Developing countries will enjoy an average growth rate this year of 6.1 percent, the highest in three decades, according to the Bank’s 2005 Global Economic Prospects (GEP) report, launched Thursday at press briefings in Paris and Washington (see presentation). At the launch, (from right), Francois Bourgignon, Chief Economist & SVP for DEC, Hans Timmer, Manager, DECPG, Richard Newfarmer, GEP Lead Author, and Chris Neal, DEC Sr. Ext. Affairs Officer.
The primary focus of this year’s report, entitled Trade, Regionalism, and Development, is the impact of the remarkable expansion of regional trade agreements (RTAs), which now cover over one-third of global trade. The GEP cautions that with this increase in RTAs, there has been a corresponding increase in exclusion of, and discrimination against, developing nations. The report suggests that bilateral and multilateral trade pacts need to be “open” so as not to divert trade or cause market distortions that can penalize other developing countries.
"Regional trade agreements offer some benefits to developing countries, provided they do not occur behind a wall of protection," said Francois Bourguignon, the Bank's Chief Economist and Senior Vice President for Development Economics. "However, preferences favoring some countries discriminate against others. Nearly all agreements have adverse consequences on excluded countries. The most effective way to curb these negative effects is to open markets more broadly."
The face of the global economy was dramatically transformed with the emergence of RTAs, which increased six-fold since 1980, to include over 200 reciprocal regional trade agreements, according to the report. The GEP examines this new global picture with extensive analysis of the aspects of RTAs that have proven successful. It provides strategies within the current global climate to benefit the multilateral trading system and contribute to poverty reduction.
The recommendations on the multilateral level are to eliminate many of the discriminatory effects RTAs have on excluded countries, while encouraging further trade, growth, and investment.
The benefits of open agreements are not limited to developing countries. Keeping trade open circumvents a financial risk: discriminating against non-member countries can effectively mean discriminating against efficient low-cost suppliers.
Ultimately, the report says, success will be determined by how effective trade agreements are in inducing domestic improvements and effective growth.
“Much depends on the design and implementation of an agreement,” says Richard Newfarmer, lead author of this year’s Global Economic Prospects and Economic Advisor in the Development Prospects Group. "In our study, the key characteristics that define good agreements are those that actually have low external barriers–so that countries and regional agreements are actually able to integrate with the global economy, and at the same time increase trade with each other."Discriminating against non-member countries can effectively mean discriminating against efficient low-cost suppliers.
For developing countries, the need for integration into regional agreements is part of a broader recommended approach of unilateral and multilateral liberalization. While it is a realistic necessity for developing countries to further engage in regional agreements, the report says these gains are nowhere near what they might be following multilateral reform.
Multilateral market openings, which could occur at the Doha Round of the World Trade Organization, hold the promise of greater potential gains to all developing countries, the report says.
“A multilateral agreement is the only way to open agricultural markets and reduce or end subsidies in rich countries,” said Bourguignon. He added; “These reforms are of critical importance to the poor, but they are not on the table in regional trade talks.”
Newfarmer reflected on the broader implications of high-income countries’ investment in multilateral trade reform and poverty reduction. Beyond a proportionately large stake in global trade, he noted that "it is imperative that we help developing countries realize their growth prospects because, by growing more rapidly, raising people's standards of living around the world, and reducing poverty, I think we create a more secure world for everyone."
Global Prospects for Growth
The report predicts strong global economic growth in 2005, citing a sharp expansion of about 4 percent in 2004, with even greater increases for developing countries. “This year is actually the best year in the last thirty years for developing countries,” Newfarmer noted. The report says overall growth should moderate in the next two years, where the largest slowdowns should be experienced by those countries growing the fastest.
There is the prospect– in the medium to long run – that developing countries could double their 1992 growth rate, although this forecast is vulnerable to risk according to Newfarmer. The occurrence of such growth, most concentrated in East and South Asia, would help many developing countries halve the incidence of extreme poverty by 2015. The significant exception is Sub-Saharan Africa, where the report says it would take implausibly high growth rates during the next ten years for similar substantial achievements.
To download the entire report please go to http://web.worldbank.org/WBSITE/EXTERNAL/EXTDEC/EXTDECPROSPECTS/
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