A Presentation on Trade and Development Report 2016: Structural Transformation For Inclusive And Sustained Growth

A Presentation on Trade and Development Report 2016

April 28: A presentation on ‘Structural Transformation for Inclusive and Sustained Growth’ was given by Piergiuseppe Fortunato, an economist at the United Nations Conference on Trade and Development (UNCTAD). Before joining UNCTAD, he was an economist at the Department of Economic and Social Affairs at the United Nations. His research interests include economic development, political economics, international trade and South-South integration. He has publications on these topics in journals like the Journal of Economic Growth, The Economic Journal and the European Economic Review. He is also heavily involved in policy oriented research; he edited a volume on post-conflict recovery for Bloomsbury Academic, published on policy journals like Global Policy and contributes to several blogs (e.g. Vox and La Voce). The session was organized by Dr. Aadil Nakhoda for his International Trade students to widen their exposure regarding the dynamics of global trade and development.

He began his presentation by discussing globalisation and the increasing interconnectedness between different parts of the world. However, some countries, especially developing nations, have not been able to capitalise on this growth. ‘It is expected that global growth will likely drop below 2.5% this year,’ he stated. Moreover, capital flows have become more volatile and debt crises are looming. Among developing regions, only East, South and South-Eats Asia maintain growth momentum.

There are three main reasons why some countries have not seen increasing growth. Firstly, in the last 25 years, the peak manufacturing level has seen a shift. This is because manufacturing tends to move towards countries with cheap labour. Speaking about the importance of manufacturing, he mentioned how Asia has become a central hub for economic activity. In successful economies, productivity expanded rapidly with a dynamic manufacturing sector absorbing labour force from agriculture. This is seen in many economies in Asia, whilst in Latin America and Africa, productivity has remained very low.

Secondly, export-led growth models which were applied in Malaysia, Thailand, Singapore etc. do not seem to work so well as they did in the past and has hit diminishing returns. This has been largely because an increase in manufacturing exports by developing countries, but a decline in value added manufacturing from the years 1991 to 2014. A key reason for this is the Global Value Chain (GVC). An increasing value of the GVC has affected the total value added in exports. However, some economies have been able to benefit from the GVC such as China, Malaysia, Indonesia, and Vietnam, whilst others such as Mexico, Argentina and Costa Rica have not benefitted. ‘The latter countries are the losers from the GVC,’ Mr. Fortunato mentioned. Thus, a country cannot go for an export-led strategy without strategic planning.

A Presentation on Trade and Development Report 2016

Thirdly, investment rates in some countries are extremely low. Investment rates in most developing regions are not high enough to support rapid structural transformation especially in Africa and Latin America. Investment to profit ratios have been declining, while dividend to profit ratios are going up. Therefore, investment in the manufacturing sector has been adversely affected. This has been seen in Brazil and South Africa where investment as a percentage of total capital stock are at their record lows.

The last part of the presentation was on industrial policy. Mr. Fortunato said it is important to not ‘pick winners’ but rather target diversification and upgradation to encourage strong productivity growth. At the end of the day, linkages between different sectors greatly matter. Thus, deciding on an industrial policy involves more than just selecting sectors – linkages have to be built. Furthermore, industrial policy should be coherent and bring together macroeconomic, financial, trade and industrial policies. There should be a special meeting of the cabinet to decide on the consistency of industrial policy.

Moreover, it is critical to build a capable and stable bureaucracy, which is closely linked to, but still independent of, the business community and can discipline firms. This is a key factor in order to have a successful industrialized economy. Finally, developing economies should try to get their voice heard in the global economic system.

A question was asked by Dr. Aadil Nakhoda about whether a flow of investment into a country results in an increase in its exports, in the context of CPEC. Mr. Fortunato replied that the impact on the net exports is usually much lower. Thus, it is vital to interact with the Global Value Chain in a strategic manner. In addition, sometimes the FDI works more as portfolio investments, which does not help in increasing net exports. Furthermore, thought provoking questions were asked by the students regarding development, trade and the importance of manufacturing in today’s globalized world.

A Presentation on Trade and Development Report 2016