After months of early NY Penn Station mornings trying to remember whether to get on the Amtrak north to New Haven or south to DC, I am thrilled to transition from incoming Chief Economist to Chief Economist. We have so many fascinating problems to tackle and I truly hope my experience and humble efforts will contribute to the Bank’s mission.
The phrase exponential change may be overused, but at this point in time many aspects of life that we take for granted are in flux, reshaped ever more rapidly. Countries now depend on one another to an unprecedented degree. Some of that has to do with the impact of technological innovation as the 2019 World Development Report on the Changing Nature of Work has pointed out.
My vision for the next WDR, which we have already started work on, is that it reflects the zeitgeist as it sets out to analyze the implications of the changing face of globalization for development. Our starting point is this wholly new level of country interdependence. The world has always been interconnected - but international trade today is fundamentally different, both qualitatively and quantitatively from the last World Development Report on Industrialization and Foreign Trade written thirty years ago.
Tariff reduction and significant advances in production, communication and transportation technologies led to the emergence and expansion of global value chains. From the early 1990s until the mid-2000s global trade grew at twice the rate of income growth. Which brings us to the present, where production is fragmented and distributed across multiple locations, and the parts produced in each place are shipped across the globe - often crossing borders multiple times.
WDR 2020’s goal is to understand why global value chains have formed in some sectors and regions, while others have been left out. It will examine how they affect growth, inequality and poverty. The report will consider the role of new technologies and trade policies in creating incentives to produce closer to home. It will explore how national policies can promote sustainable development and if international cooperation on trade, as well as other policies, can support inclusive growth.
The fact that factories in low- and middle-income countries now fully participate in international production networks presents important development opportunities, as well as challenges. Competition is fierce. East Asia, Central and Eastern Europe, Mexico, and parts of Central America are increasingly integrated in global value chains. Yet many countries in Africa, South America, the Middle East and parts of South Asia remain marginal contributors.
Global value chains rely on skilled workers, technology and logistics to function smoothly, which intensifies the trend in both developing and developed economies towards a skill premium. Companies are developing more sophisticated ways to leverage digital technology, shifting many processes that used to be labor intensive to computer-aided machinery. Some developing country exports are in sectors that are undergoing rapid automation in their trade partners, raising the risk of labor market disruptions.
I hope that this gives you a flavor of the themes that we’ll be working on and how they build on the analyses of the current WDR and its predecessor, Learning to Realize Education’s Promise. The World Bank’s analytical depth underlies its huge global impact and it’s my proud responsibility to ensure that we keep delivering going forward. I look forward to meeting and working with all of you.