WANTED: Innovative and Productive

Entrepreneurs for a Sustainable Suriname

A CET Knowledge Product

Country Office Suriname

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Why are we here?

• Business leaders should be frontline advocates for policies that lead to optimal productivity and output.

• Effective advocacy requires a better understanding of key constraints.

• Therefore, the business community should coordinate their messages around empirical and solid findings to produce solutions that are home-grown, not imported.

A bit windy road, but hang in there. . .

• Context

• A Complication

• Decision: Two Worlds

• Response

Compared with other countries in the region, things are still better for Surinamers.

GDP (Current prices)

Suriname is among the fastest growing countries in LAC.

Main fiscal variables still look better compared with others.

Fiscal comparison end 2012.

2012

Fiscal Balance

Debt % GDP

Bahamas -5.9 56.5

Barbados -8.0 72.3

Guyana -4.4 61.3

Jamaica -5.6 142.8

Suriname -2.8 22.0

Trinidad and Tobago -4.3 36.4

0%

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Total Public Debt: % of GDP - end of period

Domestic Public Debt: % of GDP - end of period

External Public Debt: % of GDP - end of period

Three year moving average Total Debt/GDP

Projections

And debt is will remain sustainable.

Inflation is now low and stable.

Imagine

Jere noh! Arki dja!

So, why are we here today?

Despite performing well, Suriname faces a significant challenge.

Kong mi broko na ptjieng monie.

• What do we mean by “Productivity?”

Nothing is more elegant than Mathematics!

8

Methodology

Aggregate productivity is difficult to estimate and the task is even more

challenging when we use Caribbean data for the reasons we already described

previously. More than fifty years of growth research gave us two main approaches

to estimating total factor productivity: growth accounting and frontier analysis.

Growth accounting is a common method researchers have applied to the

Caribbean. Here, we derive eight sets of results by varying the growth accounting

method. We then compare these results with those obtained when we estimate two

specifications using the frontier analysis method. With these results, we weave a

consistent story on the evolution of aggregate productivity in the Caribbean by

using these results before turning to the matter of the determinants of total factor

productivity growth in the Caribbean.

Measuring TFP Using Growth Accounting Methods

Solow (1957) provides us with a starting point to account for growth. This

method allows us to decompose for total factor productivity growth (as a share of

the production function) by accounting for the contribution of labour and capital

to output. Based on a neo-classical production function, labour (L) and physical

capital (K) produce output (Y) in each country, i = 1, . . ., N, at time, t,

(1) Yit = Ait F(Kit, Lit)

where Ait is aggregate productivity or total factor productivity (TFP). Following

tradition, we assume a Cobb-Douglas production function that has constant

returns to scale. The shares of capital and labour input are α and 1-α, respectively.

(2) Yit = Ait Kitα Lit

1- α

As we are interested in understanding the evolution of the growth rates of these

variables, we express the equation as follows:

9

(3) ln(Yit/Yit-1) =ln(Ait/Ait-1) + α ln(Kit/Kit-1) + (1-α)ln(Lit/Lit-1)

We simplify and use yit, ait, kit, and lit to denote output, aggregate productivity,

capital, and labour growth rates at time, t, respectively:

(4) yit = ait + α kit + (1-α)lit

We then rearrange the equation to derive ait:

(5) ait = yit - αkit - (1-α) lit

We calculate kit using the perpetual inventory method:

(6) Kit = (1 - δ) Kit-1 + Iit-1

where Iit is investment and δ is the rate of depreciation, which we assume to be an

annual average of 6 percent (CITE).

For our first set of estimations, we calculate α, which is gross investment as a

share of GDP in country, i. We report the results of these estimations, Results I, in

table X. We then modify this basic estimation equation in series of ways. Results

II reports aggregate productivity measures when we account for the impact of

natural disasters on the capital stock while following the perpetual inventory

method in the following way:

(7) Kit = (1 - δ) (Kit-1 – NDDit-1) + Iit-1

where NDDit denotes natural disaster damages to the capital stock at time, t.

