Growth Diagnostic Framework: Rationale and

ApplicationsLectures 1 and 2

By
Mukul Asher
[email protected]

Prepared for: The Intensive course , Asian Public Policy

program, School of International and Public Policy Hitotsubashi
University, July 31 to August 5 2023.
 Abstract
This presentation argues that just as in medical practice diagnosis is
made based on few vital body signs, focusing on few vital economic
signs (or growth drivers) can help policymakers to structure a
context specific response to managing various growth drivers in a
coherent and credible manner.

The diagnostic framework of Rodrik (2010) has been modified by the

presenter to better suit the context in many low and middle income
countries. This approach implies that decentralized sector or sub-
sector specific analysis within the local context is essential to move
from broad growth drivers (or growth models) to policy advice.

Such an approach is more knowledge and local domain expertise

intensive than generalized policy prescriptions traditionally favored
by the national governments and multilateral institutions.

A framework is not a blueprint. It requires adaptation and thinking

about sequencing and appropriate doses. Thus, a blueprint should
not be mechanically adopted.
 ABSTRACT

It is argued that this framework remains relevant to

address growth and social stability challenges arising
from Covid-19 pandemic and its aftermath; and in the
context of digital economy and new technologies.
Participants will be asked for their country-specific
context and how the farmwork can be adapted in the
emerging global geo-economic and geo-strategic
environment.
The presentation also covers selected summaries of
reasons and case studies of why nations regress or
fail to develop in spite of positive endowments and
past successes.
 Organization

Preliminaries-Relevant thoughts and Observations

Select Global Macro-Economic Indicators
Why Basic Science Matters for Economic Growth

Traditional Growth Drivers: A Summary and Insights

Covid -19 Pandemic: Insights for Growth
Limitations of the Conventional Approaches
Growth Diagnostic Framework
Brief Comments on Why Nations (or Regions) May Regress
Case studies on why Nations may regress
Preliminaries-Relevant Thoughts and Observations
Preliminaries-Relevant Thoughts and Observations

scientific method: First the data,

then the analysis, third the
policy implications, and finally
the views
 Preliminaries-Relevant Thoughts and Observations

Richard Feynman (1918-88) Nobel Prize in

Physics in 1965
“You can know the name of that bird in all the
languages of the world, but when you’re finished,
you’ll know absolutely nothing whatever about the
bird. You’ll only know about humans in different
places, and what they call the bird… I learned very
early the difference between knowing the name of
something and knowing something.”
https://fs.blog/intellectual-giants/richard-feynman/
Accessed on 21 May 2021
Preliminaries-Relevant Thoughts and Observations

Learning should never stop. The Feynman technique is a simple

technique that helps you learn anything new.
Step 1: Choose a concept that you think you broadly understand.
Step 2: Explain it to a child (yes, if you know it well enough, you
should be able to teach it to a child; also prevents you from relying
on jargon).
Step 3: The previous step would have helped you understand your
own gaps in knowledge (you stumble explaining in simple terms
when you don't understand something clearly), so go back and fill in
those gaps.
Step 4: Repeat Steps 2 and 3 till there are no gaps. You have now
really learnt something new!
Preliminaries-Relevant Thoughts and
Observations
Preliminaries-Relevant Thoughts and Observations
 Select Global Macro-Economic Indicators

Economic growth, civilizational

consciousness, social mobility, family
stability, equality of sexes are all deeply
interconnected even if there are inevitable
nuances and tradeoffs
The next few slides provide select global macroeconomic
indicators to set the context for understanding Growth
Diagnostics.
Select Global Macro-Economic Indicators
Select Global Macro-Economic Indicators
Turkish Lira is down more than any other currency in the past 10 years. There's
nothing inherently bad about Lira. It's a currency like any other. What's made it
fall is policy choices, which have - over and over - pursued short-term growth at
the expense of a stable currencyRobin Brooks@RobinBrooksIIFChief
Economist @IIF June 17 203
Select Global Macro-Economic Indicators
 Select Global Macro-Economic Indicators

According to Brookings, an average of five

people are entering the global middle class per
second, and by 2030, the worldwide middle class
population is expected to reach 5.3 billion.
(see definition of Middle-class below)
https://www.visualcapitalist.com/5-undeniable-long-term-tren
ds-shaping-societys-future/
Accessed on 7 March 2021
 Select Global Macro-Economic
Indicators

Breaking down global GDP distribution into cartograms highlights some

interesting anomalies worth considering:
1. North America, Europe, and East Asia, with a combined GDP of nearly $75
trillion, make up 80% of the world’s GDP in nominal terms.
2. The U.S. State of California accounts for 3.7% of the world’s GDP by itself,
which ranks higher than the United Kingdom’s total contribution of 3.3%.
3. Canada as a country accounts for 2% of the world’s GDP, which is comparable to
the GDP contribution of the Greater Tokyo Area at 2.2%.
4. With a GDP of $3 trillion, India’s contribution overshadows the GDP of the
whole African continent ($2.6 trillion).
5. This visualization highlights the economic might of cities better than a
conventional map. One standout example of this is in Ontario, Canada. The
Greater Toronto Area completely eclipses the economy of the rest of the province.
https://awealthofcommonsense.com/2021/05/200-years-of-asset-clas
here are the annual real returns by decade: Same Source
Select Global Macro-Economic Indicators
Why Basic Science Matters for Economic Growth By Philip Barrett,
Niels-Jakob Hansen, Jean-Marc Natal and Diaa Noureldin

https://mail.google.com/mail/u/0/#inbox/FMfcgzGlkFxTJgzRkRtJgBhVRmkSbQ
zn
Accessed on 6 October 2021
what are the drivers of long-term growth? Productivity—the ability to create more
outputs with the same inputs—is an important one. In our latest
World Economic Outlook, we emphasize the role of innovation in stimulating long-
term productivity growth. Surprisingly, productivity growth has been declining for
decades in advanced economies despite steady increases in research and
development (R&D), a proxy for innovation effort.

Our analysis suggests that the composition of R&D matters for growth. We find
that basic scientific research affects more sectors, in more countries and for a longer
time than applied research (commercially oriented R&D by firms), and that for
emerging market and developing economies, access to foreign research is especially
important. Easy technology transfer, cross-border scientific collaboration and policies
that fund basic research can foster the kind of innovation we need for long-term
growth.
Why Basic Science Matters for Economic Growth By Philip Barrett,
Niels-Jakob Hansen, Jean-Marc Natal and Diaa Noureldin

Inventions draw on basic scientific knowledge

While applied research is important to bring innovations to market, basic research
expands the knowledge base needed for breakthrough scientific progress. A striking
example is the development of COVID-19 vaccines, which in addition to saving millions
of lives has helped bring forward the reopening of many economies, potentially
injecting trillions into the global economy. Like other major innovations, scientists
drew on decades of accumulated knowledge in different fields to develop the mRNA
vaccines.

Basic research is not tied to a particular product or country and can be combined in
unpredictable ways and used in different fields. This means that it spreads more widely
and remains relevant for a longer time than applied knowledge. This is evident from
the difference in citations between scientific articles used for basic research, and
patents (applied research). Citations for scientific articles peak at about eight years
versus three years for patents
Spillovers are important for emerging markets and
developing economies
Why Basic Science Matters for Economic Growth By Philip Barrett,
Niels-Jakob Hansen, Jean-Marc Natal and Diaa Noureldin

While the bulk of basic research is conducted in advanced economies, our analysis
suggests that knowledge transfer between countries is an important driver of
innovation, especially in emerging market and developing economies.

