Trade is recognized as a key factor for the 2030 Agenda, including poverty reduction and economic growth. Target 17.11 aims to significantly increase the exports of developing countries, and in particular with a view to doubling the LDCs’ share in global exports by 2020. This target has now been missed. Even before the COVID-19 pandemic, the prospects of this target being met were implausible. As will be seen below, there has not been a substantial increase in the share of exports for LDCs or for developing economies in general since 2012. LDCs’ exports have been hit hard after the outbreak of the pandemic, with the volume of exports declining by 16.9 per cent during the second quarter of 2020, year-on-year basis, the worst performance since the drop recorded in the second quarter of 2009 (16.3 per cent).
Although LDCs’ exports volume index decreased only by 2.9 per cent in the first quarter of 2021, recovery from the economic impact of the COVID-19 pandemic is not in sight yet. The COVID-19 pandemic has disrupted global trade and poses additional challenges for developing economies and other vulnerable economies in fulfilling SDGs.
Integration into the world economy has proven a powerful means for countries to promote economic growth, development, and poverty reduction. Over the past 20 years, the growth of world trade has averaged 6 percent per year, twice as fast as world output. But trade has been an engine of growth for much longer. Since 1947, when the General Agreement on Tariffs and Trade (GATT) was created, the world trading system has benefited from eight rounds of multilateral trade liberalization, as well as from unilateral and regional liberalization. Indeed, the last of these eight rounds (the so-called "Uruguay Round" completed in 1994) led to the establishment of the World Trade Organization to help administer the growing body of multilateral trade agreements.
The resulting integration of the world economy has raised living standards around the world. Most developing countries have shared in this prosperity; in some, incomes have risen dramatically. As a group, developing countries have become much more important in world trade—they now account for one-third of world trade, up from about a quarter in the early 1970s. Many developing countries have substantially increased their exports of manufactures and services relative to traditional commodity exports: manufactures have risen to 80 percent of developing country exports. Moreover, trade between developing countries has grown rapidly, with 40 percent of their exports now going to other developing countries.
Increasing exports ranks among the highest priorities of any government wishing to stimulate economic growth. There is, however, still strong disagreement on how governments should intervene. For instance, it has often been argued that the best governments can do is to eliminate the obstacles to the smooth functioning of market forces and provide information to exporting firms about destination markets and foreign competitors. This view is, of course, far from being unanimously shared.
While policymakers continue to debate the issue, our survey of the literature on successful strategies and practices for boosting export has enabled us to compile a list of best practices:
Creation of duty drawback schemes. Among the traditional measures, the duty drawback scheme is, as surveys of entrepreneurs’ opinions suggest, one measure that has proven to be successful in the past. Standard duty drawback schemes can be improved by:
(a) making them accessible also to indirect exporters and extending them to imported inputs used in production of exported final products;
(b) eliminating duty pre-payment for exporting firms in order to reduce credit requirements.
Increasing the availability of credit. The availability of short and (especially) long-term credit is crucial to exporters. This is decisive for small and medium enterprises (SMEs), for which the credit constraints are more binding than for large firms. Since SMEs make up the large majority of firms in developing countries, improvements in this domain are necessary to favor export growth.
Increasing the availability of credit. The availability of short and (especially) long-term credit is crucial to exporters. This is decisive for small and medium enterprises (SMEs), for which the credit constraints are more binding than for large firms. Since SMEs make up the large majority of firms in developing countries, improvements in this domain are necessary to favor export growth.
Simplifying regulation. The government should simplify regulations related to exports; long bureaucratic procedures negatively affect especially new exporters. At the same time, governments should improve information collection and dissemination about foreign markets and requirements for exporting. Actions in this category should also consider product standards and other technical requirements imposed for exporting to developed country markets.
INCREASE THE EXPORTS OF DEVELOPING COUNTRIES
Many developing countries have substantially increased their exports of manufactures and services relative to traditional commodity exports: manufactures have risen to 80 percent of developing country exports.
Integration into the world economy has proven a powerful means for countries to promote economic growth, development, and poverty reduction.
Avenir Light is a clean and stylish font favored by designers. It's easy on the eyes and a great go-to font for titles, paragraphs & more.
Careful management of this essential global resource is a key feature of a sustainable future.
Improving cooperation among economic actors. Besides traditional policy instruments, export growth could be favored by improving cooperation among exporters and between the government and business actors. For instance, there is nowadays increasing awareness about the possibility of using export consortia to help SMEs access the international markets. This may be seen as a complement to other forms of government intervention.
