010
July 8, 2009 H.-W. Sinn
Global GDP growth
Quarter-over-quarter, annualized
%
12
10
Emerging and developing
economies
8
6
4
2
0
-2
Advanced
economies
-4
-6
-8
Forecast period
-10
2005
2006
2007
Source: IMF, World Ecomomic Outlook, April 2009.
2008
2009
2010
July 17, 2009 H.-W. Sinn
Ifo World Economic Climate*
140
1995=100
130
Next six
month
120
110
2nd
100 oil
crisis
90
80
Gulf war
70
Asian crisis
60
WTC
Sept. 11.
50
40
At present
30
83
85
87
89
91
93
95
97
99
01
03
05
07
09
* Arithmetic mean of judgment about the present and expected economic situation.
Source: Ifo World Economic Survey (WES) III/2009.
August 19, 2009
H.-W. Sinn
Ifo World Economic Climate for South Africa*
130
1995=100
120
110
100
Next six
months
90
80
70
60
50
40
At
present
30
20
10
0
89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09
* Arithmetic mean of judgment about the present and expected economic situation.
Source: Ifo World Economic Survey (WES) III/2009.
August 19, 2009
H.-W. Sinn
Globalisation
and Convergence
H.-W. Sinn
GDP per capita in different regions and countries (2007)
60000
Uzbekistan
South Asia
India
Sub-Saharan Africa
East Asia & Pacific
China
Middle East & North Africa
Thailand
South Africa
Latin America & Caribbean
Brazil
Europe & Central Asia
World
Turkey
Russian Federation
Hong Kong, China
Singapore
United Arab Emirates *
France
United States
0
Source: World Bank, WDI.
50000 40000
830 53212
49704
948
45592
1046
42306
1059
33674
2283
2432
2714
3844
5914
6450
6855
7082
8257
8877
9079
30000 20000
*2006
20000
0
Purchasing power
parities
Exchange rates
10000
10000
14690
12955
11539
9980
9970
9757
9567
8135
7208
5383
29912
4961
35163
2753
38436
2527
41970
2425
45592
1983
30000
40000
50000
United Arab Emirates *
Singapore
United States
Hong Kong, China
France
Russian Federation
Turkey
Europe & Central Asia
World
Latin America & Caribbean
South Africa
Brazil
Thailand
Middle East & North Africa
China
East Asia & Pacific
India
South Asia
Uzbekistan
Sub-Saharan Africa
60000
July 28, 2009 H.-W. Sinn
GDP per capita in different regions and countries (2007)
60000
Uzbekistan
South Asia
India
Sub-Saharan Africa
East Asia & Pacific
China
Middle East & North Africa
Thailand
South Africa
Latin America & Caribbean
Brazil
Europe & Central Asia
World
Turkey
Russian Federation
Hong Kong, China
Singapore
United Arab Emirates *
France
United States
0
Source: World Bank, WDI.
50000 40000
830 53212
49704
948
45592
1046
42306
1059
33674
2283
2432
2714
3844
5914
6450
6855
7082
8257
8877
9079
30000 20000
*2006
20000
0
Purchasing power
parities
Exchange rates
10000
10000
14690
12955
11539
9980
9970
9757
9567
8135
7208
5383
29912
4961
35163
2753
38436
2527
41970
2425
45592
1983
30000
40000
50000
United Arab Emirates *
Singapore
United States
Hong Kong, China
France
Russian Federation
Turkey
Europe & Central Asia
World
Latin America & Caribbean
South Africa
Brazil
Thailand
Middle East & North Africa
China
East Asia & Pacific
India
South Asia
Uzbekistan
Sub-Saharan Africa
60000
July 28, 2009 H.-W. Sinn
GDP per capita in different regions and countries (2007)
60000
Uzbekistan
South Asia
India
Sub-Saharan Africa
East Asia & Pacific
China
Middle East & North Africa
Thailand
South Africa
Latin America & Caribbean
Brazil
Europe & Central Asia
World
Turkey
Russian Federation
Hong Kong, China
Singapore
United Arab Emirates *
France
United States
0
Source: World Bank, WDI.