Emerging market and developing economies rely much more on foreign than
homegrown research (basic and applied) for innovation and growth. In countries where
education systems are strong and financial markets deep, the estimated effect of
foreign technology adoption on productivity growth—through trade, foreign direct
investment or learning-by-doing—is particularly large. As such, emerging market and
developing economies may find that policies to adapt foreign knowledge to local
conditions are a better avenue for development than investing directly in homegrown
basic research.

We gauge this by looking at data on research stocks—measures of accumulated

knowledge through research expenditure. As the chart shows, a 1-percentage-point
increase in foreign basic knowledge increases annual patenting in emerging market
and developing economies by around 0.9 percentage point more than in advanced
economies.
Why Basic Science Matters for Economic Growth By Philip Barrett,
Niels-Jakob Hansen, Jean-Marc Natal and Diaa Noureldin

Innovation is a key driver of productivity growth

Why does patenting matter? It’s a proxy for measuring innovation. An increase in the
stock of patents by 1 percent can increase productivity per worker by 0.04 percent.
That may not sound like much, but it adds up. Small increases over time improve living
standards.

We estimate that a 10 percent permanent increase in the stock of a country’s own

basic research can increase productivity by 0.3 percent. The impact of the same
increase in the stock of foreign basic research is larger. Productivity increases by 0.6
percent. Because these are average numbers only, the impact on emerging markets
and developing economies is likely to be even bigger.

Basic science also plays a larger role in green innovation (including renewables) than
in dirty technologies (such as gas turbines), suggesting that policies to boost basic
research can help tackle climate change.
Why Basic Science Matters for Economic Growth By Philip Barrett,
Niels-Jakob Hansen, Jean-Marc Natal and Diaa Noureldin

Policies for a more buoyant and inclusive future

Because private firms can only capture a small part of the uncertain financial reward of engaging in
basic research, they tend to underinvest in it, providing a strong case for public policy intervention.
But designing the right policies—including determining how you fund research—can be tricky. For
example, funding basic research only at universities and public labs could be inefficient. Potentially
important synergies between the private and public sector would be lost. It may also be difficult to
disentangle basic and applied private research for the sake of subsidizing only the former.

Our analysis shows that an implementable hybrid policy that doubles subsidies to private research
(basic and applied alike) and boosts public research expenditure by a third could increase productivity
growth in advanced economies by 0.2 percentage point a year. Better targeting of subsidies to basic
research and closer public‑private cooperation could boost this even further, at lower cost for public
finances.

These investments would start to pay for themselves within about a decade and would have a
sizeable impact on incomes. We estimate that per capita incomes would be about 12 percent higher
than they are now had these investments been made between 1960 and 2018.

Finally, because of important spillovers to emerging markets, it is also key to ensure the free
flow of ideas and collaboration across borders.
 Traditional Growth Drivers: A
Summary and Insights
The literature usually classified main drivers of
growth as follows:
Quantity and quality of labor
Capital
Land and natural resources
Managerial and organizational capabilities
Entrepreneurship
Knowledge (its generation, adaptation, and diffusion)
Knowledge explosion in many areas, most notably in IT,
telecommunication, biological sciences, and energy has
increased the knowledge-intensity of human activities in
general. Those countries and organizations which are not
currently fully utilizing the existing stock of knowledge can
progress rapidly if they develop appropriate capacities and
mindsets.
 Traditional Growth Drivers: A
Summary and Insights

Disruptive technologies could have far reaching

consequences on the current patterns of production,
distribution and consumption; on current dominant
companies in various sectors, and on location of economic
activities and international competitiveness.
Those countries and organizations which have the capacity
to monitor and understand the potential of disruptive
technologies are likely to be better placed to manage them.
Among the disruptive technologies, is additive
manufacturing (McKinsy Global Institute, ‘Disruptive
technologies: Advances that will transform life, business, and
the global economy’, May 2013)
Innovation Cycles: The Six Waves
From the first wave of textiles and water power in the industrial revolution,
to the internet in the 1990s, here are the six waves of innovation
and their key breakthroughs.
Source: Edelsen Institute, Detlef Reis
Traditional Growth Drivers: A Summary and Insights

During the first wave of the Industrial Revolution, water power was instrumental in
manufacturing paper, textiles, and iron goods. Unlike the mills of the past, full-sized
dams fed turbines through complex belt systems. Advances in textiles brought the first
factory, and cities expanded around them.
With the second wave, between about 1845 and 1900, came significant rail, steam,
and steel advancements. The rail industry alone affected countless industries, from
iron and oil to steel and copper. In turn, great railway monopolies were formed.
The emergence of electricity powering light and telephone communication through
the third wave dominated the first half of the 1900s. Henry Ford introduced the
Model T, and the assembly line transformed the auto industry. Automobiles became
closely linked with the expansion of the American metropolis. Later, in the fourth
wave, aviation revolutionized travel.

After the internet emerged by the early 1990s, barriers to information were upended.
New media changed political discourse, news cycles, and communication in the fifth
wave. The internet ushered in a new frontier of globalization, a borderless landscape
of digital information flow
 Traditional Growth Drivers: A Summary and Insights

The sixth wave, marked by artificial intelligence and digitization across information
of things (IoT), robotics, and drones, will likely paint an entirely new picture. Namely,
the automation of systems, predictive analytics, and data processing could make an
impact. In turn, physical goods and services will likely be digitized. The time to

complete tasks could shift from hours to even seconds .

