The Caucasian Tiger: Sustaining Economic Growth in Armenia

650 Pages·2007·2.27 MB·English

by  Saumya Mitra

39250
The
Caucasian
Tiger
SUSTAINING
ECONOMIC
GROWTH IN
ARMENIA
Saumya Mitra
Douglas Andrew
Gohar Gyulumyan
Paul Holden
Bart Kaminski
Yevgeny Kuznetsov
EkaterineVashakmadze

The Caucasian Tiger
Sustaining Economic Growth in Armenia

The Caucasian Tiger
Sustaining Economic Growth in Armenia
Saumya Mitra
Douglas Andrew
Gohar Gyulumyan
Paul Holden
Bart Kaminski
Yevgeny Kuznetsov
Ekaterine Vashakmadze
© 2007 The International Bank for Reconstruction
and Development / The World Bank
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Washington, DC 20433
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Cover design: Drew Fasick, Serif Design Group
Library of Congress Cataloging-in-Publication Data
The Caucasian tiger : sustaining economic growth in Armenia / Saumya
Mitra . . . [et al.].
p. cm.
Includes bibliographical references and index.
ISBN-13: 978-0-8213-6811-4
ISBN-10: 0-8213-6811-7
ISBN-13: 978-0-8213-6812-1 (electronic)
1. Armenia (Republic)--Economic conditions--1991- 2. Armenia
(Republic)--Economic policy--1991- 3. Investments--Armenia (Republic)
4. Industrial policy--Armenia (Republic) I. Mitra, Saumya, 1951-
HC415.17.C28 2007
330.94756--dc22
2007007772
Contents
Preface xvii
Introduction xix
Acronyms and Abbreviations xxxi
Part I Policies to Sustain Economic Growth 1
Chapter 1 The Pattern of Growth 3
Chapter 2 Constraints to Sustained Growth 33
Chapter 3 The Framework for Competition 47
Chapter 4 Finance as a Barrier to Accumulation 75
Chapter 5 Impediments to International Integration 93
Chapter 6 Knowledge and Innovation 117
Part II Detailed Analysis 145
Chapter 7 Growth Analysis from the Perspective
of Employment Generation and Poverty
Reduction 147
Chapter 8 A Social Accounting Matrix for Armenia 193
Chapter 9 Taxation and Economic Effi ciency
in Armenia 243
Chapter 10 Strengthening Competition 283
Chapter 11 Real and Formal Ease of Doing Business
in Armenia in Comparative Perspective:
Implications for Regulatory Reforms 329
vi Contents
Chapter 12 Armenia’s External Performance
and Policy Remedies 349
Chapter 13 Civil Aviation Policy 413
Chapter 14 Moving toward Knowledge-Based
Competitiveness 489
References 581
Tables
Table 1 Key Policy Recommendations xxvi
Table 1.1 Armenia’s External Debt Burden Indicators 17
Table 1.2 Armenia’s Poverty Indicators, 1999–2004 21
Table 1.3 Armenia: Growth and Inequality
Decomposition of Changes in Poverty
Incidence between 1998–99 and 2004 24
Table 2.1 Progress with Second-Generation Reform,
1994–2004 43
Table 3.1 Selected Indicators of the Quality
of Governance, 1998–2004 48
Table 3.2 Values of CPIs for Selected Countries
and Groups, 1999–2000 and 2002–04 51
Table 3.3 Relative Ease of Doing Business in CIS
and CEEC-10 Economies, 2005 53
Table 3.4 The Size of the Informal Economy and the
“Revealed” Ease of Doing Business 56
Table 3.5 Doing Business in Armenia and Selected
Comparators in 2004 58
Table 4.1 Financial Indicators in Selected Countries 76
Table 4.2 Bank Concentration Indicator, 2000–04 77
Table 4.3 Decomposition of Interest Rate Spreads,
1999–2004 78
Table 5.1 Average Applied and Bond MFN Tariff Rates
in Selected Countries 96
Table 5.2 Telecommunications Sector Overview 104
Table 5.3 Percentage of Households with Access
to a Telephone 105
Table 5.4 Basic Telecommunications Infrastructure
Benchmarks 106
Table 5.5 Internet Benchmarks 107
Table 5.6 Phased Civil Aviation Reform 113
Table 6.1 The Size of the Shadow Economy 124
Table 6.2 Sequencing of the Armenia KE Policy Agenda 131
Contents vii
Table 6.3 Specifi c Policy Initiatives as Entry Points