50000 40000
830 53212
49704
948
45592
1046
42306
1059
33674
2283
2432
2714
3844
5914
6450
6855
7082
8257
8877
9079
30000 20000
*2006
20000
0
Purchasing power
parities
Exchange rates
10000
10000
14690
12955
11539
9980
9970
9757
9567
8135
7208
5383
29912
4961
35163
2753
38436
2527
41970
2425
45592
1983
30000
40000
50000
United Arab Emirates *
Singapore
United States
Hong Kong, China
France
Russian Federation
Turkey
Europe & Central Asia
World
Latin America & Caribbean
South Africa
Brazil
Thailand
Middle East & North Africa
China
East Asia & Pacific
India
South Asia
Uzbekistan
Sub-Saharan Africa
60000
July 28, 2009 H.-W. Sinn
Economic growth in selected regions and countries
200
China 228.5%
Real GDP
Index, 1995=100
190
Africa 89.1%
Middle East 84.1%
Hong Kong,
Singapore,
South Korea,
Taiwan 75.1%
180
170
Central and eastern
Europe 73.6%
160
World 63.3%
Latin America
150
55.7%
United States
140
45.1%
EU27 37.3%
130
120
110
100
95
96
97
98
99
00
01
02
Source: IMF, World Economic Outlook Database, April 2009.
03
04
05
06
07
08
July 22, 2009 H.-W. Sinn
Economic growth in selected regions and countries
200
Real GDP
Index, 1995=100
190
Africa 89.1%
180
170
160
South Africa
58.2%
150
140
130
120
110
100
95
96
97
98
99
00
01
02
Source: IMF, World Economic Outlook Database, April 2009.
03
04
05
06
07
08
July 22, 2009 H.-W. Sinn
GDP in PPP per capita
200
Real GDP
Index, 1995=100
190
Africa 77.3%
South Africa
180
170
77.2%
160
150
140
130
120
110
100
95
96
97
98
99
00
01
02
Source: IMF, World Economic Outlook Database, April 2009.
03
04
05
06
07
08
July 22, 2009 H.-W. Sinn
Income Inequality
H.-W. Sinn
Share of global GDP and global population in 2008
Share of GDP
Rest of the World
8%
4**
Rest of Asia
18%
Share of population
EU+US
12%
Rest of the
World 8% EU27 8%
EU27 30%
United States
6%**
5%
19%*
China 20%
Africa 2%
India 2%
Brazil 3%
Russia 3%
China 7%
BRIC
15%
United States
24%
EU+US 54%
Africa
13%
Russia 2%
Brazil 3%
India 18%
BRIC 43%
*Rest of Asia
**Rest of Latin America
Source: IMF, World Economic Outlook Database, April 2009; Eurostat; Ifo Institute calculations.
July 30, 2009 H.-W. Sinn
Population who live below the poverty line*
90
%
80
East Asia and Pacific
70
Sub-Saharan Africa
60
50
40
30
20
South Asia
Total
Europe and Central Asia
Middle East and North Africa
Latin America and the Caribbean
10
0
1981
1984
1987
1990
1993
1996
1999
2002
2005
*Share of population living with less than 1.25$ per day (2005 Purchasing Power Parities).
Source: World Bank; calculations by the Ifo Institute.
July 28, 2009 H.-W. Sinn
Population who live below the poverty line*
90
%
80
70
60
52%
50
40
Total
25%
30
20
10
0
1981
1984
1987
1990
1993
1996
1999
2002
2005
*Share of population living with less than 1.25$ per day (2005 Purchasing Power Parities).
Source: World Bank; calculations by the Ifo Institute.
July 28, 2009 H.-W. Sinn
Relative size of middle class in world population
% of population
60
50
Middle class: income above
weighted average of absolute poverty lines in developed
countries ($ 8.2 per capita per day at 1996 PPP prices)
50.2
42.6
40
32.2
34.2
28.8
30
23.5
20
10
0
1950
1960
1980
1990
2000
Source: Surjit S. Bhalla, Second Among Equals: The Middle Class Kingdoms of India and China, 2007.
2006
July 17, 2009 H.-W. Sinn
Worldwide Lorenz curve by country
(GDP per capita, PPP)
100
Share in world GDP (%, cumulated)
90
80
Population shares (2007)
70
OECD
17%
Ex-comm. countries 28%
India
17%
Brazil
3%
60
50
40
0.556
30
2007
0.653
66%
20
1980
10
0
0 10 20 30 40 50 60 70 80 90 100
Population share (%, cumulated)
Source: World Bank, WDI; calculations by the Ifo Institute.
July 30, 2009 H.-W. Sinn
Why?
Factor price equalisation
Fall of the Iron Curtain
Reduced tariffs and taxes
H.-W. Sinn
60
50
40
Average applied tariff rates in developing
and industrial countries
unweighted in %
Low income (52)
Middle income (90)
High income non-OECD (17)
High income OECDs (10)
World (169)
30
20
10
0
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07
Notes: All tariff rates are based on unweighted averages for all goods in ad valorem rates, or applied rates, or
MFN rates whichever data is available in a longer period.