At the same time, clean tech could come to the forefront. At the heart of each
technological innovation is solving complex problems, and climate concerns
are becoming increasingly pressing. Lower costs in solar PV and wind are
also predicating efficiency advantages.
Advantages and Disadvantages of Additive Manufacturing Processes
https://www.horizontechnology.biz/blog/advantages-and-disadvantages-of-addi
tive-manufacturing-process-vs-powder-metallurgy
Accessed on April 25 2021
What Is Additive Manufacturing?
As with any new technology, there are several pros and cons of
additive manufacturing as engineers go through trial and error.
The metal additive manufacturing (AM) process is die-less -- it uses
powder to create a component in a way that resembles an inkjet
printer. But, instead of printing ink bubbles, the machine "prints"
particles of metallic or nonmetallic products that are sintered or
laser fused.
These sintering and lasing fusing processes are two distinct
methods of additive manufacturing. They are either sintered as a
second step or laser fused as part of the process.
AM starts with a bed of powder. A binder is injected in a particular
spot that “glues” the powder particles together. This “glued” mass
of powder is then sintered to form a PM part. The second process
uses a laser to fuse the powder particles metallurgically while still in
the powder bed. So, in a sense it's not true "printing," which is 2D.
Additive Manufacturing Advantages
Metal additive manufacturing isn’t just technology for technology’s sake.
There are indeed functional benefits of the additive manufacturing process
1. Rare Shape-Making Ability
Additive manufacturing is very attractive for unusual or complex
component shapes that can be difficult to manufacture using other
processes. Design software makes it possible to create nearly any
geometric form, such as hollow spaces or honeycombs, that maintain
stability while decreasing weight.
In this regard, think of 3D printing as powder metallurgy (PM) on steroids.
2. Manufacturing + Assembly in 1
An additive manufacturing line can produce multiple components at a time.
Instead of creating individual parts and assembling them at a later point,
an additive manufacturer can combine manufacturing and
assembly into a single process.
This cuts down on what would otherwise be an extraordinary lead time
(see more below).
3. Even Less Waste
Additive manufacturing almost always involves
less waste material.
Traditional manufacturing processes typically
involve removing product from a larger workpiece,
while AM actually adds product from scratch to
create your component. Using only the material
necessary to create a part ensures minimal waste.
Again, this is an area where conventional powder
metallurgy excels, but 3D printing takes the
elimination of secondary machining to another level
-- to a point.
You have a certain amount of ink that spills onto
certain particles. In the case of laser, perhaps it
isn’t as tightly focused as it should be. So
sometimes particles get “glued” where they
shouldn't be, so they need to be discarded. If you
don’t, you can create a void or defect in a part.
There’s always a small amount of waste in
manufacturing, even in AM.
And in 3D printing, even a small amount of
waste can be an issue due to the high material cost.
https://www.qualitymag.com/articles/96307-additive-manufacturing-past-present
-and-future
accessed on 25 April 2021
It’s Almost Always Cost-Prohibitive
manufacturing is rarely the most cost-
effective path to an end product.
There are considerable capital costs to
purchase the equipment necessary to
support additive manufacturing. These
costs, whether you’re attempting in-
house 3D printing or outsourcing it, are
hard to justify compared with traditional
processes.
Also, engineers specifying materials for
AM frequently look for very fine or small
particles or distribution. This can make
the raw material cost of your project
skyrocket -- even more so if the powder
needs to be spherical or gas atomized.
If the part can be pressed in PM and
machined (if necessary) later, there’s
usually no reason to force AM into your
manufacturing process.
2. No Mixing Allowed
The mechanical properties of a
finished product are dependent
upon the characteristics of the powder
used in the process.
Additive manufacturing typically
uses a pre-alloyed material in
the base powder. Why? There's
no way to successfully introduce
additional materials and traits
later in the 3D printing process.
If your alloying material isn’t
present from Step 1, you’re out
of luck. All the materials and
characteristics you want in your
component have to be in the mix
ASAP.
Additive Manufacturing Disadvantages
Many of the benefits of additive manufacturing already
exist in powder metallurgy, just in lesser form. You’ll
have to decide whether modest improvements in those
areas are worth the disadvantages of 3D printing:
3. It’s Slow, and Niche
Industrial
adaptation to additive manufacturing has
been slow, and it’s still
considered a niche process even
in 2019. That’s because after all
these years, AM is still
not an efficient way of producing a high vo
lume of parts
.
Remember how we
complimented AM’s ability to
produce multiple parts at once?
Good thing, because it’s
otherwise a snail-like process.
Depending on your desired final
shape, it can take 2-3 hours to
produce a shape that
conventional PM could make in
5-10 seconds.
Unless your design is such a
unique shape that there’s no
other way it can be economically
Where Does 3D Printing Fit With Powder Metallurgy?
For many years, 3D printing has been helpful in the production of prototypes
, but its shortcomings are evident when you need large quantities
of quickly produced, low-cost items.
Additive manufacturing is instead finding its place in component
manufacturing as a complement to conventional pressing and sintering.
Home or office versions of 3D printers use plastic to form the end part, but
3D printing can also be achieved in the industrial world using metal in
powder form, similar to the process used by powder metallurgy companies.
Decisions about whether to work with powder metallurgy suppliers are often
based on the pros and cons of 3D printing. Sure, it’d be neat to jump on
board with this emerging technology, but is it really necessary? Or can you
get the job done with conventional powder metallurgy mixed
with some advanced techniques and materials?
https://amfg.ai/2019/11/07/additive-manuf
acturing-around-the-world-what-is-the-stat
e-of-3d-printing-adoption-in-north-america
-and-europe
Accessed on 1 July 2020
Examples of AM from India
https://indiainfrahub.com/2023/featured/print-me-a-post-office-indias-const
ruction-industry-embraces-3-d-printing-technology/
Accessed on June 18 2023
3-D printing is now a disruptive technology in the building industry that has
legs and is gaining traction — a small market that is set to explode.
For the companies and clients in India who are pioneering 3-D printed
construction, it is an idea whose time has come.
India’s first post office building, constructed using 3-D printing technology,
is fast nearing completion on Bengaluru’s Cambridge Road.
When completed, it will house the Halasuru Bazaar Post Office — in a
1,100 square feet facility.
Being undertaken by Larsen and Toubro (L&T), the total construction cost
is likely to be around Rs 23 lakh — about 30-40 per cent cheaper than a
structure built in the conventional way.
 The prototype 2-storied building in
L&T’s Kanchipuram campus. (Photo:
L&T)The company went on to construct a
2-storeyed 65 sqm (650 sqft) building at
its Kanchipuram, Tamil Nadu facility. The
structure was ‘printed’ in 106 hours. See
Next slide

3-D printed 1BHK house constructed in IIT

Madras campus by Tvasta. (Photo:
Tvasta) in the slide after next.
How are different industries
adopting additive manufacturing?
August 12, 2019 by Carlota V.
https://www.3dnatives.com/en/industries-ad
ditive-manufacturing-120820195/#!
accessed on 1 July 2020
 Traditional Growth Drivers :A
Summary and Insights
Research suggests that factor accumulation alone, without
new technologies or improved human capital, which the
society’s institutions are able to absorb, leaves a significant
proportion of economic growth unexplained.

Learning to use these drivers is even more essential for

economies with relatively small domestic market, high
concentration of economic activity in one or two sectors,
and the need to move to higher value added activities.
Traditional Growth Drivers: A Summary
and Insights
Romer (2010) argues that traditional international trade
flows(and by implications investment and technology firms)
are imperfect substitutes for flow of underlying ideas. Good
quality economic growth requires rearranging existing
resource use in such a way as to add economic value.

Both these are of particular relevance to improving production

and delivery of public services in India. They are also
important for large parts of the private sector which are still in
a catch-up phase , not utilizing knowledge available

It is the interactions between rules, skills to benefit from-

learning curve-knowledge economy and knowledge
Management, and technologies significantly influence why
some technologies (mobile telephony) can be more
successfully diffused globally, then others (such as safe
drinking water, education, and health care delivery).

Openness to flow of new ideas, and creating environment for

their adoption is central to Romer’s views on how low and
middle income countries can catch up with high income
countries quickly.
Traditional Growth Drivers: A Summary
and Insights
Figure 1: Production Possibility
Frontier(PPF)
Private
A country is in a
.
Goods
“catch up” phase if it

B
. C is operating well
below global best
PPF. It can grow

A . rapidly during this

phase. But on
coming closer to PPF,
growth rate slows.

Publ
ic
Goo
Application of knowledge economy is essential to shift from point A to point B.
ds
This will not only enhance growth rate, but will also increase availability of both
public and private goods, with given resources and technology. This is the
sustainable way of improving living standards. To move to point C, increased
resources ,
Particularly capital (both human and physical), plus technological progress will
 Traditional Growth Drivers: A
Summary and Insights

Knowledge Economy and Knowledge

Management

A knowledge-based economy is an economy in

which generation and application of knowledge, in
all its varied aspects, are used as an integral part
of generating income and wealth in the economy,
and in household consumption and production
activities.

Household consumption has traditionally not been

given importance in this context. But, in this
environmentally sensitive era, this neglect must be
addressed. 65
 Traditional Growth Drivers: A
Summary and Insights

Knowledge Economy and Knowledge

Management

Generation of knowledge must be distinguished from its

application and from diffusion (or imitation). New knowledge
is costly to produce, but once produced, it can be used with
zero or very low marginal cost, particularly in this digital
age. Therefore, knowledge has public goods type
characteristics.

