Transcript Global Integration and Surge in Capital Flows to Developing Countries

Trade Integration, Growth and
Poverty Reduction
Dr. Yan Wang,
Senior Economist
The World Bank
[email protected]
Prepared for a TOT Course on WTO Accession, NOSPA,
Vientiane, Lao PDR, June 15-17, 2005
Outline
I.
Main messages: Trade, Growth and poverty
reduction: a framework
II. The context of reforms: how trade reform
affects the poor
III. Analytical and data requirements
IV. Strategy of the reforms and sequencing
V. Complimentary policies and institutional
capacity building
VI. China: Openness, Growth and Poverty
reduction
2
MAIN MESSAGES
• Open trade regimes are growth enhancing and
poverty alleviating in long run and on average
• However, trade reform may imply distributional
changes which can hurt some of the poor, who can
ill afford it
• Successful implementation of trade reforms that
help the poor need to take into account many
policy and institutional variables
• Analyses of policy and institutional requirements
should be undertaken in advance of reforms
3
A Framework of growth
• A framework of balanced growth
• A country needs at least 3 types of capital for income
growth and welfare: physical, human and natural capital
• Openness to trade and foreign investment raise the
productivity of K, and H
• Investment in H raised the productivity of FDI and other
investment, but currently there is an under-investment in H
• Investment in Natural capital (R) and protection of the
environment contributed to growth as well as welfare, but
currently there is an overexploitation of natural capital
• Improvement of Governance would raise the productivity of
all three K, H, and R, and promote growth and poverty
reduction
4
A Framework
H
(Human
capital)
TFP
• Opening to trade and investment
• Improving investment climate
• Providing sound macro policy
• Correcting market failures
hurting H and R
• Good governance to ensure policy
consistency
K
(Physical
capital)
Growth
Welfare
TFP
R
(Natural
capital)
Source: Thomas et al “The Quality of Growth,” 2000.
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THE CONTEXT OF REFORMS
•
•
•
•
How the existing trade regime works and how it affects
the poor
• Tariffs and Non- tariff barriers (NTBs); antidumping and
other contingent protection- and their impact on the
poor
• Export restraints can also hurt the poor
Trade Institutions: Trade Ministries and Customs
authorities
The level of development and the poverty profile
The setting for trade reform: is it unilateral (autonomous)
or is it in the context of WTO negotiations?
6
ANALYTICAL AND DATA REQUIREMENTS
•
GENERAL POINTS
•
Benefits long term and widespread; costs are short term and
more obvious
•
Analysis need to be done in advance of reforms: some of the
needed institutional changes take time to implement
•
Focus on large groups: can not protect everybody
•
THREE MAIN ANALYTICAL TASKS TO IDENTIFY SHORT TERM
DIRECT IMPACT ON THE POOR:
•
The nature of the reforms and trade sectors affected ( productsservices)
•
The production- employment effect
•
The consumption effect
7
THE STRATEGY OF REFORM
•
•
BASIC PRINCIPLES
• Government ownership
• Credibility
• Public information
‘Big Bang’ vs Gradualism:
•
Gradualism is better, if there are
adjustment costs; provided schedule preannounced and adhered to
• Need to include ‘package’ that includes
measures that help exporters
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STRATEGY CON’D
•




SEQUENCING
Liberalize trade and FDI before opening up capital
account
Eliminate NTBs early: they are likely to hurt the
poor the most
Try to adopt a simple tariff schedule- complexity
leads to corruption, especially when institutions are
weak
Do not wait to do all the difficult things last: you
may never do them because of opposition of
entrenched political groups
9
COMPLEMENTARY POLICIES
•
•
•
•
Complementary policies and institutional
strengthening needed for trade reforms to benefit
the poor
Macro-economic stability essential for successful
trade reform
Successful trade reform requires competitive
exchange rate;
Markets need to work well for poor to benefit
• Labor market problems hurt the poor
• Transport costs an important constraint
10
STRENGTHENING INSTITUTIONS
•
•
•
TRADE INSTITUTIONS
• The Ministry of Commerce
• Customs
OTHER TRADE RELATED INSTITUTIONS
• Trade Finance
• Marketing
• Standards and other quality control
institutions
• Issues of access by the poor
SAFETY NET ISSUES
11
Trade Reform in Lao PDR
• Trade reform is part of the growth and poverty
reduction strategy
• Economic growth in Lao has been strong, with
average 5.8% for GDP growth in the last 4 years.
