PRESS CONFERENCE ON WORLD ECONOMIC AND SOCIAL SURVEY

 

Income level in the industrialized world has risen steadily for five decades, but it has failed to do so in many developing countries, leading to further gaps in global equality, Rob Vos, Director for Policy and Analysis, Department of Economic and Social Affairs, told correspondents at Headquarters this afternoon.

Mr. Vos presented the United Nations 2006 flagship report “The World Economic and Social Survey”.  This year, it focused on diverging growth and development trends, and there were four major findings.  First, developing countries had good growth performance the past couple of years, at a rate of almost 6 per cent compared with the 2.7 per cent projection for the industrialized world.  This suggested that developing countries were catching up with developed nations.  However, much of the good growth performance was linked to favourable conditions in world commodity markets and increased aid and financial flows to developing countries.  The report took a longer-term perspective, from 1950 to present, and showed that there was a widening gap between developed and developing countries, and greater divergence among developing countries.

In 1950, Latin Americans’ income per capita was 40 per cent of the average citizen in the industrialized world.  Today, it was only 25 per cent.  In Africa, it was 14 per cent, now it was only 7 per cent.  “Only Asia and China had escaped this trend and are somehow catching up, but still, from very low levels.”  Mr. Vos said.

In a second major finding, sustained productivity growth required a structural change in the economy and economic diversification, he continued.  There were moves economies could make which focused on changes in the production  structure, in order to shift resources to activities with higher levels of productivity.  “Countries that have integrated into the more dynamic world markets for manufacturers and services have performed much better than those that have specialized in primary goods and natural resource intensive manufactures.”

Third, counter-cyclical macroeconomic policies had been an important cause of a lack of long-term investment in the development of poorer countries, he said.  The report showed macroeconomic policies in the developing countries had become excessively pro-cyclical (spending more when the economy is doing well, cutting expenditures when the economy is down).  This exacerbated business cycle fluctuations resulting in lower growth.  Unstable public spending had negatively affected investments in infrastructure and human development.

And finally, the report also found that institutions were important, but gradual governance reforms might be better than “big bang” transformations, which could do more harm than good, he added.  Minor and gradual institutional change could have a very positive impact on growth.

The report concluded by saying there should be a strategy for reducing international economic divergence based on a flexible agenda for domestic development, facilitated by international cooperation and rules that guaranteed the appropriate policy space for developing countries.  This would include:  fostering active trade and production sector policies; improving the international trade environment; opening up more space for counter-cyclical, macroeconomic policies; ensuring sustained levels of public spending; and promoting gradual, country-specific and home-made institutional reforms.  “The effectiveness of these domestic policy efforts will also require policy intervention at the international level to dampen financial volatility”, he said.

When asked by a correspondent if international migration and remittances of workers made a difference in the income gaps between countries, Mr. Vos said it was very difficult to assess the impact.  The positive and negative effects would likely balance out.  On the negative side, part of the migration flows led to a brain drain on their economies.  But in some countries, very strong remittance flows had positive affects, not just because of remittances, but also because of networks established between migrants and economic activities back home.

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For information media • not an official record