66
 Traditional Growth Drivers: A
Summary and Insights
Knowledge Economy and Knowledge
Management

When people have unhindered access to knowledge in any

particular area, positive network externalities could emerge.
As chances favour the connected mind, these, in turn, create,
information spill over, and liquid networks where ideas get
stretched and blended to suit different needs, often unrelated
(Johnson 2010: 54)

The relative importance of networked channels, and in

particular non-market/Networked channel has been growing
(Johnson, 2010)

67
 Traditional Growth Drivers: A
Summary and Insights

Knowledge Economy and Knowledge

Management
Figure 2a: Channels of Innovations
Traditional Growth Drivers: A Summary
and Insights /13
Knowledge Economy and Knowledge
Management
Figure 2b: Channels of
Innovations
 The Most Innovative Companies in 2023

Every year, Boston Consulting Group (BCG) releases

their Most Innovative Companies ranking. Based on a survey of
over 1,000 innovation executives polled in Dec. 2022
and Jan. 2023, BCG assessed a company’s
performance on four dimensions:
Global mindshare: the number of votes received from all global
innovation executives

Industry peer view: the number of votes received from

executives in a company’s own industry
Industry disruption: the Diversity Index (Herfindahl-Hirschman)
of votes across industries
Value creation: total shareholder return, including share
buybacks, over the 3-year period from Jan. 2020 through Dec. 2022
 Traditional Growth Drivers: A
Summary and Insights
Knowledge Economy and Knowledge
Management

Learning Curve: Definition

In manufacturing and in engineering economics,
the learning/experience curve effect is said to
occur when, as cumulative output increases, input
(such as labour) needed per unit of output
decreases.
However, the learning curve concept also applies
to organisations in the social sector and delivery
of public and private sector services.
The key challenge is broadening the scope of the
learning curve and organizational integrity to
public sector organizations. 72
 Traditional Growth Drivers: A
Summary and Insights
Knowledge Economy and Knowledge
Management
Reasons for Learning Curve :The reasons why
the learning/experience curve phenomenon is
observed include the following:
First, workers often take longer to accomplish a
given task the first few times they do it; however,
with experience, they become more adept and
their speed increases level.
Second, managers learn to schedule the
production process more effectively and engineers
learn to improve the efficiency of the processes; in
other words, both technical and managerial
efficiency increases as cumulative output
increases. 73
 Traditional Growth Drivers: A
Summary and Insights
Knowledge Economy and Knowledge
Management

Third, engineers may be able to design improved products and

processes in economic terms, designing such that costs are
saved without increasing defects
Fourth, suppliers of materials may learn how to process
materials required by the firm more efficiently and pass on,
part of the savings, to firms.
 Traditional Growth Drivers: A
Summary and Insights
Knowledge Economy and Knowledge
Management
Lastly, experience results in an organisational “tune up”,
especially reflected in well-developed formal systems to
allow for smooth relationships among individuals
responsible for various tasks (Hax and Majluf 1982: 54).

The learning/experience curve concept needs to be

separated from the economies of scale concept. The
learning curve is related to stock of production or
cumulative output of a firm, while economies of scale are
related to the flow of production in a particular period.

In Figure 3 , the ‘80% Learning Curve” depicts a scenario

where, every time the production doubles, the cost per unit
decreases to 80% of the previous. 75
 Traditional Growth Drivers: A
Summary and Insights
Knowledge Economy and Knowledge
ManagementLearning curve (Experience
Curve)
Figure:
3

Source:Hax, Arnoldo C. and Nicholas S. Majluf. 1982. “Competitive Cost Dynamics: The Experience Curve,” Interfaces, Vol. 12, no. 5, pp: 50-61
 Traditional Growth Drivers: A
Summary and Insights

Knowledge Economy and Knowledge

Management

Learning mindset and structures, and organizational

integrity are essential to competently negotiate the
learning/experience curve.

Thus, if an organisation has been producing a

particular good or a service for a considerable period
of time, but has not benchmarked as to how its
resource costs per unit compare with the more
efficient, competitive producers, then the process of
learning from the experience will be hindered.
77
 Traditional Growth Drivers: A
Summary and Insights

Knowledge Economy and Knowledge

Management
The textbook example is usually of Airbus which through
learning curve concepts became competitive with well-
established aircraft manufacturer Boeing in a relatively short
period of time.

Learning organisations enable their employees to expand

their capacity to create results they truly desire, and where
employees are provided with supporting infrastructure and
encouraged to acquire capabilities to perform their
responsibilities.

78
 Traditional Growth Drivers: A
Summary and Insights
Knowledge Economy and Knowledge
Management

An important component of organisational integrity is that

information flows in both directions represent an accurate
and timely state of affairs. In such an organisation,
defensive behaviour i.e. actions the individual takes to
forestall embarrassment or threat when they are faced with
failure or errors, is minimised.

80
 Traditional Growth Drivers: A
Summary and Insights

Knowledge Economy and Knowledge

Management

Taking advantage of the learning curve and evolving

organizational integrity require considerable effort in
technology, human resources, organisational leadership and
supportive socio-economic-political norms.

An organization must also have mechanisms and structures

to assess the need for new directions, while becoming
proficient at undertaking existing tasks.

81
 Traditional Growth Drivers: A
Summary and Insights
Impact Of Learning, On Performance Need For Accelerating Curve

ECONOMIC SOCIAL ENVIRONMENTAL

PERFORMANC PERFORMANC PERFORMANCE
E E
SUSTAINED, PLANNED RENEWAL

VALUE QUALITY OF LIFE ECO

EFFICIENCY
LEARNING ORGANISATION
STRATEGY FOCUSED, ADAPTIVE,
EFFECTIVE
CLASS EXPERIENTI
ROOM AL
MD CONTINUOU MENTORIN COACHIN
P S G G
IMPROVEME INTERNAL EXTERNA
Source: By
V.Ram
NT EXPERTS L
 Traditional Growth Drivers: A
Learning Organisation
Summary are ADAPTABLE
and Insights
organisms

FOR ANY ORGANISM TO SURVIVE, ITS RATE OF

LEARNING HAS TO BE EQUAL TO, OR GREATER
THAN, THE RATE OF CHANGE IN ITS
ENVIRONMENT

L C
Source: Reg Revans
Source: By
V.Ram
 Covid -19 Pandemic: Insights for
Growth
The Pandemic has accelerated the shift in focus on just growth strategies but also on public
health, health infrastructure, including adapting research and being relatively diversified in
obtaining key medicines and medical equipment, education, social protection systems, food
security, and science and technology policies.
Managing both demand and supply side of macro , sectoral balances, , and micro aspects,
including motivational, behavioral, and sustaining of social trust and social capital have
become even more essential.
The importance of ensuring that basic social and physical amenities, and daily food supply
are available throughout the country has also become more prominent due to the
Pandemic.
Currency management and supply/logistics management have acquired greater
prominence
Friend-Shoring is more prevalent since the pandemic as compared to earlier phase of
globalization when cheapest sourcing predominated even when it led to excessive
dependence on one country, particularly a country which wants to disrupt the current geo
political arrange ments
 Limitations of the Conventional Approaches

First, they provide a list of broad general

factors (sometimes numerous) without
suggesting their relative importance for a
particular public policy growth challenge
in a specific context.
 Limitations of the Conventional Approaches

Second, a list of growth drivers indicated

in some of the growth literature involves
implicit theorizing (or cause-effect
relationships) which are not rigorously
stated and neither are the magnitudes of
the relationships and impact. These
severely constrain their usefulness for
addressing a policymakers growth
challenge in a specific context.
 Limitations of the Conventional Approaches

The diagnostic approach, using medical analogy for examining few

vital signs to assess health condition, therefore holds promise.

