Revision slides from a seminar on economic growth and competitiveness

2. Fastest Growing Countries in 2015
19.33%
9.19%
9%
8.56%
8.33%
7.75%
7.59%
7.56%
7.46%
7.31%
7.23%
7.2%
7.13%
7%
6.86%
0.0% 5.0% 10.0% 15.0% 20.0% 25.0%
Papua New Guinea
Congo
Turkmenistan
Ethiopia
Myanmar
Côte d'Ivoire
Chad
Bhutan
India
Lao P.D.R.
Tanzania
Cambodia
Qatar
Rwanda
Kenya
Real GDP growth compared to previous year (per cent), Source: IMF
Source: IMF

3. Fastest Growing Countries in 2015
19.33%
9.19%
9%
8.56%
8.33%
7.75%
7.59%
7.56%
7.46%
7.31%
7.23%
7.2%
7.13%
7%
6.86%
0.0% 5.0% 10.0% 15.0% 20.0% 25.0%
Papua New Guinea
Congo
Turkmenistan
Ethiopia
Myanmar
Côte d'Ivoire
Chad
Bhutan
India
Lao P.D.R.
Tanzania
Cambodia
Qatar
Rwanda
Kenya
Real GDP growth compared to previous year (per cent), Source: IMF
• Economic growth is a
long-term expansion of
productive potential
• Short term growth is the
annual % change in real
national output
• Long term growth is
shown by an increase in
trend or potential GDP
and this is illustrated by
an outward shift of long
run aggregate supply
Source: IMF

4. Short Run and Long Run Economic Growth
Short term economic growth
Cyclical changes in real GDP
Changes in AD (C+I+G+X-M)
Changes in short run AS
Short term external shocks to
both demand and supply
Short term policy changes e.g.
changes in interest rates
Long run economic growth
Potential output / trend growth
Productivity of labour & capital
Technological progress and
strength of enterprise
Changes in the labour force
Investment rates

5. Key Factors Affecting Short Run Economic Growth
Interest rates set by
the central bank
Fiscal policy -
government spending
and taxation
Commodity prices
such as oil, gas and
foodstuffs
Exchange rates Trading conditions in
other countries
Confidence of
businesses and
households

6. Key Factors Affecting Long Run Economic Growth
Investment Productivity Labour supply
Research Innovation Enterprise

7. Economic Growth using PPF Diagrams
Economic Growth
A rise in a
country’s
productive
capacity causes
the PPF to shift
out from PPF1 to
PPF2 and this
then allows
increased supply
both of consumer
and capital
goods.
Capital
goods
Consumer goods
PPF1
PPF2
A
B
C D
Successful supply-side
policies can help to bring
about an outward shift of the
a country’s PPF
E
F

8. Main Sources of Economic Growth in China
China has experienced rapid growth over the last twenty years
helping to lift hundreds of millions of people out of deep poverty
• Real GDP growth in China has been over 9% per year since 1979
• 60-70% has come from increasing capital and labour inputs –
there has been a vast increase in capital investment spending
• 30-40% has come from rising factor productivity (i.e. increasing
efficiency in the allocation of labour & capital resources)
• Looking at increases in per capita output research finds that:
1. 11-14% from improving human capital (quality of labour)
2. 8-14% from improving allocative efficiency (e.g. moving from
state-owned businesses to private and from rural to urban)
3. 16-17% has come from the productivity-enhancing effects of
innovation – much of which has been the imitation of ideas

9. Countries with Best Competitiveness in 2015-2016
5.76
5.68
5.61
5.53
5.5
5.47
5.46
5.45
5.43
5.43
5.41
5.33
5.31
5.3
5.28
0 1 2 3 4 5 6 7
Switzerland
Singapore
United States
Germany
Netherlands
Japan
Hong Kong SAR
Finland
Sweden
United Kingdom
Norway
Denmark
Canada
Qatar
Taiwan, China
Global Competitiveness Index Value (Max Score = 7)
10th

10. 2015-16 Global Competitiveness Index (UK Rankings)
Indicator
UK ranking out of 144
countries
Overall
competitiveness
10th /144
Institutions
12th /144
(legal 6th)
Infrastructure
9th /144
(roads 29th)
Macroeconomic
environment
108th /144
(Government debt 123rd )
Labour market
efficiency
5th /144
(Quality of Maths & Science
43rd)
Technological
readiness
3rd /144
(Mobile broadband 16th)
Highlighted problems for businesses
• Access to finance for business
• Skills gaps in the workforce

11. Overview of Strategies to Improve Competitiveness
Competitive exchange rate
Competitive tax environment - getting the right mix
Investment in human capital
Increased research & development
Market competition to raise productivity
Stable macroeconomic environment
Investment in critical infrastructure + balanced growth

12. Competitiveness is affected by the exchange rate
65.0
70.0
75.0
80.0
85.0
90.0
95.0
100.0
105.0
110.0
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
ERI
€ : £
$ : £
The exchange rate index (ERI) is a trade-weighted measure of sterling against a
basket of currencies – weighted by the share of UK trade with each country

13. Competitiveness – Importance of Human Capital
Returns to research and development and subsequent innovation depend
critically on the human capital base of countries, which determines their
capacity to recognize, assimilate, and apply new technologies
Skills Workplace training to increase people’s occupational mobility
Enterprise Programs for start-ups e.g. Start-Up Chile, Young Innovative
Companies in France, Entrepreneurship First (UK)
Mobility Housing market reforms to improve affordability and geographical
mobility
STEM Investment in improved access to and quality of teaching in STEM
subjects (Science, Technology, Economics!, Engineering and Maths)

