The World Bank (WB) helps developing countries improve their access to world markets and enhance their participation in the global trading system. Trade is an engine of growth that creates better jobs, reduces poverty, and increases economic opportunity. Recent research shows that trade liberalization increases economic growth by an average of 1.0 to 1.5 percentage points, resulting in 10 to 20 percent higher income after a decade. Since 1990, trade has increased incomes by 24 percent globally and by 50 percent for the poorest 40 percent of the population. Economic growth underpinned by better trade practices has lifted more than 1 billion people out of poverty since 1990.
Trade is also linked to higher female participation in the formal labor market, where wages are higher. Exporters in developing countries employ more women than non-exporters, and women comprise up to 90 percent of the workforce in export-processing zones. Fostering cooperation through trade and business is also pivotal in helping countries escape conflict.
In developing countries, access to global markets is often hindered by anti-competitive business practices, regulation that is unfavorable to business growth and investment, and inadequate ports, roads and other infrastructure. Even a country with liberal and transparent trade policy suffers if its markets are not connected. Many of the world’s poorest people live in places that are landlocked, remote, or otherwise ill-served by international trade links. The WB helps its client countries overcome these obstacles and more fully reap the benefits of global markets.
Still, we must recognize that not everyone is experiencing the benefits of globalization. Most global poverty reduction has been concentrated in Asian countries, principally in China, while other regions continue to experience high inequality and poverty. Powerful protectionist forces have begun to challenge the global community’s commitment to open trade; many in advanced economies blame trade for job losses as manufacturing and some services shift to lower-cost destinations. Disruptions to global supply chains and rising shipping costs caused by the COVID-19 pandemic have also put the economic recovery at risk, adding to calls for reshoring production of vital goods, especially medical products and semiconductors. Disruptions to global food and fertilizer markets caused by the war in Ukraine and sanctions on Russia jeopardized food security in developing countries.
Digitalization, and the related shift to services, promises to reshape trade and presents important opportunities for developing countries. Digital commerce allows firms of all sizes, anywhere in the world, to gain access to new markets. But many developing countries lack the necessary technical, regulatory, financial, and educational infrastructure and are at risk of being left behind. Advanced and developing countries alike will need help to smooth the transition from manufacturing to services with programs to promote skills development, labor mobility, and gender equality. Clear international rules for digital commerce will also be needed; negotiating them will require coordination and expertise from policymakers and a strong domestic digital sector that can identify challenges and potential solutions.
Promoting international trade and advancing sustainable economic development are not mutually exclusive and can be mutually reinforcing. The damage wrought by climate change highlights the urgent need for adjustments in trade: The extraction and processing of natural resources account for more than 90 percent of biodiversity loss and water stress and half of greenhouse-gas emissions. Yet with the right policies, trade can play a central part in efforts to adapt to climate change and mitigate its impact: It can foster the spread of Environmental Goods and Services such as solar panels and recycling to help reduce emissions and improve biodiversity, and it can facilitate the transfer of climate-friendly technologies. As countries adopt policies to meet their global carbon commitments, their trading partners can develop areas of “carbon competitiveness” through reduced carbon intensity of production and seize new opportunities in green growth. This will lead to more sustainable supply chains and diversification away from carbon-intensive sectors. Nevertheless, a challenge will be to combine sustainability standards with more and open trade. Developing country participation will be needed to ensure that new rules are feasible for them.
As the largest multilateral provider of Aid for Trade, the WB is advancing policies that help developing countries—and disadvantaged groups within them—benefit from the opportunities that come with trade and technological change and to ensure that trade-driven growth is green, resilient, and inclusive.
In this context, there is a need to strengthen the global trading system to help developing countries address trade-related constraints to growth. The foundations of the rules-based global trade regime, critical for ensuring the predictability of trade, remain firm but have been shaken, so reforms are needed. While there have been notable successes, such as the landmark WTO Trade Facilitation Agreement (TFA), delays in completing the Doha Round of trade talks after 20 years have diminished the role of the WTO as the global rule-maker and arbiter of trade disputes. Growing tensions have been dramatized by the trade war between the United States, traditionally a champion of free trade, and China, one of its biggest beneficiaries since joining the WTO in 2001. These tensions should not prevent all countries from exploring the untapped benefits that further trade reform can bring to the global economy.
Last Updated: Apr 04, 2022