HABERMANN and PADRUTT (2011) assess that:

“… Growth Diagnostics is a useful tool to inform growth strategies in
developing countries, whereas the new framework’s flexibility is
discerned as both its essential strength and its main weakness.
Among the approach’s most important contributions are its explicit
renunciation of economic rules of thumb in favor of fact-based
diagnosis and context-specific policy design, its ability to identify
reform priorities based on expected impact as well as its caution with
respect to potentially adverse second-best interactions between
different policy reforms.”
 Growth Diagnostics Approach

The next graph has been modified

by the author based on Rodrik 2010.
The diagnostics approach is thus
flexible.
 Possible Approach to Diagnosing Growth Challenges in a
Context- Specific Manner

Output/ Income Per Person/per

Household

Investme Knowledge Productive Skill-Set Cooperative

nt Application/Productivi Livelihood Federalism
ty s
Supply Deman Supply Deman Supply Deman Supply Deman Supply Deman
side d side side d side side d side side d side side d side
proble proble proble proble proble proble proble proble Proble Proble
ms ms ms ms ms ms ms ms ms ms

In each of the above areas, initiatives needed to plan to minimize

imbalances in demand and supply
Other areas to consider:
Poorly designed and administered taxes; poor design and enforcement of
government property rights and contracts; Weak public financial management;
macroeconomic and coordination failures
failures
Product market failure; coordination failure, significant externalities and
market spillovers; Dysfunctional concentration of economic power and weak
failure competition ;Labour market limitations

problems in Societal norms of behavior; poor geography, organizational capacities to deliver

other Public services; Weak complementary markets when several sectors need to be
coordinated; weak linkages between market and non-market activities impacting
markets/Areas on household welfare

Source: Adapted and modified by the Author based on Dani Rodrik (2010) Diagnostics
before Prescription. Journal of Economic Perspective, Vol. 24 (3). Pp. 33-44
A Case for Growth Diagnostics Approach/3

Source: Hausmann R., Rodrik D., Velasco A. (2005). “Growth Diagnostics”. Retrived from http://
 Transformative Infrastructure Investment: An
Example

Regional Rapid Transport System (RRTS) — is a

reliable, fast and regional mass transit system that will
connect major cities of Haryana, Rajasthan and Uttar
Pradesh to Delhi with a high speed rail network.
But why is it needed when Delhi has the best metro rail
system in India?
Because Delhi is not just the capital of India— it’s also
the migrant capital of India & this puts pressure on its
infrastructure. How?
Delhi will soon overtake Tokyo to become the world's
most populous city. But population growth is not the
problem, population density is.
 Transformative Infrastructure Investment: An Example

Regional Rapid Transport System (RRTS) — is a reliable, fast and

regional mass transit system that will connect major cities of
Haryana, Rajasthan and Uttar Pradesh to Delhi with a high speed
rail network.
But why is it needed when Delhi has the best metro rail system in
India?
Because Delhi is not just the capital of India— it’s also the migrant
capital of India & this puts pressure on its infrastructure. How?
Delhi will soon overtake Tokyo to become the world's most populous
city. But population growth is not the problem, population density is.
 Transformative Infrastructure Investment: An
Example

The system will cater to passengers looking to travel relatively

longer distance with fewer stops and at higher speed — along
a dedicated path.

Designed at Alstom’s Hyderabad engineering center and

manufactured at Savli, Vadodara (Gujarat), these trains are
100% indigenous. And at lightning fast speed of 180 kmph,
they'll be 3 times faster than the Delhi metro — making RRTS
trains the fastest in India.

A person living in a tier 2 city like Meerut can now dream of

working in an MNC located in Gurugram. Not only will it bring
lots of business and job opportunities to Delhi & its satellite
cities — but will also lead to a balanced economic
development in the neighboring regions.
Transformative Infrastructure Investment: An
Example
 Political commitment to growth
Needed
Stefan Dercon, a Belgian-British economist at
Oxford university and an international development
practitioner, is the latest to try to crack the mystery.
The result is an important book, Gambling on
Development, both scholarly and grounded in
experience. It may come as close as any to
answering this critical question.
Its thesis is brutally simple. “The defining feature of
a development bargain is a commitment by those
with the power to shape politics, the economy and
society, to striving for growth and development,”
writes Dercon.
 Political commitment to Growth

Growth happens, in other words, when elites try to bring

it about. To do so, they must gamble on increasing the
size of the economic pie rather than carving up the one
that already exists.
This is risky.

Their gamble may fail and they may be blamed. Or it

may succeed and they may be pushed from power by
new entrants.
 https://www.core-econ.org/the-economy/book/text/01.html#110-
varieties-of-capitalism-institutions-government-and-the-economy

Where capitalism is less dynamic, the explanation might be that: 12 13

János Kornai. 2013. Dynamism, Rivalry, and the Surplus Economy: Two Essays on
the Nature of Capitalism. Oxford: Oxford University Press. Close footnote
Dolores Augustine. 2013. ‘Innovation and Ideology: Werner Hartmann and the Failure of the
East German Electronics Industry’. In The East German Economy, 1945–2010: Falling
behind or Catching Up? Cambridge: Cambridge University Press. Close footnote

Private property is not secure: There is weak enforcement of the rule of law and of
contracts, or expropriation either by criminal elements or by government bodies.
Markets are not competitive: They fail to offer the carrots and wield the sticks that
make a capitalist economy dynamic.
Firms are owned and managed by people who survive because of their connections
to government or their privileged birth: They did not become owners or managers
because they were good at delivering high-quality goods and services at a
competitive price. The other two failures would make this more likely to occur.
Combinations of failures of the three basic institutions of capitalism mean that
individuals and groups often have more to gain by spending time and resources in
lobbying, criminal activity, and other ways of shifting the distribution of income in
their favour. They have less to gain from the direct creation of economic value.14
httml#110-varieties-of-capitalism-institutions-government-and-the-economy
https://www.core-econ.org/the-economy/book/text/01.

One of the reasons why capitalism comes

in so many forms is that over the course
of history and today, capitalist economies
have coexisted with many political
systems. A political system, such
as democracy or dictatorship,
determines how governments will be
selected, and how those governments will
make and implement decisions that affect
the population.
Brief Comments on Why Nations (or Regions) May Regress

Daron Acemoglu and James A. Robinson. 2012. Why Nations Fail:

The Origins of Power, Prosperity, and Poverty. New York, NY: Crown
Publishing Group. Close footno
Capitalism is the first economic system in human history in which
membership of the elite often depends on a high level of economic
performance. As a firm owner, if you fail, you are no longer part of
the club. Nobody kicks you out, because that is not necessary: you
simply go bankrupt.
An important feature of the discipline of the market—produce good
products profitably or fail—is that where it works well it is
automatic, because having a friend in power is no guarantee that
you could remain in business. The same discipline applies to firms
and to individuals in firms: losers lose. Market competition provides
a mechanism for weeding out those who underperform.
Think of how different this is from other economic systems. A
feudal lord who managed his estate poorly was just a shabby lord.
But the owner of a firm that could not produce goods that people
would buy, at prices that more than covered the cost, is bankrupt—
and a bankrupt owner is an ex-owner.
 Brief Comments on Why Nations (or Regions) May Regress

Why some nations attain prosperity and

stability but not others?

These are relative, and so is the notion of failure. In answering the question
the book distinguishes between “extractive” and “inclusive” economic
institutions which are over the long –term co-related with “extractive” and
“inclusive” political institutions. The two aspects of economic and political
institutions impact each other.
Brief Comments on Why Nations (or
Regions) May Regress
The correlation is not exact, not even in the medium term. But
over long term the co-relation is likely to be highly probable.
However, there are always chances of regress, such as crony
capitalism or money politics in successful high income
economies. China’s case remains an interesting one as its
astonishing growth for over three decades for a country of its
size is unprecedented.

