Directions in Development – Countries and Regions

The countries of the Latin America and Caribbean region (LAC), like other emerging economies, have benefited from a decade of remarkable growth and some income per capita convergence towards the United States and other industrialized countries. However, even nearly ten years of solid growth in the first decade of the 21st century could not guarantee that LAC would move on to a sustained long-term income convergence path. In fact, despite this recent progress, LAC still faces a significant per capita income gap with the developed world. The papers in this volume contribute to the ongoing debate on the reasons for this persistent income gap and the potential drivers of convergence, and propose some broad avenues for reform. This volume presents new macro-, sectoral-, and micro-level evidence that: (i) differences in total factor productivity (TFP), or efficiency in using the production factors, such as physical and human capital, explain a large part of LAC's persistent income gap; and (ii) resource misallocation is the main factor behind LAC's large efficiency gap. At the same time, the findings of this volume indicate there is significant room for further economic growth gains from technology adoption and innovation more broadly. In fact, the quality of the available technology in LAC is low, and there is very little innovation. Although firms can use innovation to reach productivity at the global productivity frontier, weak institutions reduce incentives to innovate. This volume also proposes that the main priorities for improving resource allocation and the incentives to innovate include: (i) enhancing market competition in key network industries (transport, financial, telecommunications, logistics, communication and distribution services); (ii) increasing labor market flexibility (including skill-mismatches and social barriers); (iii) removing informational frictions (including complex tax regimes and credit rationing); (iv) strengthening property rights; and (v) improving the rule of law.

A unique strategic opportunity beckons Bangladesh. Dhaka, the economic powerhouse of the country, stands on the cusp of a dramatic transformation that could make it much more prosperous and livable. Today, Dhaka is prone to flooding, congestion, and messiness, to a point that is clogging its growth. But toward its east, where two major highway corridors will one day intersect, is a vast expanse of largely rural land. And much of it is within 6 kilometers of the most valuable parts of the city. The time to make the most of this eastward opportunity is now. Many parts of East Dhaka are already being developed in a haphazard way at an alarmingly rapid pace. Private developers are buying land and filling it with sand so they can build and sell new houses and apartments. Canals and ponds are disappearing, and the few narrow roads crossing the area are being encroached by construction. This spontaneous development could soon make East Dhaka look like the messy western part of the city, and retrofitting it later will be more difficult and costlier than properly planning and developing it now. Toward Great Dhaka: A New Urban Development Paradigm Eastward seeks to analyze how the opportunity of East Dhaka could be realized. Using state-of-the-art modeling techniques, the study simulates population, housing, economic activity, and commuting times across the 266 unions that constitute Greater Dhaka. It does so under various scenarios for the development of East Dhaka, but always assessing the implications for the entire city. The simulations suggest that pursuing a strategic approach to the development of East Dhaka would make Greater Dhaka a much more productive and livable city than continuing with business as usual. Based on current trends, Greater Dhaka would have a population of 25 million in 2035 and an income per capita of US$8,000 at 2015 prices. However, embracing a strategic approach would add 5 million people to the city. And, it would be a more productive city, with nearly 1.8 million more jobs and an income per capita of more than US$9,200 at 2015 prices, enough to put Dhaka on the map of global cities.

Between 2003 and 2008, Croatia's rapid growth was fueled by rising domestic consumption, growing deficits, an increased dependence on international finance. Such growth is unlikely to resume in the near future, imposing social and economic costs. In this context, exports are critically important for Croatia's development and employment generation. However, the country's trade performance has been lackluster since the financial crisis. Export openness is lower than in countries with similar income levels, and the country's per capita GDP has stagnated. Low export diversification, weak competitiveness, and reduced technological sophistication help to explain stagnant exports. The fundamental problem is the failure to renew and transform the manufacturing base, which is linked to low rates of firm entry and exit. Another marker of a sluggish economy is the inadequate level of business research and development expenditure by Croatian enterprises and the weak governance framework for research and innovation, which is impairing the impact of research and development spending. In this context, Smart Specialization in Croatia aims to provide insights to the country's smart specialization strategy (RIS3) by looking at the main constraints and opportunities that it faces in its economic progress along three interrelated dimensions: trade, firm productivity, and research and development. The report also includes four case studies to illustrate potential RIS3 approaches to spur research and innovation specialization at the regional level. The report's ultimate objective is to help develop a strategy that fosters productivity growth, job creation, and a more diversified export structure.