MPDD Seminar Series on
In which industries to invest? Aligning market and development incentives in Myanmar
Steven Ayres and Clovis Freire
Macroeconomic Policy and Development Division UNESCAP
Wednesday, 31 October 2012
MPDD Meeting Room
7th Floor Block B, Secretariat Building
In 2010, Myanmar began laying the foundations for a series of reforms that would see it begin to emerge from the fringes of global political and economic discourse. One of the least developed countries in the Asia-Pacific region, Myanmar’s increasing engagement with the international community is being greeted with a great deal of optimism. In this current era of opening of the economy, Myanmar is trying to boost private investment by putting into motion changes that will help to provide sustainable financing opportunities. Of particular importance is the new FDI legislation that may substantially increase capital inflows and achieve exactly this objective.
The presentation will discuss the merits of targeted foreign direct investment in the context of Myanmar’s opening economy, aiming to specifically identify the areas into which investment could be focused to maximize development gains. It emphasizes the role of structural transformation and how this can best be facilitated by strategies to attract investment towards new economic activities on more productive economic activities. The central theme is the need to align market and development incentives when devising strategies to attract the kind of foreign direct investment (FDI) that will foster inclusive growth in Myanmar.
Inclusive growth should result in job creation, the shift of share of employment from low to more productive economic activities and the associated increase in total productivity of the economy. FDI can be instrumental in this regard, by channelling capital inflows into the more productive industries. But big reliance on investment in existing industries may trap the country in specializing in fewer and more volatile economic activities in the commodities sector. Moreover, increasing resources in existing industries will only increase the power and wealth of groups that have had the upper-hand in the political process in the past decades, perpetuating the old power dynamics within the society and undermining the process of technology accumulation and dissemination that ultimately will push the country towards development.
The presentation will argue that the creation of and investment on new industries would present a more successful approach to fostering inclusive development. It will create new job opportunities and will push upwards the productivity of the whole economy. But the process of economic diversification is path-dependent and not all new industries will deliver the desirable social benefits. Diversification would require the strategic identification of potential new industries that would create productive jobs and would provide attractive investment possibilities. Also important, these potential new industries should be the ones that are likely to emerge from the existing productive capacities in the economy.
Based on empirical data, analysis suggest that the potential new industries that would align market to development incentives are machinery and mechanical appliances; optical, photo, technical, medical, etc; plastic and articles thereof; electrical and electronic equipment; and iron and steel. A comprehensive list of potential products disaggregated by unit price is also identified, which could serve as a public good to be made available to the private sector to reduce its cost of discovery and also could guide the government in identifying factors that could facilitate this process.
Steven Ayres is an intern in the Macroeconomic Policy and Development Division (MPDD) of ESCAP, currently in the process of completing his Master’s degree in Development Economics and International Cooperation from the University of Rome – Tor Vergata. His research interests cover international economics, economic growth and trade theory, as well as their applications to policies that promote sustainable growth. At ESCAP Steven has contributed to current research on the role of diversification in developing countries’ economic growth, and how the transformation of an economy’s structure can help boost development.
Clovis Freire is an Economic Affairs Officer at the Macroeconomic Policy and Development Division (MPDD) of ESCAP. He has been one of the lead authors of the Economic and Social Survey for Asia and the Pacific and has contributed to other flagship publications of ESCAP. His research interests cover economic development and structural transformation, economics of technology change, assessment of impact of economic shocks on poverty and the achievement of the MDGs, and strategies for building the productive capacities of developing countries.
You and your colleagues are cordially invited to the seminar and participate in the discussions.