While institutions are important, knowledge about how to

develop inclusive, or even good institutions is not robust.
Context specific analysis and diagnostics and willingness to learn
and experiment will be needed. There are however other factors
than institutions which also impact on nation’s economic
trajectory. These may be classified broadly as ‘geography’
‘culture’. Their role has been important in some cases(e.g. land-
locked countries) but not necessarily decisive.
 Case Studies
Select case studies are provided of
why some nations could not sustain
growth, and realize potential
 Case Study: South Africa
The ANC destroyed South Africa
Corrupt politicians care little for the fracturing nation
BY BRIAN POTTINGER
https://unherd.com/2021/11/how-the-anc-destroyed-south-africa/
Accessed on 6 November 2021

A hinge moment happened this week in South Africa. The country

finally transitioned from rainbow utopianism to reality.
The turning point was the municipal elections in which the 110-
year-old ruling African National Congress failed to gain a majority of
the vote. The party is, despite its manifest failings, still custodian of
the liberator’s mantle among many black South Africans — a recent
survey showed that although 60% of ANC voters
 Case Study: South Africa
associated their party with corruption,
they would nonetheless vote for it; such
is the brand loyalty— but the party’s
once hegemonic power is in retreat.
The decline over the years is neatly in
tandem with the nation’s trajectory
towards a failed state. At its peak in
2004, the ANC pulled nearly 70% of the
national vote. This week, it could barely
pull past 46%.
 Case Study: South Africa
The party has lost majority control of all the major metropolitan
areas; across 62 municipalities, desperate, if informal, coalition
negotiations on power and patronage are underway. And the
collapse is being blamed on the fact that so few ANC supporters
bothered to vote.
This is surely the result of catastrophic declines in public trust across all institutions
of state — and particularly in the political classes during President Cyril
Ramaphosa’s term. According to some under-reported polling in August, two thirds
of respondents said they were willing – 46% were “very willing” — to give up
elections altogether in favour of a non-elected government that could provide
security, houses and jobs.
His predecessors — Thabo Mbeki, P W Botha, John Vorster — all had
the courage to split their parties to move ahead with what they
saw to be reformist policies. Not the incumbent. He lost the one
opportunity to save South Africa: to appeal above his party to the
country and to unify all the modernist forces against the criminal,
pre-modern and racist ones, most of them in his own party.
 Case Study: South Africa
Twenty seven years into the ANC’s divisive misrule, the political movements
have solidified as never before into their racial components. The ANC is now
an entirely black party: the tiny residual support from the racial minorities
evaporated when Ramaphosa failed to deliver.
The EFF is unashamedly black and exclusivist: a nativist and racist
organisation of provocateurs canvassing for support among the poor while
wearing Gucci jeans, literally. Its support sits at an estimated 10% in these
elections: a 20% improvement since 2016
The classically liberal Democratic Alliance has made heroic attempts to break
out from its strongholds in the white, Indian and coloured areas. It has failed:
black support has been historically negligible and the party has seen a decline
in national share in these elections from 24% to 21%.
The Inkatha Freedom Party, rooted in traditional and conservative Zulu areas,
has stayed constant at about 5% of the vote, and had the unalloyed pleasure
of claiming the ward in which Zuma has his mega-million state-provided home.
The Freedom Front Plus, unambiguously representing conservative white,
primarily Afrikaner, and Afrikaans-speaking coloured interests, has trebled its
support.
 Case Study: South Africa
A late-comer, Action South Africa, led by a personable black former DA
Mayor of Johannesburg and proclaiming its multi-racial profile, has created a
stir by winning a significant share of votes in Johannesburg but made little
national headway at below 3% of share. In any case, its core constituency is
also primarily amongst urban minorities tired of the DA.
Thanks to the long-tail legacy of apartheid’s policy of residential
segregation, many of the country’s suburbs are still largely racially defined.
These are the citadels into which the minority communities retreat to enjoy
their lives, ply their politics, conduct their businesses, pray, shop, school
their young and, if necessary, take up arms to protect themselves when
Ramaphosa’s State goes AWOL, as it did in the July Troubles.
For decades now these informal cantons have become ever more self-
sufficient: they have private police, hospitals, schools and an army of fixers
to mediate between them and a truly appalling bureaucracy. So-called
Public-Private Partnerships control large public business and tourist spaces,
property developers build public roads, private companies manage water
reticulation and major road routes are maintained by private enterprise.
 Case Study: South Africa
Recent Government policy allows for Independent Power Producers:
energy self-sufficiency is now within the grasp of these localised
and internally expatriated communities.
And thus the contours of a new and informal cantonal South African state is
emerging after 27 years of ANC misrule: self-sufficient and defensive pockets of
privilege scattered in the interior and in a coastal arc from the Mozambican border
on the Indian Ocean to the Namibian border on the Atlantic. All of this new South
Africa is set in a sea of rural and urban poverty presided over by a ghostlike State
managed by a collapsed and indifferent bureaucracy and a squabbling and corrupt
political class. The old feel-good notions of a non-racial South Africa, Archbishop
Tutu’s famous Rainbow Nation, were naïve and are now dead. Cold reality rules.
 Case Study: Southeast Asia
Southeast Asia risks stumbling toward a South American future
Current trajectory suggests region will struggle to escape middle-
income trap
William Bratton
November 28, 2021 05:00 JST

https://asia.nikkei.com/Opinion/Southeast-Asia-risks-stumbling-toward-a-South-Ame
re
Accessed on 1 December 2021
Case Study: Southeast Asia
It is easy to forget that it was South America, not Asia, that was once seen as the world's emerging
economic hot spot.
Many of the region's countries were relatively prosperous in the first half of the 20th
century. Argentina, for example, was then one of the world's richest countries. They also achieved
impressive growth rates in the immediate aftermath of World War II.
https://asia.nikkei.com/Opinion/Southeast-
But South America has fallen far since those halcyon days. The region's combined gross domestic
Asia-risks-stumbling-toward-a-South-Amer
product, in constant dollar terms, was 22% of the U.S.'s in 1980 but just 17% in 2020. This relative
ican-future
decline is even more stark on a per capita basis.
Accessed on 1 December 2021
Brazil's GDP per capita was 22% of the U.S.'s in 1980 but only 14% in 2020, while Mexico's fell from
25% to 15% over the same period.
This underperformance, and the subsequent inability of many South American countries to escape
the middle-income trap, has been explained by a number of broad but interrelated factors.
The first was their failure to upgrade their economic structures, develop internationally competitive
industries and reduce their reliance on primary exports. The second was their ineffectiveness at
addressing widening income and social inequalities and the third was the region's political instability
which resulted in more short-term populism than long-term economic thinking.
Case Study: Southeast Asia
South America may be geographically distant from Southeast Asia, but there are now
many existing and emerging similarities between the two regions.
"Like South America, Southeast Asian countries, with the notable exception of
Singapore, are struggling to develop the more advanced industries so necessary to
transition from simple employment-led economic expansion to more sustainable
productivity-led growth," writes Bratton. "The fundamental problem is that if
Southeast Asia cannot develop more advanced industries, then it will not escape a
future in which it specializes in the exports of raw materials, agricultural products,
lower-order goods and tourism."