Source: World Bank.
H.-W. Sinn
Average applied tariff rates 2007
Unweighted in %
Bahamas
Iran
Egypt
Pakistan
India
Niger
Uganda
Brazil
Uzbekistan
Sri Lanka
China
Russian
South Africa
Indonesia
4.2
United Arab Emirates
4.1
Bahrain
4.0
Saudi Arabia
3.8
Qatar
2.8
Australia
2.7
United States
1.9
Turkey
1.6
EU27
Switzerland 0.0
Singapore 0.0
Hong Kong, China 0.0
0
5
Source: World Bank.
29.9
21.3
16.7
14.5
14.0
12.9
12.2
12.1
10.8
10.7
8.7
8.3
7.8
6.6
10
15
20
25
30
H.-W. Sinn
Migration
H.-W. Sinn
Share of foreign born population 1960-2005
10
9
8
%
More developed
regions
7
6
5
4
World
3
2
1
Less developed regions
0
1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005
More developed regions: They comprise all regions of Europe plus Northern America, Australia/New Zealand
and Japan.
Less developed regions: They comprise all regions of Africa, Asia (excluding Japan), Latin America and the
Caribbean plus Melanesia, Micronesia and Polynesia.
Source: OECD, Policy Coherence for Development 2007: Migration and Developing Countries.
July 17, 2009
H.-W. Sinn
Stock of foreign-born population as a percentage
of total population (2006)
30.0
24.1
25.0
19.8
20.0
15.0
12.7 12.9 13.0
8.3 8.7
10.0
6.6
5.0
21.2
14.1
10.1 10.6
3.4 3.6
m
do
N
et
he
rla
ng
ay
G nds
er
m
an
U Sw y
ni
e
te d e
d
n
St
at
es
Au
st
ria
C
N
ew ana
Ze da
al
Au a n d
st
ra
lia
U
ni
te
d
Ki
w
or
N
an
ce
k
Fr
m
ar
d
en
an
D
nl
Fi
H
un
ga
ry
0.0
Source: OECD, International Migration Outlook 2008; German Statistical Office.
July 30, 2009
H.-W. Sinn
Problem Brain Drain
H.-W. Sinn
Brain Drain
A problem for many countries
Share of a country´s
nationals with a university
education who live in an
(other) OECD country
less than 2 (4)
less than 5 (19)
less than 10 (26)
less than 20 (23)
more than 20 (22)
not included (71)
Source: OECD Database on Expatriates and Immigrants, 2004/2005; Cohen and Soto (2001),
http://www.oecd.org/document/40/0,3343,en_2649_33935_39269032_1_1_1_1,00.html
H.-W. Sinn
Skill distribution of migrants
(2000)
Millions
15
From non-OECD
From OECD
10
5
0
Low
Middle
Europe
High
Low
Middle
High
North America
Note on Schooling Levels: "Low" refers to less than upper secondary; "Middle" to upper secondary but not
tertiary; "High" to tertiary level.
Source: OECD, Policy Coherence for Development 2007: Migration and Developing Countries.
July 17, 2009 H.-W. Sinn
Capital Flows
H.-W. Sinn
Net capital exports
United States 1929-2008
7.0
% of GDP
6.0
5.0
4.0
Emerging and
developing economies
1980-2008
3.0
2.0
1.0
714
bn US$
0.0
- 1.0
- 2.0
-790
bn US$
- 3.0
- 4.0
- 5.0
- 6.0
- 7.0
1930
1940
1950
1960
1970
Source: IMF; Bureau of Economic Analysis; Ifo Institute calculations.
1980
1990
2000
2010
August 4, 2009
H.-W. Sinn
Breakdown of net capital exports and imports:
shares for 2007
Net capital exports
Venezuela
Other countries
Qatar
Libya
Hong Kong
Iran
Malaysia
China
Algeria
21%
Taiwan
Sweden
Germany
UAE
Singapore
14%
Kuwait
Japan
Netherlands
12%
Norway
Switzerland
Russia
Saudi
Arabia
Net capital imports
Ireland
India
Poland
South Africa
Portugal
Rumania
France
Turkey
New Zealand
Bulgaria
Other countries
USA
49%
Greece
Italy
Australia
United Kingdom
7%
Spain
10%
H.-W. Sinn
Externel debt
80
% of GDP
70
Africa: Sub-Sahara
60
50
40
Emerging and
developing economies
30
20
95
96
97
98
99
Source: IMF, WEO database April 2009.
