Global Integration, Economic Developmentand the World Bank Group Trade Strategy

Bernard Hoekman, Director, International Trade Department, World Bank Caribbean Growth Forum, Kingston, Jamaica, June 19, 2011

The Trade Agenda has Changed2

Globalization has led to deep inter-linkages among countries and increased vulnerability to shocks

Developing countries are new drivers of global trade (“multi-polarity”)—BRIICS

Tariffs often no longer a binding constraint to trade Trade increasingly involves global value chains and intra-

firm transactions → FDI-trade-labor market/skills linkages Higher demand for natural resources/commodities and

potential for services trade offer new opportunities to developing countries – but also challenges

Trade/GDP and South-South trade3

20%

40%

60%

1985 1988 1991 1994 1997 2000 2003 2006

Low and middle-income countries

All countries

Total trade as a percentage share of GDP

0%

5%

10%

15%

20%

25%

30%

35%

40%

1990 1993 1996 1999 2002 2005 2008

Imports from the South as % of total world imports

South-South imports as % of total South imports

Percentage share as indicated

Trend decoupling—starting in early 90s

-4

-2

0

2

4

6

8

10

1965

1967

1969

1971

1973

1975

1977

1979

1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

2007

2009

2011

High IncomeHigh Income TrendDeveloping CountriesDeveloping Countries Trend

World Growth 1965 - 2011

• Sustained high growth levels associated with expanding trade• World trade has grown twice as fast as global GDP

Services trade: expanding, but big differences across developing countries

5

0%

5%

10%

15%

20%

25%

Latin America Africa MENA East Asia ECA South Asia

Services Other Commercial Other Business

Average annual growth rate between 2000 and 2008

Services matter for Caribbean countriess

6

Source: World Development Indicators

0

10

20

30

40

50

60

70

80

LIC SXs/GDP

MIC SXs/GDP

Middle Income Countries Services/GDP

Low Income Countries Services/GDP

Caribbean Countries Service Exports/GDP

Caribbean Countries Services/GDP

Trade Openness: Volatility & Risk of Shocks7

20%

30%

40%

50%

60%

70%

80%

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010

BRICs

Developing countries

High Income

Lower Income

Lower Middle Income

Upper Middle Inc.

Trade / GDP ratio

Source: World Bank

Commodity price increases and volatility

Drivers: Trade Liberalization9

010

2030

4050

Tarif

fs(%

)

0 2000 4000 6000 8000GDP per capita(US dollars)

1980s 1990s2000s

MFN Applied Tariff Rates versus GDP per Capita

Source: Mattoo and Neagu, 2011

0

50

100

150

200

250

300

350

400

1980 85 90 95 2000 05

Working-age populationTotal labor forceExport-weighted labor force¹

0

200

400

600

800

1000

1980 85 90 95 2000 05

Advanced economies

East Asia

South Asia

Central and EasternEurope and CISOther developingcountries

Integration of China/East/South Asia: Quadrupling of effective global labor supply(index, 1980 = 100)

Global Labor supply

1National labor forces scaled by export-to-GDP ratios.

Export-Weighted Labor Force by Region1

10

Drivers: Technology (FDI, ICT, global supply chains)12

Imports of parts etc. as a share of exports: 33% for developing countries

Source: Canuto, Dutz, and Reis (2010)

Big differences:

Argentina and Brazil: 15%

China and Mexico: > 30%

FDI: Rise of emerging-market multinationals

Total cross-border M&A deals by firms from advanced and emerging economies, 1997–2010

Increase in South-South FDI flows

Cross-border M&A investment to low income countries, 1997–2010

Changing political economy and policies

Growing export sectors push to reduce input costs Greater focus on efficiency of producer services Interest in minimizing tariffs on intermediates Supply chains: restricting trade = raising costs throughout the chain

Trade and FDI are increasingly complementary Source of technology and know-how; connect to supply chains Focus on “behind-the-border” issues: investment; IPRs

Rise of China and other large emerging economies “Threat effect” but also source of demand and capital

Move to North-South, East-West, South-South PTAs E.g., Mexico: 59 PTAs; Chile: 43.

Trade policy since 2008

Rising importance of non-tariff measures

Have recently been seeing a rise in the use of NTMs but number of new measures during 2009-2011 stable; little year-to-year variation

Do not have information on average number of new NTMs in the pre-2008 period

Generally NTMs are applied to all trade, not bilaterally

18

Implication: A More Complex Trade Agenda20

Competition is fiercer—more opportunities but also faster displacement of firms/farms/workers

Many countries still highly dependent on relatively few exports and markets: diversification critical to sustain higher growth

Productivity growth critical to avoid “middle income trap” Constraints to trade-driven productivity growth lie “behind-

the-border” – skills; logistics, (trade) finance, services inputs Infrastructure Policies—especially for services, public and private

Need to manage shocks—and limit volatility

World Bank Group Trade Strategy: Four Priority Areas of Focus

21

TRA

DE

CO

MPE

TITI

VEN

SS &

DIV

ERSI

FIC

ATI

ON • Trade policy

- traditional policies - firm competitiveness

• Trade in services - digitized - movement of suppliers

• Address market failures- SEZs - Enabling domestic policy

TRA

DE

FAC

ILIT

ATI

ON

, LO

GIS

TIC

S &

TR

AD

E FI

NA

NC

E •Transit corridors; regional trade facilitation

•Logisticsservices

•Customs & border management

•Trade Finance - IFC: Short-term products (GTFP, GTLP) - MIGA: longer term insurance M