It is true that there are pockets of manufacturing excellence within the region, but
these are geographically concentrated and often not at the scale to be internationally
competitive. The region's manufacturers are instead generally low-order and
domestically-orientated, despite numerous but frequently futile efforts to develop
more advanced sectors.
Case Study: Southeast Asia
In fact, many Southeast Asian countries have experienced premature
deindustrialization given their positions in the development cycle.
And it may now be too late to reverse this trend. In the same way,
South America failed to develop their manufacturing sectors in the
face of American and European competition, Southeast Asia's
producers will almost certainly struggle against hypercompetitive
Chinese imports.
The fundamental problem is that if Southeast Asia cannot develop
more advanced industries, then it will not escape a future in which it
specializes in the exports of raw materials, agricultural products,
lower-order goods and tourism, while relying on more advanced
manufactured imports from the region's dominant economy just like
South America. And if this geographic division of labor and trade
emerges, then the long-term consequences will be the same.
Such an outcome is looking increasingly likely, though, because many
of the necessary ingredients for such productivity-led economic
development are missing across much of the region
Case Study: Southeast Asia
Not only is there a lack of regionally coordinated industrial policies
-- important if Southeast Asian countries are to develop
complementary rather than competitive industrial structures -- but
there is a widespread reluctance to invest in the necessary human
capital. Indonesia, Thailand and the Philippines, for example, all
spend significantly less on education, as a proportion of GDP, than
Brazil, Argentina and Mexico.
That feeds through to a lack of innovation and technological
advances. This reality may seem at odds with the current excitement
over the emergence of various regional internet platforms, which
are often presented as examples of Southeast Asia's advances, but
these are the exceptions rather than the general rule.
Over the last three years, Southeast Asian entities secured just 19,300 patent
grants, not much more than Australia's 17,300 over the same period and significantly
fewer than South Korea's 424,600. Furthermore, much of Southeast Asia's innovation is
concentrated in Singapore and, to a lesser extent, Malaysia. There is little evidence that
the rest of the region, especially Indonesia, the Philippines and Thailand, have the
innovation capabilities required for longer-term growth.
Case Study: Southeast Asia
These dynamics will also have a more insidious outcome: widening social and income
inequalities. This will not just constrain the region's economic outlook. It also
increases the risk of political instability over time.
Political instability would not be new to Southeast Asia, of course. After all, many
countries across the region, Singapore again being the notable exception, are already
typified by short-term populism, patronage and weak institutions.
The problem, however, is that the region's current economic trajectory is likely to
make its political environments worse. And, as South America has already
demonstrated, political instability is rarely conducive to the longer-term thinking
needed to sustain development.
There are, therefore, important lessons for Southeast Asia from South America's
difficulties, especially as the similarities between the two regions are increasing. The
fundamental question is whether the Southeast Asian countries will address their
industrial structures, widening inequalities and unstable political environments more
successfully than their South American peers
Case Study: Southeast Asia
As of now, the evidence is not promising, especially as certain
trends are becoming more entrenched. In the same way South
America struggled in the shadow of the U.S., Southeast Asia faces
a difficult outlook as China's economic edge. This is already being
reflected in differing economic performances. Indonesia's GDP per
capita, in constant dollar terms, was 87% of China's in 2000 but
just 37% in 2020, while Thailand's fell from 164% to 61% over the
same period.
This is not to say that the region will not achieve economic
growth. On current trajectories, though, it will continue to
underperform China and will struggle to achieve the necessary
economic momentum to escape the middle-income trap over the
longer term.
If such a fate is to be avoided, countries across the region need to
learn from South America and take action now.
 Case Study: Laos
https://asia.nikkei.com/Economy/Laos-faces-public-backlash-as-economy-teete
rs-toward-default?utm_campaign=IC_asia_daily_free&utm_medium=email&utm
_source=NA_newsletter&utm_content=article_link

Accessed June 23 2022

 Case Study: Laos
Laos faces public backlash as economy teeters toward default
Debt crisis triggers rare anger against communist leaders on social
media
The economic crisis has been brewing over recent months. The signs range from long lines of vehicles at gas
stations in Vientiane and beyond to a spike in the price of food and other essentials, as the kip, the local currency,
weakened against the dollar.

In June, international ratings agencies raised the ante in a warning that the Laotian economy, already saddled with
fiscal and current-account deficits for years and grappling with a liquidity and solvency crisis, is being fingered for
potential default. It immediately drew parallels with the economic meltdown in Sri Lanka, the South Asian nation
that announced in April that it had run out of dollars to meet its foreign debts this year.

The government's response to public frustration has been as revealing, with leading officials admitting to the crisis
in the $20 billion economy. Prime Minister Phankham Viphavanh is among them. During the latest session of Laos'
National Assembly, which convened last week, he revealed in a moment of candor that he was aware of the
criticism on social media.

Finance Minister Bounchorn Oubonpaseth has been equally candid about mounting pressures in the impoverished
country of 7.5 million people. On Monday, he told the members of the National Assembly that the country has
amassed huge debt because of "massive loans borrowed for national development from 2010 and 2016." The
annual foreign debt servicing had grown from $1.2 billion in 2018 to $1.4 billion in 2022, he said. "In 2010, our
external debt-service payments amounted to just $160 million, which could be paid for out of domestic revenue."
 Case Study: Laos
Similar openness was evident in May, when senior officials at the Central
Bank of Laos said that only 33% of the country's export earnings had
reentered local banks by the end of April, depriving the country of building
sufficient foreign reserves to pay for imports and service foreign debt. The
main foreign exchange earners are energy sales to neighbors from
hydropower projects, the extraction industry and agriculture products.
Tokyo University professor Toshiro Nishizawa believes this official candor is
being done selectively in the wake of financial challenges that he describes
as "tremendous and worrying." But Nishizawa, who formerly served as a
policy adviser to the Laotian government, said the official warnings are
"formulaic, preset and generalized." He is not expecting an immediate
disclosure of key economic and financial indicators, "due partly to political
sensitivities and capacity constraints.“
Analysts say the economic crisis threatening to rattle the entrenched communist order comes in the wake of
back-to-back external crises: COVID-19 in 2020, which drained foreign earnings from a lucrative tourism
sector; the Russia-Ukraine war, which has increased oil prices; and the increase in U.S. interest rates, which
is weakening local currencies against the dollar to make imports pricier.
This week's firing of Bank of Lao Gov. Sonexay Sitphaxay hints at the panic that has set in. He has been
replaced by Bonleua Sinxayvoravong, the former deputy finance minister.
But signs of an economic downturn had already been evident. The World Bank, International Monetary Fund
and other international agencies had warned Laos before the pandemic that it was headed toward an
external debt crisis because of depleted foreign reserves.
 Case Study: Laos
"A large current-account deficit, low level of reserves, a high level of debt,
managed exchange rate, and a dollarized banking system amplify macro-
vulnerabilities," the IMF noted in August 2019 following its Article IV
consultation of the Laotian economy.
According to the World Bank, by the end of 2021 the country's public debt
had skyrocketed to 88% of gross domestic product, with foreign debt at an
estimated $14.5 billion. The country's list of foreign lenders included Chinese
creditors, who accounted for a 47% share, reflecting Laos' close ties with
China, which in the past decade has become Laos' largest lender, investor
and trading partner. In addition, Laos owes 11% of its debt to China from
bilateral loans.
The World Bank and the Asian Development Bank account for a combined
17%, international sovereign bonds 17%, and non-concessional loans 8%.
Some of the bonds are in Thai baht -- after Laos tapped the Thai capital
market in 2013 -- and in U.S. dollars.
 Case Study Of Magnolia

The East Asia forum

Coal smuggling trains the Mongolian public’s eye on systemic
corruption
17 April 2023
Authors: Gantulga Munkherdene, National University of
Mongolia and Ariell Ahearn, University of Oxford
Mongolia has substantial coal deposits across the country.
Coal is an important source of government revenue
alongside mineral exports from mega mines such as Oyu
Tolgoi and the Erdenet copper mine. But in September
2022, a coal scandal began to unfold in Mongolia’s capital
city of Ulaanbaatar.
 Case Study Of Magnolia

Multiple disclosures were made regarding corruption and conflicts of

interest associated with the state-owned coal company, Erdenes-Tavan
Tolgoi JSC. Then in October 2022, the Mongolian government revealed
that coal was being illegally transported across the Chinese border without
customs registration. This coal smuggling was allegedly directed by
individuals in high-level government positions. Mongolia’s new national
opposition political party, the HUN Party, calculated that the
total loss of potential revenue to the Mongolian government was equivalent
to an estimated 40 trillion Mongolian tugrik (US$13 billion). The
Mongolian government did not officially confirm this figure.

