Trade and developing world

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The opportunities

According to the World Trade Organisation’s (WTO) World Trade Report (WTR) 2014, rise of the developing countries, expansion of the global value chains, the increased prices of commodities and the increasing nature of macroeconomic shock at the global level are the four recent major economic trends which indicate that trade can be highly beneficial to facilitate the economic development of the third world.

Although developing countries are still much poorer than the developed countries, since 2000, GDP per capita of the developing countries has grown by 4.7 percent against a meager 0.9 percent growth of developed countries.

The share of the developing economies in the world output increased from 23 percent to 40 percent between 2000 and 2012 in purchasing power parity terms. The share of the developing world in the world trade also rose from 33 percent to 48 percent during the same period.

As the role of global value chains (GVCs) increased in the global trade, the involvement of developing countries in the world trade became more prominent. According to WTR, more than half of the developing countries’ total exports are related to GVCs and the share of GVCs based trade between developing countries quadrupled over the last 25 years.

The participation of GVC enhances productivity through technology and knowledge transfer. However, GVC participation may involve risks i.e., while industrialisation is easy to achieve through trade in GVCs, competitive advantage may become fleeting, increasing vulnerabilities to relocation of firms.

Similarly, the role of commodity prices remained significant in the global development strategies. Prices of food, energy and metals roughly doubled since 2000. Among other things, a strong demand from large developing countries is a reason to believe that high price environment may stay.

Developing countries increased their market share in the world agricultural exports from 27 to 36pc between 2000 and 2011, but traditional market access barriers such as tariffs and subsidies continue to affect trade and non-tariff measures are also playing a critical role in the global trade dynamics.

Finally, as the world economy has become more integrated, the macroeconomic shocks have also become more widespread or it can be said that there has been a globalisation of the macroeconomic shocks as well among other things.

During the global crisis of 2008-09, world trade declined in a rapid and synchronised manner, which has never been observed before. It reflected the economic dependence of one country over the other. Macroeconomic volatility, which previously had been declining, can set back development by reducing economic growth and adversely affecting income distribution.

What is the role of the WTO in this scenario? The WTR claims that countries undertaking substantial reforms related to WTO accession have been found to grow about 2.5pc faster for several years. In the WTO system, the developing countries benefit from special and differential treatment (S&D) by providing less-than-full reciprocity for trade concessions and through other flexibilities.

In the WTO system, committee on trade and development is the focal point for development issues and it considers concerns raised by developing countries, promotes transparency and oversees the implementation of WTO’s trade-related technical assistance.

Being a developing country itself, Pakistan can also gain a great deal by integrating more and more in the global economic development. In the above-given scenario, it will be better for Pakistan to grow and integrate regionally at the first place. As mentioned above, GVCs are becoming more and more influential in the world trade and a large number of developing countries’ trade is related to GVCs, Pakistan should now be more opened towards its regional neighbours like India and Bangladesh. According to WTR, India’s share in the world economy rose from 4pc in 2000 to 6pc in 2012.

Both Pakistan and India can largely be benefitted by adopting a more transparent and resilient approach towards each other. If GVCs are the future, again both the countries should learn by exchanging technology and knowledge. Trade in energy resources can be a major area of consideration while trade in traditional commodities is still largely hindered by the presence of non-tariff barriers.