00
01
02
03
04
05
06
07
08
09
10
H.-W. Sinn
Nutrition and Biofuel
Table or Tank: Competing for
agricultural land
H.-W. Sinn
World´s biofuel production
Million tonnes of oil equivalent
35
Biodiesel
30
Bioethanol
25
20
15
10
5
0
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
Source: Biodiesel: 1991-1999: F.O. Licht, as reported by Worldwatch Institute (Vital Signs Online): www.wordwatch.org/
node/4344; 2000-2007: F.O. Licht, “World biodiesel production growth may slow in 2007”, FO Licht's World Ethanol &
Biofuels Report, Vol.5, No.14, 23 March 2007; Bioethanol: Canadian Renewable Fuels Association; European bioethanol
Fuel Association; F.O. Lichts; Government agencies in Brazil, Canada, US, Austria, Australia, China.
2007
H.-W. Sinn
Bioethanol in the World (2006)
North and
Central America
48%
EU 4%
Asia 5%
South America
44%
H.-W. Sinn
Only of marginal importance?
Suppose we just replace liquid fuels,
which itself is only a fifth of world
fossil energy use ...
H.-W. Sinn
Biofuel
share
IEA
OECD
Share of agricultural land
10%
9%
10%
20%
17%
20%
100%
85%
100%
H.-W. Sinn
The tortilla crisis and other food protests
Why?
Was
i
biofu t
el s ?
Tortilla crisis, Mexico city, 31.01.2007
Honduras, 17.04.2008
Senegal, 26.04.2008
H.-W. Sinn
It was.
H.-W. Sinn
World market prices of cereals and crude oil
Price index January 2005=100
350
300
Wheat
250
200
Tortilla crisis
Corn (maize)
150
100
Rice
50
July
0
95
96
97
98
99
Source: HWWI; Ifo Institute calculations.
00
01
02
03
04
05
06
07
08
09
August 4, 2009
H.-W. Sinn
World market prices of cereals and crude oil
Price index January 2005=100
350
• U.S. 2007: 8% of agricultural land, 30% of
corn production
300
Wheat
250
200
Tortilla crisis
Corn (maize)
150
100
Rice
50
July
0
95
96
97
98
99
Source: HWWI; Ifo Institute calculations.
00
01
02
03
04
05
06
07
08
09
August 4, 2009
H.-W. Sinn
World market prices of cereals and crude oil
Price index January 2005=100
350
• Increase of world corn production 2004-2007
= Increase of corn demand Wheat
for
bioethanol in the U.S.
300
250
200
Tortilla crisis
Corn (maize)
150
100
Rice
50
July
0
95
96
97
98
99
Source: HWWI; Ifo Institute calculations.
00
01
02
03
04
05
06
07
08
09
August 4, 2009
H.-W. Sinn
World market prices of cereals and crude oil
Price index January 2005=100
350
• IFPRI: 40% of increase in food prices in 20002007 from biofuel
300
Wheat
250
200
Tortilla crisis
Corn (maize)
150
100
Rice
50
July
0
95
96
97
98
99
Source: HWWI; Ifo Institute calculations.
00
01
02
03
04
05
06
07
08
09
August 4, 2009
H.-W. Sinn
World market prices of cereals and crude oil
Price index January 2005=100
350
• Worldbank (D. Mitchell): up to 75% of the
increase in food prices 2002-2008
from
Wheat
biofuel
300
250
200
Tortilla crisis
Corn (maize)
150
100
Rice
50
July
0
95
96
97
98
99
Source: HWWI; Ifo Institute calculations.
00
01
02
03
04
05
06
07
08
09
August 4, 2009
H.-W. Sinn
World market prices of cereals and crude oil
Price index January 2005=100
350
The ratchet effect
A new phase of
history
300
250
200
Wheat
Tortilla crisis
Corn (maize)
150
100
Rice
50
Crude oil
July
0
95
96
97
98
99
Source: HWWI; Ifo Institute calculations.
00
01
02
03
04
05
06
07
08
09
August 4, 2009
H.-W. Sinn
Conclusions
• Globalization has brought rapid growth
• Income inequality is falling
• Brain drain has been a problem
• Capital has flown in the wrong direction
• Ratchet effect of bio fuels is opening a new
chapter of history for developing countries
H.-W. Sinn
H.-W. Sinn
H.-W. Sinn