AR

KET

AC

CES

S &

TR

AD

E C

OO

PER

ATI

ON • Pro-development

institutional environment - Analysis for advocacy (WTO; agricultural policy; climate change)

•Regional integration of markets (South-South cooperation)

•Regulatory reform & cooperation-NTMs, services

MA

NA

GIN

G S

HO

CK

S &

PRO

MO

TIN

G IN

CLU

SIO

N • Labor markets

• Safety nets

• Skills

• Gender

• Lagging regions

• Food prices

Trade Competitiveness and Diversification

24

• In-depth analysis of trade data – aggregate and firm-level –generates hypotheses about obstacles to export performance

• Allows for – premised on – comparisons to other countries

• Firm-level data allows to directly connect to detailed transactions customs data

• Combined with qualitative information can help to reject or to identify constraints

• Exporters have to be productive—link to broader competitiveness agenda

How to link constraints to exports?

25

Trade Competitiveness Diagnostic

Link outcomes to factors that affect firms capacities and productivity

TRADE OUTCOMES ANALYSIS

Growth and share (Intensive margin)

Diversification (Extensive margin)

Quality & sophistication (Quality margin)

Entry & survival (Sustainability margin)

Channels

Entry costs Factor and transaction cost Technology and efficiency

COMPETITIVENESS DIAGNOSTICS

Market accessSupply side factors

Incentive framework

Factor conditions

Trade/investment promotion

infrastructure

SEZsBackbone/business services

Services export competitiveness

Assist policy makers to improve their understanding of the size, scope and potential of services exports as well as prevailing obstacles

Address the following questions: Assess role of services as inputs in the traded sector Determinants of services trade performance Relative importance of determinants across services Impact of policies as constraint and potential drivers

32

Regulatory assessments in services

33

• Mapping regulations• Horizontal regulations affecting a wide range of sectors• Specific regulations affecting a sector, subsector, or an activity• Assessing regulation-making process: transparency, necessity, and

non-discrimination• Assessing institutional arrangements in light of international best

practices

Step 1

• Assessing the impact of regulations in market structure, prices, quality, and access through econometrics tools

Step 2

• Assessing alternative regulations• Proposing new institutional arrangements, if any• Assessing feasibility of alternatives regulations and institutional

arrangements

Step 3

Services Knowledge Platforms

Mechanism to bring stakeholders together: To generate information on options for regulatory

reforms to integrate services markets; Learn from experiences elsewhere; and Focal point for effective implementation/monitoring

Demand-driven and action oriented Ongoing pilots and activities in Europe (CEFTA) and

East and Southern Africa (EAC; COMESA)

Trade Facilitation/Logistics & Finance(and trade-related infrastructure)

35

Logistics is a driver of competitiveness

Sources: World Bank, Guasch (2008)

0

5

10

15

20

25

30

Merchandise losses:Share of primary goods that do not arrive at market

Logistics costs as share of market

value

Levels of Inventory

Prod

uctiv

ity lo

sses

(%) OECD LAC

Logistics costs key factor for SMEs

29.4

11.36 10.636.9

12.7

6.28 7.3111

0

5

10

15

20

25

30

35

40

45

Less than US$ 5 M US$ 5 M to US$ 50 M US$ 50 M to US$ 500 M More than US$ 500 M

Inventory Management & WarehousingTransport & Distribution

42

18 18 18

LAC Logistics Costs: % of Total Value of Firm Sales

Fuente: Centro Logístico de Latinoamérica, Bogot, Colombia. Benchmarking 2007: Estado de la Logística en America Latina Anexo, María Rey Logistics Summit 2008

Country LPI Rank

South Africa 23China 26Turkey 27Malaysia 29Bulgaria 36Thailand 38Chile 39Tunisia 41Brazil 45Mexico 47

TOP 10 COUNTRIES

LOWER MIDDLE INCOME

Country LPI Rank

India 46Morocco 50

Philippines 52Vietnam 53

Egypt, Arab Rep. 57Indonesia 59

Yemen, Rep. 63Ukraine 66Pakistan 71

Guatemala 74

TOP 10 COUNTRIES

LOW INCOME

Country LPI Rank

Benin 67Malawi 73

Madagascar 84Niger 87

Tanzania 88Guinea-Bissau 94

Togo 97Central African Republic 98

Cambodia 101Zimbabwe 103

TOP 10 COUNTRIES

UPPER MIDDLE INCOME

Logistics Performance Index, 2012

Bahamas 80Dominican Rep. 85Jamaica 124

Haiti: 153

Improve connectivity

In part an infrastructure agenda Major factor underpinning improvement in LPI indicators

over time

But policies are critical as well … Border management Transport services competition

…. as is cooperation and coordination, especially landlocked and small island states and regions Regional ports and hubs Transshipment and regular feeder services

http://www.worldbank.org/trade

Thank you