Research 2009

German Development Institute (Nov. 2009)

Exchanging industrial experiences in Bonn.

Among European donors, Germany is a country interested in concrete skill training and technology support in industrialization. GRIPS Development Forum has decided to cooperate with Germany on two fronts: through concrete projects in Ethiopia and through intellectual exchange between Bonn and Tokyo.

In November 2009, Deutsches Institut fur Entwicklungspolitik (German Development Institute) held a conference on industrial policies for low and middle income countries, to which GRIPS and JICA were invited. Prof. Ha-Joon Chang (Cambridge) and Prof. Giovanni Dosi (Sant Anna School) were keynote speakers. Case studies of Nigeria, Ethiopia, Tunisia, Namibia, Cambodia, Egypt, Mozambique, Vietnam and Syria were reported. After the conference, the Japanese team discussed the possibility of Japan-German cooperation in industrial policy studies and actions.

Ethiopian policy dialogue continues (Sep. 2009)

Seminar at Ethiopian Economic Policy Research Institute

The GRIP-JICA policy dialogue with Ethiopia (see below) is held at the pace of four times a year. In early September, we again traveled to Addis Ababa to meet with Prime Minister Meles Zenawi, concerned Ministers and State Ministers, working teams of the Ministry of Trade and Industry, the Ethiopian Economic Association, and donors.

With PM Meles, we discussed the source of development funds, the possibility of agricultural breakthrough, the growth corridor approach and import substitution, among other things. PM asked me to provide additional data on steel and metal processing industries, the model format for industrial master plans, and the literature on how East Asian countries such as Korea and Taiwan activated the private sector. According to PM, the Ethiopian private sector does not respond sufficiently to policies. He feels that domestic saving should go to manufacturing rather than speculative real estate investments.

JICA plans to more than double Japanese ODA to Ethiopia and "programatize" it (sharply align under key objectives) in light of our policy dialogue.

METI's Asian Industrial Corridor Initiative (Aug. 2009)

The Ministry of Economy, Trade and Industry (METI) makes policies by organizing task forces and sub working groups attended by business leaders. METI officials provide secretariat service and guide discussions but let non-official stakeholders participate in policy formulation. METI also works with the Government, other ministries, JICA domestically and with ASEAN and the Economic Research Institute for ASEAN and East Asia (ERIA) externally. They create a list of priority actions whose progress is checked regularly.

Currently METI is launching the Asian Industrial Corridor Initiative with intensive public private partnership (private investment supported by ODA). The idea is to create industrial hubs and production networks linking these hubs in Southeast Asia and India. Industrial infrastructure, efficient logistics, HRD and legal reform will be combined organically in selected regions to generate synergy. In the first year, detailed studies will be conducted for Vietnam and India. I am appointed as the chairperson of the sub working group studying these countries. The meetings started in August 2009 and reports on these countries will be drafted by March 2010. The other sub working group will study new financing schemes to realize this vision.

Expert hearings for Vietnam's 10-year Development Strategy (Aug. 2009)

The Development Strategy Institute of the Ministry of Planning and Investment, the Vietnam Academy of Social Sciences, and the Vietnam Institute of Economics are preparing or helping to prepare the Socio-economic Development Strategy 2011-2020. They started to hear intensively from foreign experts on industrialization (supported by UNDP). I was one of the invited foreign experts at these institutions to discuss my "middle income trap" argument  (see below).

Vietnam has risen to the status of lower middle income by liberalization and integration, but further growth requires internal value creation which critically depends on human skills and technology. But to achieve that, Vietnam's policy making mechanisms must be overhauled. Otherwise, the income level will start to level off.

Prof. Tran Van Tho (Waseda Univ.) advances a similar argument about the need of policy breakthrough. Some say Vietnam's rigid policy system needs a crisis to change. I wonder if the middle income trap is a crisis acute enough for this purpose.  slides

Industrial policy dialogue and kaizen in Ethiopia (Jun. 2009)

Dr. Newai & State Minister Tadesse

On June 2, 2009 the new GRIPS-JICA project (see below) was officially inaugurated at the first High Level Forum in Addis Ababa. During that week the GRIPS team (Hosono, I. Ohno and myself) met Prime Minister Meles, PM Advisor Newai, Finance Minister Sufian, and Trade & Industry State Minister Tadesse to exchange ideas for policy dialogue. We worked closely with Japanese Ambassador Komano and JICA in Ethiopia.

Since the 1990s Ethiopia has pursued the "Agricultural Development Led Industrialization" (ADLI) featuring agriculture, export orientation, labor-intensiveness, and the use of domestic resources. However, foreign experts such as Dani Rodrik (Harvard), Justin Lin (WB chief economist), and J. Stiglitz (Columbia) have urged the Ethiopians to broaden the policy space to include import substitution industries. The policy shift has also been in preparation internally and the Government is moving toward this direction. Steel, cement, glass, metal processing, chemicals, and pharmaceuticals will be targeted, among others.

Prime Minister Meles told us that this shift was made possible because Ethiopia had learned how to support the private sector with concrete measures. Previously, the Government had little knowledge. But now, it knows how to use benchmarking, marketing, and kaizen (Japanese style factory improvement) to increase the competitiveness of local firms. Japan will provide relevant skills and knowledge to carry out the proposed policy shift effectively and without political capture.   Related papers and slides

The middle income trap and how to overcome it (Mar. 2009)

Different speed of catching up -
click here to enlarge graph

Is your country stuck at middle income? Does your government have a plan to reach middle income by 2025? Then please read this book (a free copy is available at Room E404).

In 2008, I wrote a series of papers (3 conference papers and 1 policy proposal) for different occasions but from a common perspective. The question: why do so many countries develop only to the middle income level (per capita income of USD1,000 to several thousands) but never rise to the level of Taiwan and Korea (USD10,000 and above)? What is the advice for countries that have already reached middle income such as Malaysia and Thailand, and others which are not really catching up with the West such as Indonesia and the Philippines? And for still others that wish to rise from a very low level?

None of the papers have been published yet, but I put them together as collected discussion papers. My argument is that latecomers can reach middle income by macro stabilization, liberalization and opening up, but that is not enough to go higher. To follow Taiwan and Korea, the country must master skill and technology, climb the value chain, and send foreign managers and engineers home. To do this, the government must engage in active and skillful intervention to assist private dynamism far beyond the teaching of the Washington Consensus. This is true even in the 21st century when WTO, FTAs, WB/IMF, etc. have significantly narrowed the policy space of latecomers, both politically and economically, in comparison with the 1960s and 70s when Taiwan and Korea were industrializing.

GRIPS and JICA will assist Ethiopia in industrial strategies (Mar. 2009)

The IPD conference (see below) caught the attention of Prime Minister Meles of Ethiopia who requested GRIPS and JICA to launch two programs: (i) GRIPS Development Forum to initiate a new policy dialogue to evaluate Ethiopia's industrial strategies and mechanisms from the viewpoint of East Asia; and (ii) JICA to implement a kaizen (productivity improvement) project to produce a number of "model factories" in Ethiopia's priority sectors in two years. Both will start officially in Spring 2009, but preliminary works are already underway. We have visited Ethiopia 3 times since July 2008 and will continue to do so every three months on average. We will hire researchers, RAs and assistants in Tokyo and Addis Ababa.

PM Meles additionally asked me to send him some materials on the Japanese technical vocational education and training (TVET) system, which I did. He wrote me a thank-you letter and said he next wanted materials on the concept of kaizen. I have never seen a prime minister like this; how does he find time to read so many materials?