CHICAGO — As ICT and transportation technology continue to develop and the global economy becomes increasingly influential in domestic affairs, many people turn to international trade as a potential tool for promoting development and improving the lives of the world’s poor. But, does it actually work?
Experts report that while international trade can bolster economic growth, provide access to innovations and technologies previously out of reach and reduce extreme poverty, the poor do not benefit unless trade happens under the right conditions.
According to Raju Jan Singh of the World Bank, those conditions exist in three areas: the educational level, development of financial sectors and the strength of governance in a given country are all of importance.
Singh asserts that these three aspects embody an economy’s power to move resources “away from the less productive sectors to the more productive ones.” Singh claims that this “allows countries to better take advantage of the opportunities offered by trade.”
Countries that do not have established financial institutions, a stable government or an educated populace do not stand to automatically benefit from international trade.
Reduction of global tariffs has been largely responsible for international trade’s increasing role in the economy of developing countries. However, despite these decreases in world tariffs, developing countries continue to face disproportionately large tariffs placed on their exports. These trade barriers and tariffs that developed countries place on developing ones can range up to twice as much for developing nations in comparison to tariffs placed on “peer” developed trading partners.
International trade is not a one-stop solution for impoverished countries to use in order to achieve the Millennium Development Goals. In order for trade to be used as a tool, development must already be underway.
“Developing countries should develop or expand their supply capacity before opening up to global competition,” suggests Santiago Fernández de Córdoba, an economist at the United Nations Conference on Trade and Development and an economics professor at the University of Navarra.
The World Bank and the World Trade Organization (WTO) are ready to assist in this developmental process. In a new report, the organizations lay out a five-step plan that they feel will make international trade an ally to the world’s poor.
The first step outlined in this plan is to lower trade costs in order to deepen the connections among the global market, producers and consumers. As an example, the report points to intra-African trade as a means of lifting poor farmers’ incomes and improving food security. At present, only 5% of the food staples imported throughout Africa come from other African countries.
Next, the plan calls for government and multilateral institutions to assist in funding local programs connecting entrepreneurs to markets for their goods and services. This is where efforts to combat gender inequality and support businesses of impoverished traders are key. This act, the WTO and World Bank argue, has the potential to widen access to the benefits of international trade and tackle domestic barriers such as high transportation or production costs through competitive pricing.
The third step deals with intensifying government support for policies that target improved health, education and infrastructure in order to create an environment within which more widespread participation in international trade is possible. This will require governments of developing countries to bridge large infrastructure funding gaps.
Fourthly, governments and other organizations must work to manage and mitigate the risks facing impoverished people. When the extremely poor have access to “safety nets,” they are more willing to reach for opportunities that could improve their quality of life.
The final step outlined in the plan focuses on data analysis. In order to enact effective trade policies, governments need access to accurate, relevant data. By enhancing data collection and analysis officials will be able to maximize the benefits of international trade to their regions.
Throughout the last decade, international trade has helped spur growth in developing nations. However, because the success of international trade is a multifaceted issue, international trade opportunities must be developed in conjunction with increasing access to quality education, with the implementation of effective policies and well-run financial and governmental sectors in developing countries.
– Emma-Claire Lasaine
Sources: World Trade Organization, The Guardian, World Bank, UN Chronicle