New Opportunities Emerge in Africa as China Graduates from Lower Skill Manufacturing

• World Bank Chief Economist Justin Yifu Lin delivered the United Nations University ‘WIDER Lecture’ in Maputo, Mozambique
• Lin indicated that China’s graduation from low-skilled manufacturing will open up new opportunities in African and other low-income countries
• Developing countries can succeed by focusing on their comparative advantage, which is in turn determined by their endowment structure

In this year’s WIDER (World Institute for Development Economics Research) Lecture, titled “From Flying Geese to Leading Dragons: New Opportunities and Strategies for Structural Transformation in Developing Countries” and given in Maputo, Mozambique, on May 4, 2011, World Bank Senior Vice President and Chief Economist Justin Yifu Lin predicted that the graduation from low-skilled manufacturing activities in China and other new large MICs will open up a unprecedented industrialization opportunities for African and other low-income countries.’

Speaking to a broad audience of several hundreds of researchers, policymakers and development practioners in Maputo, Mozambique, where the WIDER lecture took place—the first time on African soil–Justin Yifu Lin compared China’s current GDP per capita (measured in PPP terms) to that of Japan in the early 1960s or that of Korea in the early 1980s. Because of its dynamic growth over the past three decades, China will have to move up the industrial ladder, like Japan did in the 1960s and Korea did in the 1980s—a “graduation” that will free up large manufacturing employment opportunities for lower-income economies, and mark China’s conversion from the flying goose it once was in the footsteps of other Asian economies into a leading dragon in its own right. China currently employs 85 million workers in low-skilled manufacturing jobs that will have to be relocated elsewhere because of rising wages and productivity levels, compared to Japan’s 9.7 million in the 1960’s and Korean’s 2.3 million in the 1980’s. It is estimated that China’s currently monthly wages for unskilled labor is about $350, compared to less than $100 for most African countries, whose main comparative advantage is in labor-intensive industries.

Justin Yifu Lin’s lecture was based on his work on New Structural Economics and its implementation strategy, the Growth Identification and Facilitation framework, which explains how the government of a low-income country may accelerate structural change and income growth by facilitating the development of new industries that reflect their latent comparative advantage, and take advantage of new opportunity from the rising of a multi-polar growth world.

The “flying geese/leading dragons” metaphor sums up the key message of the lecture. Economic development is a process of continuous industrial and technological upgrading in which any country, regardless of its level of development can succeed if it develops industries that are consistent with its comparative advantage, determined by its endowment structure. The secret winning formula for developing countries is to exploit the latecomer advantage by building up industries that are growing dynamically in more advanced countries with endowment structures similar to theirs.

By following carefully selected lead countries, latecomers can emulate the leader-follower, flying-geese pattern that has served well all successfully catching up economies since the 18th century. The emergence of large middle-income countries, such as China, India, and Brazil as new growth poles in the world, and their dynamic performance and climbing up of the industrial ladder offer an unprecedented opportunity to all developing economies with income levels currently below theirs—including those in Sub-Saharan Africa. Having been itself a “follower goose,” China is on the verge of graduating from low-skilled, manufacturing jobs and becoming a “leading dragon”, which will free up 85 million labor-intensive manufacturing jobs.

That will be enough to more than double manufacturing employment in low-income countries. A similar trend is also emerging in other middle-income growth poles. The lower income countries that can design and implement a viable strategy to capture this new industrialization opportunity will engage in a dynamic path of structural change that can lead to poverty reduction and prosperity. For African economies in particular, whose total employment in manufacturing is estimated to be less than 20 million, China’s graduation provides a once-in-a-generation opportunity to attract the light manufacturing jobs and jumpstart industrialization, which is the prerequisite for sustained, inclusive growth and stable societies. Therefore, governments should liaise with the private sector to identify growth potential in industries and sectors with latent comparative advantage, and implement the policies needed to facilitate their relocation from China.

WIDER was established in 1984 as the first research and training center of the United Nations University under then Secretary General Javier Pérez de Cuéllar. Its mandate is: “To undertake multidisciplinary research and policy analysis on structural changes affecting the living conditions of the world’s poorest people; To provide a forum for professional interaction and the advocacy of policies leading to robust, equitable and environmentally sustainable growth; and To promote capacity strengthening and training for scholars and government officials in the field of economic and social policy making.” Previous lecturers at the WIDER annual event included Douglass C. North, Joseph E. Stiglitz, Sir Anthony B. Atkinson, Jagdish N. Bhagwati, Frances Stewart, Jeffrey G. Williamson, Kaushik Basu, Dani Rodrik, Nancy Birdsall, Angus Deaton, Kemal Derviş, and Ronald Findlay.