Trade and growth go hand-in-hand. When the 2008 global financial crisis hit, both collapsed.
Since then both have steadied somewhat. But recovery has been jobless in many countries. The biggest challenge that developing countries will face: sustaining economic growth, while maintaining their focus on reducing poverty and inequality. Trade can be an important weapon in the policy-maker’s arsenal to help tackle these dual objectives.
Broadly, economists agree that declining levels of poverty have been accompanied by sustained periods of rapid growth and openness in all countries. In India, there has been a wealth of econometric work that demonstrates the links through which openness to trade has contributed directly to poverty alleviation – via growth and employment. More recently, Arvind Panagariya and I measured the impact of trade on poverty across different social groups – castes and religions – in India. We found that trade openness lifts all boats, for schedules castes and tribes, and for marginalized communities. Interestingly, the impact was especially strong in urban regions. Other research finds that states whose workers are on average more exposed to foreign competition tend to have lower rural, urban and overall poverty rates.
Trade and growth go hand-in-hand. When the 2008 global financial crisis hit, both collapsed.
As many across the world entered the New Year in a celebratory mood, others are still struggling to recover from the effect of the recent economic downturn. Five years ago began the worst economic recession the world has experienced in generations. With life support by Governments and Central Banks, the global economy seems to have stabilized, but the ‘patient’ is still weak. In 2013, the global economy is estimated to have expanded at a modest 2.2 percent rate (despite a contraction in the Euro zone) and for 2014 the World Bank and IMF project a slight uptick to 3.0 percent.
But what do these numbers actually tell us about the well-being of people? Does economic growth capture what really makes a difference in peoples’ lives?
We asked our bloggers and guest bloggers for their predictions for 2014. Here is a summary of seven main themes, which we will re-visit in late 2014 to see how well we did.
1. Global growth will remain robust and tapering by the U.S. Fed will be less consequential to emerging markets than expected (Bhaskaran, Zaman, Raiser). China will do better than markets predict (Huang), and East Asia will continue to grow with relative stability (Quah). At the same time, the economic policies of some Latin American countries will bring their economies to a breaking point, causing political chaos as well (Gonzalez). Political turmoil and conflict in the Middle East and North Africa will continue to weigh heavily on these economies, with average growth for the region below 3 percent (Devarajan).
2. For Europe, 2014 will be a better year. 100 years after the beginning of the First World War, the Balkans will again be the focus of attention but for better reasons. A more pro-European outlook in Germany and a successful launch of negotiations with Serbia will bode well for the EU. Bosnia and Herzegovina, the scene of the assassination of heir apparent Franz Ferdinand which triggered the beginning first world war, will do surprisingly well at the World Cup in Brazil, for which it qualified for the first time ever. The joy, however, will only be short-lived because political infighting will continue to make it one of the least governable states in Europe (Fengler).
But when that same worker happens to cross a national border, we call it “migration” and, instead of celebrating, we start investigating the effects on workers, firms and public finances in the new environment; and on those left behind (the so-called “brain drain”). Instead of promoting structural transformation, we look for policies to manage it.
تتصدى دول التحول العربي التي تضم تونس ومصر واليمن وليبيا حاليا لقضايا معقدة تتعلق بالقيم الفردية، ومدى حرية التعبير، والحقوق الشخصية، والأمور العائلية التي تدور جميعا حول القضايا الجوهرية المتمثلة في الهوية والأدوار التي يلعبها الفرد والدولة والمجتمع. وهذه الحوارات الاجتماعية بناءة من حيث إنها تعكس ثراء الرؤى وتعددها في مجتمعات كانت مسايرة الموجة هي السمة السائدة في كنف النظم الديكتاتورية. لكن للأسف، تؤدي هذه الحوارات إلى الاستقطاب في المجتمع بما يؤدي إلى العنف والتهديد بالفوضى واحتمال العودة إلى الاستبداد. في الحقيقة، يعكس الاستقطاب الاجتماعي الحالي إلى حد بعيد محاولات السياسيين استغلال الانقسامات الاجتماعية، بل وتأجيجها، بطريقة تذكي حماس أنصارهم المحتملين لملء الفراغ السياسي الذي نجم عن رحيل طغاة العصر. وتختلف حالات الحراك التي يشهدها المغرب والأردن والجزائر ولبنان بعض الشيء، إلا أنه في هذه الحالة أيضا يؤدي التركيز المكثف والاستثنائي على الهوية إلى تزاحم التحديات الاجتماعية والاقتصادية بطريقة أكثر أهمية وأكثر سرعة.