Both import and exports are growing
• There has been sustained poverty reduction
• Fast growing neighboring countries
• Reforms underway to modernize the country:
member of ASEAN (AFTA), steps toward WTO
membership
12
Linking trade, growth and poverty
• Ambitious reform plans (NGPES)
• To attain MDG by 2015, and exit from the
group of LDCs by 2020
• Three-pronged strategy
Develop market economy—including
trade and investment
Build up country’s infrastructure and
Improve social welfare
13
Future Challenges for Lao
• Projected high rate of growth of 6 to 7 %
over 2006-10 (IMF)
• Projected growth of external trade by more
than 10% annually
• Three main challenges
Maintaining macroeconomic stability
Improving competitiveness
Advancing trade reform
14
Case study on China
• China’s transition from plan to market economy
• Country is firmly on the driver’s seat
• Export performance: growth & composition
• WTO accession a main driver of reforms
• Some key issues
– The trade-poverty relationship
– Using the WTO to promote development
15
China’s Trade Reforms and Trade Volumes
China 1978 - 2000
Trade/GDP (log)
2
Average tariff rate
Average tariff
0.5
(right axis)
1.6
0.4
Trade/GDP
1.2
(left axis)
0.3
0.8
1988 8,000 trading companies
0.2
1986 Forex swap market
0.4
1984 800 trading companies
0.1
1979 Open SEZs to FDI, forex retention
0
1978 Trade monopolized by MOFERT
0
1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000
Source: Will Martin 2004
16
WTO Accession
• Non-discrimination between suppliers
– and between domestic and imported goods
• Uniform administration and transparency
• Liberalization of Trading rights
• Protection substantially reduced
– Abolition of all NTBs except state trading
– Abolition of TRIMs
– Abolition of MFA quotas on textiles
17
Other Key Features
• Trade-Related Intellectual Property Rights
• Retention of state trading for oil and key
agricultural products
• Tariff-rate-quota regime for some imports
• Non-market economy treatment in
antidumping for 15 years
• Product-specific safeguards for 12 years
• Special textile safeguards for 4 years
18
Cuts in Manufactures tariffs
Beverages & tobacco
Textiles
Apparel
Light manufactures
Petrochemicals
Metals
Automobiles
Electronics
Other manufactures
1995
137
56
76
32
20
17
123
24
22
Post2001 accession
43
16
22
9
24
15
12
8
13
7
9
6
29
14
10
2
13
7
Source: Will Martin 2004
19
Household Impacts
• Many reforms have benefited urban more than
rural workers
• Some poorer rural households may suffer
significantly from WTO accession
• Best solutions to this problem lie in policies
with long-run benefits for the poor
– eg improving labor mobility, better
educational opportunities, improved
agricultural technology, stronger social
safety nets
20
Labor Markets Are Critical
• Trade reform & China’s growth & development require
massive movements of workers
• Many barriers to mobility between agriculture & other
sectors
– Poor education, lack of experience, inability to sell
land use rights, formal barriers (eg hukou) all limit
mobility
– Causes rural incomes to fall behind urban
• Hukou system less restrictive than previously, but still
an important barrier
21
Poverty decline has slowed since mid-1990s
Headcount index
60
50
2000 calorie poverty line
40
30
20
10
Official poverty line
0
1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001
Source: Martin Ravallion and Shaohua Chen 2004
22
… while inequality has risen
sharply
Gini coefficient
45
40
National
35
30
Rural
25
20
Urban
15
10
1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001
Source: Martin Ravallion and Shaohua Chen 2004
23
Window of Opportunity: for
regional integration
• Regional integration through ASEAN+1, AFTA
• Regional cooperation: through Great Mekong
Subregional cooperation, facilitating regional
trade and investment.
• China’s economy has a complementarity with
its neighboring countries
• China is running a trade deficit with SE Asian
economies, importing Agricultural products –
crucial for these countries’ poverty reduction
• China is encouraging firms to invest more in
neighboring countries—South-South
investment
24
Summary
•
•
•
•
•
•
•
Openness to trade and investment is key to capital
accumulation and productivity, and hence to income
growth
Trade reform is poverty alleviating in the long term,
but the short term impact may be uneven
Trade reform and WTO accession is a part of Lao’s
poverty reduction strategy: NGPES
WTO accession provides opportunities as well as
new challenges
It is crucial to have complimentary policies in place,
and to build institutional capacity for trade reforms
Regional integration is gaining momentum
A window of opportunity for further integration
through South-South investment
25
References:
•
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Bayraktar and Wang, Y, 2004. “Foreign Bank Entry, Performance of Domestic Banks
and the Sequence of Financial Liberalization”
Bhattasali, D., Li, Shantong and Will Martin. 2004. eds. China and the WTO:
Accession, Policy Reform and Poverty Reduction, Oxford University Press and the
World Bank.
Dollar et al. 2003. “Improving Investment Climate in China” The World Bank
Matto, Aaditya, 2002.”China’s Accession To The WTO: The Services Dimension,”
World Bank
Ravallion and Chen, 2004. “China’s Uneven Progress against Poverty”.
Wang and Husain. 1996. “China’s FDI and Economic Growth”, Revue d’Economie
du Development. 1-2.
World Bank, 2003. Promoting Growth with Equity, Country Economic
Memorandum.
World Bank. 2000. The Quality of Growth.
See http://www.worldbank.org/trade/China-WTO .
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