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competitiveness

Nepal: How a 21st century trade policy framework could boost exports, jobs and economic growth

Cecile Fruman's picture
Equipped with unique tourist destinations, a strong national brand, and favorable trade positions with developed countries, Nepal is a country full of untapped potential. But several obstacles are holding it back from being a modern and globally connected economy. Some of these are unavoidable, such as its remote and landlocked location. But others, including outdated and restrictive trade and investment policies, lack of sufficient infrastructure, and a low capacity for adhering to quality standards for exports, could be resolved with a more modern trade framework.

Stuck on the periphery of international trade and global value chains

Daria Taglioni's picture
Firms that are able to access and use the Internet, mobile telecommunications and other digital technologies are much more likely to export, to export to more destinations, to become part of global value chains (GVCs) and to connect to and survive in the global marketplace. They also grab a larger slice of a country’s total exports, and their products tend to be more diverse.

In Jordan, for example, the use of ICT and digital technologies affects firms’ export performance across multiple dimensions (figure 1) – share of exports, sales, market share and survival. This trend can be seen in other developing countries as well, including Chile, India, Indonesia, Peru, South Africa, Thailand and Ukraine.
 
Figure 1. Jordan: Performance of technology-enabled vs. traditional exporters (Source: eBay, 2014)

Yet, as the 2016 World Development Report Digital Dividends highlights, despite the many individual success stories and the rapid spread of digital technologies, aggregate effects on development, growth, jobs, and services of low-income developing countries (LIDCs) is lagging. The lack of ICT capacity and access is often most evident in limiting the opportunities of small- and medium-enterprises (SMEs), as illustrated in the World Bank-OECD report Inclusive GVCs.

Growth and development: Why openness to trade is necessary but not sufficient

Selina Jackson's picture
Photo © Dominic Chavez/World Bank


We are experiencing a battle of ideas regarding the state of the global economy and prospects for growth. Larry Summers has been leading the group of economists proclaiming that the world entered an era of secular stagnation since the global financial crisis. On the other end, Standard Chartered Bank and other players have been arguing that we are experiencing an economic super cycle—defined as average growth of around 3.5 percent from 2000-2030—due to strong growth in emerging markets and fueled by a global demographic dividend.

There is not even agreement on the factors that drive global growth and development. While parts of the Americas and Asia just concluded the Trans Pacific Partnership (TPP) and recent World Trade Organization (WTO) agreements on trade facilitation and information technology products show progress is possible, the Transatlantic Trade and Investment Partnership (TTIP) negotiations between the U.S. and the EU remain highly controversial and the upcoming WTO Ministerial in Nairobi will likely underwhelm. 

However, if you look at the facts, the situation is very clear:

Of Gazelles and Gazillas

Megha Mukim's picture

Gazelle. Source: Bahman Farzad -- http://www.flickr.com/photos/21644167@N04/2104059837/sizes/m/in/photostream/Governments and policy makers often look to small and medium-sized enterprises to drive growth in developing economies. These SMEs are held up as incubators of creativity and entrepreneurship, pushing the market to change, expand, and better meet consumer needs. But perhaps SMEs aren’t the only category to applaud. Research has shown that certain firms, regardless of their size, create jobs, export goods, and generally grow faster than others. We think these are the firms to watch.

To explain, we use an animal analogy developed by David Birch. Birch classified firms into “mice,” small firms that tend to stay small; “elephants,” large firms that do not grow rapidly; and “gazelles,” firms that both grow rapidly and account for a large share of employment or revenue growth. These gazelling firms are key to nascent, growing economies. As Caroline Freund and Martha Denisse Peirola show in Export Superstars, a World Bank Research Policy Paper, it is often a few big firms that account for the lion’s share of national exports. Not only are these few good firms responsible for the largest growth in exports, they also contribute most of the export diversification. In fact, countries’ relative comparative advantage is defined by these large, well-performing firms.

Exporting is Easy; the Challenge is Making it Sustainable

Catalyst factory in Macedonia. Source: Johnson Matthey Inc.In 2009, an EU-based chemical manufacturer opened a plant inside one of FYR Macedonia’s recently-established special economic zones. The plant began production of catalysts, a type of emissions-control component used in automobiles. Two years later, this investment drove chemical products to the third-highest spot on Macedonia’s export list, lessening the country’s reliance on metals and textiles.

In Nicaragua, low labor costs and high security compared to its neighbors have led zonas francas to expand dramatically, attracting producers of electronic wires and medical devices and expanding the country’s exports beyond an already-strong apparel sector. Between 2006 and 2008, for example, ignition wiring sets for vehicles were the country’s fourth biggest export.

Shoe molds and scuba divers: How natural disasters affect our supply chains

Thomas Farole's picture

A scuba diver in Mexico. Source: http://www.flickr.com/photos/akumaldiveshop/5824559898/sizes/m/in/photostream/Like the massive earthquake in Japan earlier this year, the floods in Thailand are again exposing the vulnerabilities of fragmented global supply chains.

Last month, a team of economists from PREM's International Trade Department encountered some flooding side-effects during a visit to the Indonesian production site for ECCO, a Danish company that manufactures footwear. The news from Thailand: the ECCO production site there was under three meters of water, a problem for shoe-making. In order to transfer production to the factory in Indonesia, the workers needed the specific shoe molds used in the Thai factory. These specialized molds would have taken several weeks to manufacture, which would have further delayed production. So ECCO hired scuba divers to enter the Thai factory and recover the molds. They then shipped them via air to other factories around the region, including ECCO Indonesia.