Combining short-term and long-term export growth policies. The stimulation of export growth requires the combination of short- and long-term policies. In this context, it is important to also exploit the complementarity between EPPs and other domestic policies (aimed, for instance, at enhancing productivity and technological content of domestic products).
Strategic collaboration between different levels of government (sub-national and national level, for instance) and the private sector is widely considered a key element for policy success.
Indeed, a pre-condition for successful EPPs is the domestic government's ability, including policy design, implementation, enforcement, and monitoring. It follows that the policy mix suggested for a given country must be tailored on the basis of capabilities available to the national government, sub-national government, and the domestic agencies. In the extreme case, this argument could lead to very practical criteria for policy design, suggesting the (second) best policy mix relying on considerations about the most efficient (least corrupted) governmental institutions. Adopting such criteria could minimize resource waste and reduce the danger of fostering powerful domestic interest groups and rent-seeking activities.
The careful analysis of the specificities of the local economic and institutional environment suggests not to borrow policy strategies from other countries simply because they have been successful there. Indeed, the same policy (or policy mix) implemented in two different countries may yield completely different outcomes. In particular, the country-specific institutional environment is crucial for policy results.
Institutional and policy complementarities are important. Domestic policies may affect export performance either directly, through the set of policy instruments with direct influence on foreign trade, or indirectly, through the set of policy measures that have their direct influence on other aspects of the economic systems (for instance, monetary and fiscal policies, production and price controls, investment policies, exchange rate policies) and, in turn, stimulate foreign trade performance. All these policy measures cannot be considered in isolation; not only does the choice of policy matter, but also the economic and institutional context and policy mix within which it is implemented.
In 2019, global services trade was valued at US$6.1 trillion, recording an increase of almost 70 percent from ten years earlier, and in 2020, it fell down to almost US$5 trillion, a drop of almost 20 percent from 2019. Trade-in goods and services is particularly important for SIDS and LDCs, for which their share in GDP accounts, on average, around 45 percent and up to 30 percent of GDP, respectively.
In conclusion, our review of the literature finds that successful export promotion policies have clearly defined priorities, goals, and objectives. In particular, they:
-
enhance the domestic enabling environment for potential exporters (in terms of infrastructures, regulation, access to finance, insurance, and fiscal policies);
-
foster the strategic cooperation between private and public actors and among domestic producers, exporters, and policymakers;
-
improve the productivity and technological content of domestic goods, and provide incentives to nurture innovation;
-
facilitate the access to credit,
-
serve to build the country's image in foreign markets (through marketing, information provision, and advocacy);
-
offer targeted and tailored assistance, and rely on continuous evaluation;
-
are supported by monetary and fiscal policies designed to improve the enabling environment; and
-
stimulate institutional development, also considering institutional complementarities.
Global trade growth remained strong during 2021, as its value continued to increase through each quarter of 2021. Trade growth was not only limited to goods. Trade in services also grew substantially through 2021, to finally reach pre-pandemic levels during Q4 2021.
Overall, the value of global trade reached a record level of about US$ 28.5 trillion in 2021, an increase of about 25 percent relative to 2020 and an increase of about 13 percent relative to the pre-pandemic level of 2019. While most global trade growth took hold during the first half of 2021, growth continued in the second half of 2021. After a relatively slow third quarter, trade growth picked up again in Q4 2021, when the value of global trade increased by about 3 percent relative to Q3 2021.
Trade in goods and trade in services followed similar patterns during 2021, with stronger increases during the first half of the year. Trade growth continued to be positive for both goods and services in Q3 2021 and especially in Q4 2021. During Q4 2021, trade in goods increased by almost US$ 200 billion to reach about US$ 5.8 trillion, a new record. During the same period, trade in services rose by about US$ 50 billion to reach about US$ 1.6 trillion, a value just above pre-pandemic levels. On a year-over-year basis, trade in goods strongly outperformed trade in services, with an increase of about 27 percent and 17 percent respectively.
The role of developing countries as exporters and importers will increase significantly over the next 40 years. Exports of manufactured goods may have increased even more and export diversification might have progressed even further had exports of minerals not surged so substantially, driving up the exchange rate and diverting investment.
Changed World of Trade in 2050
Will these trends continue? Barring geopolitical or climate-induced catastrophes and assuming that the world does not retreat into protectionism, the role of developing countries as exporters and importers will increase significantly over the next 40 years, reflecting their high growth rate and the rise of their middle classes. In addition, their dependence on developed country markets is projected to weaken.