A long-held tenet of international-trade theory is that, in the long run, increased trade correlates with faster GDP growth. However, the challenge — which the World Bank is working to overcome — is to ensure that trade-driven growth benefits the poor. That is why the heads of seven multilateral institutions, including the World Bank, strongly supported the push for the trade-facilitation agreement that was reached earlier this month at the WTO’s ministerial conference in Bali, Indonesia.
To be sure, the incidence of poverty worldwide has reached a historic low, with the extreme-poverty rate (the share of the population living on less than US$1.25 a day, in purchasing-power-parity terms) falling in 2010 by more than half since 1990. However, that still leaves more than 1 billion people worldwide living in extreme poverty. Moreover, progress has been uneven, with poverty rates having declined far more in East Asia and Latin America than in Sub-Saharan Africa.
In order to cope with this changing global context, the World Bank has introduced a new objective to guide its poverty-reduction efforts: promoting sustainable, shared prosperity by monitoring the income growth of the poorest 40 percent of every country’s population. Indeed, people are rethinking how to define success in development and how to provide trade-related support to developing countries.
Trade’s relationship with poverty is variable and complex. Increased trade benefits consumers by reducing the prices of goods and services. It gives the poor access to a wider variety of commodities, while providing firms with a more diverse selection of inputs.
However, increased trade can also eliminate low-skill factory jobs and reduce agricultural prices — outcomes that disproportionately hurt the poor. In India, for example, poverty has declined more slowly in areas where farmers face increased foreign competition. Given constraints on inter-sectoral labor mobility, stemming from barriers to skills acquisition and rigid labor-market regulations, the poorest workers have few options when such changes occur.
As a result, increased trade may demand difficult adjustments in the short term. Individuals may need to change their consumption habits, labor may have to be reallocated across sectors, and some workers may have to adjust to lower wages, at least temporarily. Some firms will grow, while others will contract.
Experience has demonstrated that with forward-looking policies governments can enhance trade’s benefits and mitigate its negative impact on the poor. Policymakers can promote retraining programs for displaced workers and remove regulatory obstacles that impede their flow into thriving, export-oriented sectors. In order to protect farmers, they can eliminate export restrictions and ensure that timely, accurate market information is accessible.
With such policies in place, the World Bank’s efforts to bolster developing countries’ trade linkages could facilitate substantial poverty reduction. For example, the bank helps developing-country governments connect firms, farmers and households to markets and supply chains, thereby fostering increased investment and boosting economic activity.
Furthermore, the bank supports infrastructure-development projects, enabling countries to build the roads, bridges and ports that link traders to markets. For example, a US$1.8 billion highway project in Kazakhstan is facilitating trade-related transport across the country, stimulating the economies of the country’s poorest provinces and creating more than 30,000 jobs. In Nepal, the bank is financing reconstruction of the steep, dangerous and busy road that carries most of the country’s exports to India, and it is supporting the government’s efforts to connect some of the country’s remotest districts to the main road network.
The World Bank also helps countries to establish clear customs rules that more effectively protect traders from inconsistent treatment or solicitations for bribes. Further, the World Bank is working to address costly border inefficiencies. For example, the World Bank is helping to simplify and modernize trade procedures through Cameroon’s Douala port, and the bank has helped the government of Laos to establish an online portal that provides traders with access to all relevant laws, procedures, schedules and forms from border-management agencies.
Moreover, since 2010, the International Finance Corporation, the bank’s private-sector lending arm, has been promoting the integration of small and medium-size enterprises into global supply chains by increasing their access to capital. The US$500 million Global Trade Supplier Finance program, a joint investment and advisory initiative, is currently providing short-term finance to thousands of emerging-market small and medium-size enterprises.
In order to maximize the impact of such initiatives, world leaders should cooperate to build and maintain an open trading system. The WTO’s Bali conference provided an important opportunity to develop a new trade-facilitation agreement that expedites the movement, release and clearance of goods at border stations, clarifies and improves trade-related rules, enhances technical assistance and encourages cooperation among border-control agencies.
However, the agreement that was reached in Bali cannot succeed unless wealthy countries and donors agree to support developing countries’ efforts to enact related policies and reforms. Given this, it is crucial that developed-country policymakers recognize that a more efficient, better integrated and more inclusive global trade regime will benefit all countries.
With genuine commitment from the international community and the appropriate domestic policies in place, trade can be a powerful force for poverty reduction.
Mahmoud Mohieldin is the World Bank president’s special envoy.
Copyright: Project Syndicate/Global Economic Symposium
Recently, China launched another diplomatic offensive against Taiwan, improperly linking its “one China principle” with UN General Assembly Resolution 2758 to constrain Taiwan’s diplomatic space. After Taiwan’s presidential election on Jan. 13, China persuaded Nauru to sever diplomatic ties with Taiwan. Nauru cited Resolution 2758 in its declaration of the diplomatic break. Subsequently, during the WHO Executive Board meeting that month, Beijing rallied countries including Venezuela, Zimbabwe, Belarus, Egypt, Nicaragua, Sri Lanka, Laos, Russia, Syria and Pakistan to reiterate the “one China principle” in their statements, and assert that “Resolution 2758 has settled the status of Taiwan” to hinder Taiwan’s
Can US dialogue and cooperation with the communist dictatorship in Beijing help avert a Taiwan Strait crisis? Or is US President Joe Biden playing into Chinese President Xi Jinping’s (習近平) hands? With America preoccupied with the wars in Europe and the Middle East, Biden is seeking better relations with Xi’s regime. The goal is to responsibly manage US-China competition and prevent unintended conflict, thereby hoping to create greater space for the two countries to work together in areas where their interests align. The existing wars have already stretched US military resources thin, and the last thing Biden wants is yet another war.
As Maldivian President Mohamed Muizzu’s party won by a landslide in Sunday’s parliamentary election, it is a good time to take another look at recent developments in the Maldivian foreign policy. While Muizzu has been promoting his “Maldives First” policy, the agenda seems to have lost sight of a number of factors. Contemporary Maldivian policy serves as a stark illustration of how a blend of missteps in public posturing, populist agendas and inattentive leadership can lead to diplomatic setbacks and damage a country’s long-term foreign policy priorities. Over the past few months, Maldivian foreign policy has entangled itself in playing
A group of Chinese Nationalist Party (KMT) lawmakers led by the party’s legislative caucus whip Fu Kun-chi (?) are to visit Beijing for four days this week, but some have questioned the timing and purpose of the visit, which demonstrates the KMT caucus’ increasing arrogance. Fu on Wednesday last week confirmed that following an invitation by Beijing, he would lead a group of lawmakers to China from Thursday to Sunday to discuss tourism and agricultural exports, but he refused to say whether they would meet with Chinese officials. That the visit is taking place during the legislative session and in the aftermath