Coal executives involved in such deals directly implicated the governing

Mongolian People’s Party (MPP) because Erdenes-Tavan Tolgoi JSC is
state owned. According to Mongolian news media revelations in
December 2022, Erdenes-Tavan Tolgoi JSC executives
secretly signed multiple offtake contracts (largely with Chinese and
Mongolian companies) to fund infrastructure projects in exchange for
cheap coal. These projects included the Zag water pipeline, the Bogd
Khan railway and Tavantolgoi Gashuun Sukhait road projects.
 Case Study Of Magnolia

Erdenes-Tavan Tolgoi JSC’s chief executive officer was

eventually arrested and imprisoned. Mongolia’s government
installed a special representative to replace him. On 30
March 2023, two members of parliament — Tumurbaatar
Ayursaikhan and Dashdemberal Bat-Erdene — lost their positions.
Several Chinese officials associated with the coal trade were
also arrested in China at the end of 2022.
This revelation of secret, internal deal-making within the
state-owned company triggered large-scale protests in
Ulaanbaatar. Yet these protests were directed not only at this
scandal but embodied a larger anger at political dysfunction
and endemic corruption in Mongolia. During the protests,
many different opinions were broadcasted, including calls for
the government to resign. Protesters also promised that this
would be the first of further protests planned for when the
intense winter cold thawed.
This scandal was seen as an example of so-called ‘theft-by-law’ because
state secrets rules technically protect internal deal-making and it is within
the power of the ruling party’s decision makers. The scandal’s information
source remains unclear — no single whistleblower has come forward, though
several copies of the offtake agreements have been shared publicly.
The initial spotlight on the smuggling came from within MPP. Given the
nature of Mongolian politics over the last decade, this situation is an
indication of party fracturing and an internal fight for financial resources.
With the next election coming in June 2024, internal party fighting may have
culminated in Prime Minister Luvsannamsrain Oyun-Erdene’s effort to exert
his control over the MPP and use the scandal to display an anti-corruption
stance. This was evident in Prime Minister Oyun-Erdene’s speech at the
Plenary Session of Mongolia’s parliament on 15 December 2022 when he
stated his rejection of the ‘MANAN gang’. MANAN refers to MAN — the MPP,
and AN — the Democratic Party — combined to construct the Mongolian word
for ‘fog’.
 Case Study Of Magnolia

Corruption scandals have plagued Mongolia. The Mongolian

government unfairly awarded scholarships to relatives or children
of politicians and a state-run health and social insurance
fund was subject to high levels of corruption and theft of assets.
The Development Bank of Mongolia’s famous Chinggis and
Samurai bond money was gutted by government authorities and their
family members and major Mongolian private companies with
political connections. The state fund for small and medium
enterprises also gave large loans to members of the MPP —
often without them paying them back.
The coal smuggling scandal is another example of the culture
of corruption in a long line of similar events. But it is unclear
why the Mongolian government only uncovered this so-called
open secret of coal smuggling within its own party now.
 Case Study Of Magnolia

The coal smuggling scandal is another example of the culture of corruption in

a long line of similar events. But it is unclear why the Mongolian government
only uncovered this so-called open secret of coal smuggling within its own
party now.
Coal smuggling has been on the radar since at least 2018 when former
member of Mongolia’s parliament from Omnogobi province, Luvsang
Enkhbold, warned about millions of tonnes of coal missing in customs
declaration forms. Beyond pointing to internal fighting for power within the
MPP, the scandal may serve as a convenient crisis to make the prime
minister look good in anticipation of the elections in 2024.
The scandal could distract the Mongolian population from bigger protests
calling for genuine reform.
Gantulga Munkherdene is Senior Lecturer at the Department of
Anthropology and Archaeology, National University of Mongolia.
 Japan: Industrial policy

https://asia.nikkei.com/Politics/Honda-others-to-receive-1.8bn-in-battery-
semiconductor-subsidies?
utm_campaign=IC_JP_update_free&utm_medium=email&utm_source=NA_ne
wsletter&utm_content=article_link&del_type=4&pub_date=2023042909000
0&seq_num=6&si=00103781
Accessed on 29 April 2023

Honda Motor and other companies will receive subsidies totaling up to

240 billion yen ($1.79 billion) from Japan's Ministry of Economy, Trade
and Industry to produce storage batteries and semiconductors, which the
government has designated as strategically critical products.
The automaker said on Friday that it will team with battery manufacturer
GS Yuasa and invest 434.1 billion yen to develop and mass-produce lithium-
ion batteries for electric vehicles at factories in Japan. The government will
provide a subsidy of up to 158.7 billion yen.
"We would like to meet a wide range of demand for batteries in Japan,
particularly for electric vehicles," Honda President and CEO Toshihiro
Mibe said.
 Japan: Industrial policy

"We will strengthen our domestic manufacturing base and strive for a
carbon-neutral society," said Osamu Murao, GS Yuasa's president and CEO.
Seven other Japanese companies involved in battery materials are set to
receive subsidies. These include Panasonic's automotive battery unit,
Panasonic Energy.
Other candidates include Kureha -- which develops and produces binders,
an essential part of lithium-ion batteries -- and Asahi Kasei, a producer of
separators, which isolate anodes and cathodes.
Japan's second supplementary budget for fiscal 2022 allocated over 1
trillion yen to bolster production and expand stockpiles in 11 areas
designated as strategically critical products. Around 331.6 billion yen was
allocated for storage batteries and 368.6 billion yen for semiconductors.
In the new round of subsidies, the industry ministry doled out up
to 184.6 billion yen for storage batteries and up to 56.4 billion yen
for semiconductors from the budget .
 Japan: Industrial policy

In the field of semiconductors, Ibiden and Renesas Electronics will

receive subsidies of up to 40.5 billion yen and 15.9 billion yen,
respectively. Ibiden plans to start production of semiconductor
package substrates for personal computers and data centers at its
factory in Gifu prefecture in July-September 2025.
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Additive Manufacturing Around the World: What is the State of 3D Printing

Adoption in North America and Europe?
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state-of-3d-printing-adoption-in-north-america-and-europe/
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McKinsy Global Institute, “Disruptive technologies: Advances that will transform life,
business, and the global economy’”, May 2013, available at
http://www.mckinsey.com/insights/business_technology/disruptive_technologies

Rodrik, D.(2010). Diagnostics before Prescription. Journal of Economic Perspective, Vol. 24

(3). Pp. 33-44.

Hausmann R., Rodrik D., Velasco A. (2005). “Growth Diagnostics”. Retrived from
http://www6.iadb.org/WMSFiles/products/research/files/pubS-852.pdf .

Romer, P. M. “Which Parts Of Globalization Matter For Catch-Up Growth?” , National Bureau
of Economic Research Working Paper 15755, February 2010, available at:
http://www.nber.org/papers/w15755

Sealy W. “Additive Manufacturing As a Disruptive Technology: How to Avoid the Pitfall”, US,
American Journal of Engineering and Technology Research, Vol 12, 2012.