Results III and IV show aggregate productivity measures when we assume α is

equal to 0.35, with and without taking natural disaster damages into consideration,

respectively. We analyse how aggregate productivity results change when we

9

(3) ln(Yit/Yit-1) =ln(Ait/Ait-1) + α ln(Kit/Kit-1) + (1-α)ln(Lit/Lit-1)

We simplify and use yit, ait, kit, and lit to denote output, aggregate productivity,

capital, and labour growth rates at time, t, respectively:

(4) yit = ait + α kit + (1-α)lit

We then rearrange the equation to derive ait:

(5) ait = yit - αkit - (1-α) lit

We calculate kit using the perpetual inventory method:

(6) Kit = (1 - δ) Kit-1 + Iit-1

where Iit is investment and δ is the rate of depreciation, which we assume to be an

annual average of 6 percent (CITE).

For our first set of estimations, we calculate α, which is gross investment as a

share of GDP in country, i. We report the results of these estimations, Results I, in

table X. We then modify this basic estimation equation in series of ways. Results

II reports aggregate productivity measures when we account for the impact of

natural disasters on the capital stock while following the perpetual inventory

method in the following way:

(7) Kit = (1 - δ) (Kit-1 – NDDit-1) + Iit-1

where NDDit denotes natural disaster damages to the capital stock at time, t.

Results III and IV show aggregate productivity measures when we assume α is

equal to 0.35, with and without taking natural disaster damages into consideration,

respectively. We analyse how aggregate productivity results change when we

A la Solow. . .

Or alternatively, Data Envelopment Analysis (DEA).

A la Caves, et. al.

Jokes aside, let’s talk about two examples

• How do we get more stuff (growth)?

– Example A: More material (capital)

– Example B: More labour

• Neither is sustainable – Example C: More productivity. . .

• How?

Aggregate productivity in Suriname is low and falling.

. . .also when compared with other small countries.

Decomposed productivity: spurts of technical change with large investments?

Labour productivity took a hit and is not recovering fast enough.

Suriname Another Caribbean country

We find that Suriname’s outstanding growth performance is below potential---and productivity is a big reason for this.

Suriname Small Countries Suriname (if higher

productivity)

Capital Deepening

4.90 3.67 5.4

Labour 0.01 0.01 0.01

TFP -0.9 3.17 1.59

OUTPUT GROWTH

4.01 6.85 7.00

“No spang.” Really?

More evidence.

Surinamese firms appear to be the least productive in the Caribbean.

. . .perhaps driven by the fact that firm level labour productivity growth has been large and negative.

While firms concur and identify “an inadequately educated workforce” as a main to doing business, only 2 percent of them offer on-the-job training.

0 5 10 15 20 25 30 35

Inadequately educated workforce

Customs & Trade Regulation

Access to Finance

Corruption

Courts

Practices Informal Sector

Licenses & Permits

Tax Rates

Access to Land

Crime, Theft & Disorder

Percent

Top 10 Business Enviornment Constraints for Firms in Suriname

LAC Average

Suriname (% of Firms)

Kong mi broko na ptjieng monie.

Why bother with competitiveness?

Given Suriname’s structural macroeconomic challenges, low productivity erodes partially its stability buffer (which is necessary given its inherent volatility).

. . . Particularly as demonstrated by the vulnerability of GDP to commodity price shocks.

Sang joe wan doe?

Decisions: Two Worlds

Do Nothing (and hope for the best)

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We are full of questions. Where shall we look?

• Labour productivity: – Education – Role of government vs private sector

• Wage negotiations • HR • Crowding out

• Enterprise survey data – Technology, innnovation, training

• Institutions (economic freedom index?) (what about legal framework and legislature?)

• Reforms are needed!

How to leap forward? What do we have to do?

• Institutional reforms (especially given government’s role): streamline procedures and use IT.

• HR reform and remuneration structure

• PPP: skills training

• Open (export oriented) competition to break interest capture.

• Foster technology adoption and indigenous innovation.

We need to know what we do not know.

Some things we are already working on, but it is time to dig deeper:

• To get it right

• To speak with one voice

• To put the business community, households, and people at the centre of the economic growth model.

MORE DATA!

Your choice!

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