to Address Systemic Constraints 135
Table 6.4 Matching Policies to Capabilities: A Range
of Instruments to Support Innovation 137
Table 7.1 Sources of GDP Growth in Armenia by Sector 148
Table 7.2 Sources of Exports in Armenia, 2002, by Sector 151
Table 7.3 Armenia: Revealed Comparative
Advantage, 2003 152
Table 7.4 Direct and Indirect Multipliers 166
Table 7.5 Armenian Economy, Sectoral Structure
Depicted by SAM 168
Table 7.6 Sources of Employment in Armenia:
Distribution by Sector, 2002 170
Table 7.7 Tables Generated Using the 2002 SAM-based
Model for Armenia 176
Table 7.8 Simulation Assuming Export Diversifi cation 178
Table 7.9 An Alternate Approach That Does Not Rely
on Export Growth 179
Table 7A.1.1 Effect of a (–50%) Shock on Diamonds 183
Table 7A.1.2 Effect of a (–30%) Shock on Construction 183
Table 7A.1.3 Effect of a (–5.5%) Shock on Remittances 184
Table 7A.1.4 Effect of a (+US$135 million) Combined
Shock Based on Relative Export Shares 184
Table 7A.1.5 Effect of a (+10% = US$91 million) Positive
Shock in Agriculture 184
Table 7A.1.6 Effect of a (+10% = US$241 million) Positive
Shock in Manufacturing and Industry, except
Minerals and Mining 185
Table 7A.3.1 Selected Labor Indicator Defi nitions 191
Table 8.1 Aggregate Social Accounts for Armenia, 2002 196
Table 8.2 Replication of Selected National Accounts
Measures by the Macro SAM 197
Table 8.3 Structure of the Disaggregated (micro) SAM
for Armenia, 2002 198
Table 8.4 Detailed Sector Descriptions for Each Industry
in the 2002 Armenian micro SAM 199
Table 8.5 Armenian Production Statistics by Sector, 2002 202
Table 8.6 Value Added in Production for Armenia, 2002 203
Table 8.7 Tax Payments by Sector in Armenia, 2002 204
Table 8.8 Total Commodity Supply and Component
Demand by Consumer, 2002 206
Table 8.9 Household Income by Factor, 2002 209
Table 8.10 Final Demand Disaggregated by Household
Type and Commodity, 2002 210
viii Contents
Table 8.11 Consumption and Income for Rural
Household Decile No. 4 213
Table 8A.1.1 Input Tables Required for the Structured
Approach to SAM Development 223
Table 8A.1.2 Input Table #1: Sectoral Production and Trade
Values for Armenia, 2002 224
Table 8A.1.3 Input Table #2: 2002 Collected Taxes by Sector
and Tax Stream 225
Table 8A.1.4 Input Table #3: Production Technology
Structure for Armenia 226
Table 8A.1.5 Input Table #4: Value Added and
Consumption Shares 227
Table 8A.1.6 Symbol Table 228
Table 8A.1.7 Mapping GTAP V5 Sectors onto 2002
Armenian SAM Sectors 232
Table 8A.1.8 Mapping of Armenian Output Statistics
to SAM Sectors 236
Table 8A.1.9 Mapping GTAP V5 Sectors onto 2002
Armenian SAM Sectors 237
Table 9.1 Economic Sectors in the Armenian Model 255
Table 9.2 Base-Year Production and Trade Statistics
by Sector for Armenia, 2002 256
Table 9.3 Benchmark Import Statistics for Armenia, 2002 257
Table 9.4 Export Statistics for Armenia, 2002 258
Table 9.5 Sectoral Value Added, Ranked
by Labor Intensity 259
Table 9.6 Estimated Level of Underground and
Informal Activity 260
Table 9.7 Armenian Tax Collections, 2002 (by source) 262
Table 9.8 Benchmark Tax Collections, 2002
by Production Sector 263
Table 9.9 Cost of Raising 0.5% GDP (US$15 million)
in Tax Revenues: A Comparison of Tax Bases 264
Table 9.10 Indices of Informality and the Average Cost
of Funds 265
Table 9.11 Revenue and Welfare Impacts of Selected
Tax Reforms 266
Table 9.12 Sensitivity Analysis for the Cost of Raising
0.5% of GDP 268
Table 9A.1.1 Origin of Each Variable 274
Table 9A.1.2 External Data Sources 275
Table 9A.1.3 Production Technology Structure for Armenia 276
Table 10.1 Business Formation Indicators, 2001–04 285
Table 10.2 Employment Indicators, 2001–04 286