Why have the less developed countries and other poorer countries failed to grow as fast as other economies during the recent period of globalisation? This book explores the broad link between growth in income, globalisation and poverty reduction.
The global economic system, consisting of international trade in goods and services, flow of capital, finance, ideas, labour and technology, is becoming increasingly integrated, with more and more nations participating in the system. However, developing countries like the least developed countries (LDC), landlocked countries and others are facing special challenges and problems to varying degrees. This book explores the scope for strengthening the links between trade, growth and poverty reduction through cooperation between the developed and developing nations, including cooperation that goes beyond multilateral trade talks and regional trading agreements.
It argues that a coherent analytical framework is established for thinking both about the possible mechanisms of the interaction between trade, growth, poverty and education and about their presence or absence in the specific content of each country so as to assess the scope of public policy at national and international levels. By subsuming the process of liberalisation of foreign trade and capital flows under the broader process of globalisation, the author sugggsts a possible framework by distinguishing the influence of globalisation on growth, growth on poverty reduction, and globalisation on poverty reduction by drawing on economic theory and empirical evidence across countries as well as individual country experiences.
The analysis of domestic and international policies for strengthening the trade-growth-poverty linkages leads to the conclusion that the primary constraints on such strengthening are largely domestic and basically of political economy. Of course, through external constraints such as volatility and instability of the global market for goods, services and capital could erode the benefits of global integration for the developing world. The ongoing crisis in international financial markets is a dire example of instability induced by policy and institutional failures.
The book surveys relevant empirical studies dating from the late 1960s to the present. It finds that countries that have appropriate econometric techniques do find a strong association not only between trade and growth but also between growth and poverty reduction. They also find that this association is tempered by the presence of domestic policy distortions, thus emphasising that removal of domestic constraints from policy distortions brought out by political economy is a crucial step for maximising the benefits from trade liberalisation.
The book documents the historical ambivalence of developing countries which constitute an overwhelming majority of WTO membership towards the General Agreement on Tariffs and Trade (GATT)/WTO and the process of liberalisation. It contends that many developing countries did not participate in the process during most of the GATT era (1974-75) and in accelerating the growth of their trade because they were driven by the then dominant faith in inward-oriented import-substituting industrialisation as the appropriate development strategy. They erected and maintained relatively high barriers to foreign trade.
The book concludes with several recommendations and some important ones are that the World Bank should be reconstituted into a small institution that caters only to the needs of the developing countries that do not have access to world capital markets. This would include countries of the Sub-Saharan Africa. A similar reform of regional development banks, including the possibility of closing the ineffective ones should be considered. The role of IMF should be confined to responsibility for the stability of the global financial system and for providing advice on macro-economics, exchange rate and financial sector policies to its members. The outmoded convention of US nominating the president of the World Bank and EU nominating the Managing Director should be abandoned in favour of a choice mechanism that results in the most qualified candidates being appointed.
This is a very technical subject meant for financial experts and economists.
—MG
(Academic Foundation, 4772-73/23, Bharat Ram Road, Daryaganj, New Delhi-110 002.)
