Productive Capacities and Poverty Reduction:

Links and Processes

Charles GoreUNCTAD

UN International Forum on Poverty EradicationNew York, 15-16 November 2006

Key Challenges in Poverty Analysis

• International Analysis of Poverty• New global facts.

– 1.2 billion $1/day poor– Global income inequality. Poorest 40 per cent gets 5 per cent of

world income; richest 20 per cent gets 74 per cent

• New forms of explanation– Trade and poverty– Global interdependence and global inequality

• New forms of global interdependence– Global financial flows and instability– Development policy space– Technological opportunities and challenges– Climate change

• Re-linking Production and Poverty

Statistical versus StructuralistApproach to Poverty Analysis

• Distinction based on Graham Pyatt; it has informed UNCTAD’s LDC Report 2002, 2004 and 2006

• Statistical approach: poverty line; characteristics of the poor; growth elasticity of poverty

• Structuralist approach: generation and sustainability of jobs and livelihoods; locate livelihoods within the changing structure of the economy; relate the changing structure of economy to insertion in international economy.

Orthodox versus Heterodox Approaches to Economic Growth

• Orthodox Approach – Views the growing economy as “an inflating balloon, in which added factors of production and steady flows of technological change smoothly increase aggregate GDP” (Ocampo)

• Heterodox Approaches – Various… – Heterogeneous agents, technological capabilities and

their institutional matrix– Importance of sectoral structure– Importance of demand

WHAT ARE PRODUCTIVE CAPACITIES?

• Productive resources – natural resources, human resources, financial capital, physical capital.

• Entrepreneurial capabilities – core competences; technological capabilities.

• Production linkages – exchange of goods and services; flows of information; human and financial resource flows – between sectors and between enterprises.

The Core Processes through which Productive Capacities Develop

• Capital accumulation – increasing capital stocks of various kinds through investment

• Technological progress – introducing new goods and services or methods of production through technological learning and application of knowledge in production (innovation)

• Structural change – change in the inter- and intra-sectoral composition of production and pattern of linkages amongst sectors and enterprises

Why Production Capacities Matter for Poverty Reduction

• The expansion, development and utilization of productive capacities are at the heart of processes of economic growth

• The growth-poverty relationship depends on the way in which productive capacities expand, develop and are utilized. Empirical studies on "pro-poor growth" show that the growth-poverty relationship depends on: the generation of productive resources; the dynamics of production structures; the nature of technological choices; the level of utilization of productive resources, particularly unemployment and underemployment of labour; and access to productive assets.

Important differences amongst the LDCs:Long-term growth performance closely associated

with patterns of structural change (1980-2003)

Converging economies

Weak-growth economies

Regressing economies

Agriculture/ GDP + + +Industry/ GDP + + +

Manufacturing +Non-manufacturing + +

Services/ GDP +

Agricultural labor productivity + +Non-agricultural labor productivity +Total labor productivity + +

Focusing on the Development and Utilization of Productive Capacities Requires

a Paradigm Shift in Poverty Reduction Policies

FROM• Integration/Exchange• Consumption• Framework• Supply-side• Tradables

• FDI

• Welfare State

TO• Production• Employment• Ingredients• Supply and Demand• Tradables and Non-

tradables• Private Domestic

Investment plus FDI• Development State

Key Policy Ingredients and Institutions

• FINANCE

• Domestic firms• Domestic financial

systems• International financial

architecture and international trade regime

• KNOWLEDGE

• Domestic firms• Domestic knowledge

systems• International regimes

for technology acquisition and international migration

Thank You

This presentation draws on UNCTAD’s work on East Asian development success (see UNCTAD’s Trade and Development

Reports) and also UNCTAD’s Least Developed Countries Reports since 2002

(see www.unctad.org/ldcr)