14. Total Research and Development Spending, 2011–15
Total R&D spending include public and private sector R&D
Research and development expenditures are concentrated mostly in advanced economies and China,
followed by the large emerging market and middle-income economies (Source: IMF, April 2016)

15. Companies with the most US patents granted in 2015
This statistic shows how many patents had been assigned to businesses as of the end of 2015. IBM had
7,355 patents assigned to them at this time and was by far the leader in this respect.
7,355
5,072
4,134
2,900
2,835
2,627
2,455
2,242
2,048
1,956
1,938
1,838
1,774
1,757
1,627
0 1000 2000 3000 4000 5000 6000 7000 8000
International Business Machines Corp
Samsung Electronics Co Ltd
Canon KK
Qualcomm Inc
Google Inc
Toshiba Corp
Sony Corp
LG Electronics Inc
Intel Corp
Microsoft Corp
Apple Inc
Samsung Display Co Ltd
Taiwan Semiconductor Manufacturing Co
General Electric Co
Ricoh Co Ltd
Number of granted U.S. patents

16. Competitiveness – The Importance of Innovation
Innovation drives progress and, in economic terms, determines
productivity growth which in turn drives prosperity.
R&D Tax Credits (used
in Australia & South
Korea)
Patent Box Initiative –
10% corporation tax
(a UK Policy)
Public R&D and more
Funding for Higher
Education
Highly skilled migrants
policy e.g. skilled
coders
Nurturing an
entrepreneurial
culture
Increasing intensity of
competition within
markets

17. Innovation & Competitiveness – Creative Destruction
Innovation requires strong human capital, institutions and incentives
Three-
dimensional
printing
Big data Li-Fi
Driverless cars
Artificial
intelligence
Personalised
health
programmes
Gamification
Sharing
economy
Marketing
intelligence
Entrepreneurship is linked to the notion of creative destruction, described by
economist Joseph Schumpeter, whereby new enterprises enter the market and
encourage greater competition and innovation

18. Evaluating Fiscal Policy and Research / Innovation
Fiscal Support to Private Research and Development
(R&D), 2013 (Percent of GDP)
Subsidies lower the cost of research
Tax incentives can encourage
commercialisation of ideas
Lower employment taxes to
stimulate skilled migration
Lower capital gains taxes encourages
small businesses / start-ups
Special economic zones to attract research-
intensive businesses
Some options for fiscal policy incentives

19. Low capital investment can hold back competitiveness
Source: HDI report 2015, UNDP
Investment spending as a % of
GDP, average for 2005-2013
Gross fixed
capital formation
Gross fixed
capital formation
(% of GDP) (% of GDP)
China 47.3 Ghana 22.7
Mongolia 44.2 Norway 22.6
Ethiopia 35.8 Japan 21.7
Indonesia 31.7 Russian Federation 21.5
South Korea 29.7 Mexico 21.0
Bangladesh 28.4 Germany 19.8
Australia 28.3 Malawi 19.7
India 28.3 United States 19.3
Malaysia 26.9 South Africa 19.3
Singapore 25.9 Spain 18.5
Zambia 25.9 Brazil 18.2
Hong Kong, China (SAR) 23.9 Côte d'Ivoire 17.0
Uganda 23.8 United Kingdom 16.4
Vietnam 23.8 Ireland 15.2
Canada 23.7 Cuba 12.2
Chile 23.6 Greece 11.2
Key Evaluation Point: The quality of investment and the human capital
to use it productively is significant in the long run

20. Why Macro Stability Matters for Competitiveness
Price stability
• Lowers investor risk
• Relative export prices fall
• Reduces yields on long term
bonds for govt and businesses
GDP growth
• Size of market incentivizes
foreign direct investment
• Length of the pay-back period
for R&D is reduced
Financial stability
• Access to credit for SMEs
• Funding for infrastructure
spending (vital in long run)
-2.5
-2
-1.5
-1
-0.5
0
0.5
1
1.5
2
350
370
390
410
430
450
470
Q12003
Q12004
Q12005
Q12006
Q12007
Q12008
Q12009
Q12010
Q12011
Q12012
Q12013
Q12014
Q12015
Real GDP for the UK Economy
Growth, seasonally adjusted (%)
Levels, seasonally adjusted (£ billion)

21. Competitiveness – Agglomeration Economies in Cities
Source: Economist Intelligence Unit

22. Competitiveness – What Really Matters?
• Macro competitiveness has micro foundations
• Competitive markets and innovative businesses
• Skills, aptitudes and attitudes within the workforce
• Expanding opportunities for women entrepreneurs /refugees
• Recognition that infrastructure and innovation are crucial
• Increasingly – competitiveness will flow from smart
urbanization
• Competitive advantage comes from having
• Globally scaled businesses close to or at the technological frontier
• A culture of innovative business start-ups / social entrepreneurs
• A financial system that provides appropriate and affordable credit
for education, business research and funding for business expansion
• Reliance on currency depreciation / devaluation and wage
cuts is not a sustainable competitiveness strategy
• The most competitive countries have the highest minimum wages
• There is a continuous global battle for the most talented workers
• “Races to the bottom” e.g. in taxes and wages have limited impact