The Arab transition countries, Tunisia, Egypt, Yemen, and Libya, are grappling with complex issues relating to personal values, the extent of freedom of speech, individual rights, family matters, that all orbit around deep issues of identity and the respective roles of the individual, the state and society. These social conversations are constructive in that they reflect a rich pluralism of views in societies where conformity was the rule under dictatorship. But unfortunately, these dialogues are polarizing society, leading to violence and threatening chaos and a possible return to authoritarianism. In fact, the current social polarization to a large extent reflects attempts by political entrepreneurs to use existing social fault lines, and even exacerbate them, in ways that mobilize passions among possible supporters, driven to over-reach by the political vacuum created by the departure of the historical autocrats. The dynamics in Morocco, Jordan, Algeria, and Lebanon are slightly different, but here too, the intense and exclusive focus on identity is crowding out more important and immediate social and economic challenges.
The US and European economies are showing some signs of recovery from the global financial crisis that began in 2008. As a result, the US Federal Reserve Bank is considering phasing out, or “tapering”, the extraordinary monetary policy measures through which it responded to the crisis. On May 22, Fed Chairman Ben Bernanke testified before Congress that the Fed may begin to reduce the size of its bond buying program. There was an immediate withdrawal by investors from stocks and bonds in emerging markets. The World Bank's East Asia and Pacific regional update estimated that in East Asia alone $24 billion was withdrawn from equities and $35.2 billion from bonds. Share prices fell by 24 percent in Indonesia, 21 percent in Thailand, and 20 percent in the Philippines. Yields on 10 year local currency bonds increased by 273 basis points in Indonesia, 86 basis points in Thailand and 76 basis points in Malaysia. The exchange rate depreciated by 18 percent in Indonesia, and about 5 percent in the Philippines and Thailand. Financial markets largely recovered once the Fed decided to postpone tapering in September, but there is still nervousness. The Indonesian Rupiah and Indian Rupee both fell significantly in November, till Fed Chair nominee Janet Yellen signaled that she saw a continued need for the bond buying program.
At some point the Fed will indeed begin to taper. Investors should clearly be concerned as there is a risk of sudden and dramatic falls in asset prices. Should policy makers be concerned? Will there be an impact on growth, inflation or macroeconomic risk that requires a response from policy makers?
Some observers caution that the reforms proposed by the Chinese Communist Party (CCP) after the Third Plenary meeting of its Central Committee may fall short of promise because of resistance from vested interests or a lack of political will. My view is that it will bring about fundamental changes in China for one simple reason - politics. First, the CCP leadership fully understands that the party has lost the trust of the people because of rising corruption and cronyism, increasingly offensive income inequality, huge question marks over food safety, and worsening pollution. Second, they realize that the current economic model cannot sustainably deliver the economic progress that citizens expect in return for their allegiance to the CCP. The CCP leaders know that fundamental changes are needed to this economic model to regain the trust of the people. Since survival demands big changes, the leadership will pull out all the stops.
Suppose that one were to divide the countries included in the latest Doing Business report into two groups. Call the first group (made up of some 44 countries) the “worst quartile”—that is, the countries with the costliest and most complex procedures and the weakest institutions. Call the other group the “best three quartiles.” Then let’s ask ourselves: how many days did it take to establish a business in both groups in 2005? The answer is 113 days in the worst quartile and 29 days in the best three quartile countries, meaning that in 2005 there was a gap of 84 days between the two sets. Now, let’s repeat the exercise for 2013. The worst quartile is down to 49 days and the best three quartiles is down to 16; the gap between the two has narrowed to 33 days, which is still sizable but a lot less than 84. Repeat the same exercise for time to register property and time to export a container. For property registration, the gap in 2005 was 192 days and by 2013 it has narrowed to 63. For time to export, the gap in 2005 was 32 days and in 2013 it was down to 23. (The figures are presented in the charts below. Only a small subset of the indicators has been included here, for illustrative purposes).