1. Global Integration, Economic Development and the World Bank Group Trade Strategy Bernard Hoekman, Director, International Trade Department, World Bank Caribbean Growth Forum, Kingston, Jamaica, June 19, 2011

2. The Trade Agenda has Changed 2 Globalization has led to deep inter-linkages among countries and increased vulnerability to shocks Developing countries are new drivers of global trade (multi-polarity)BRIICS Tariffs often no longer a binding constraint to trade Trade increasingly involves global value chains and intra-firm transactions FDI-trade-labor market/skills linkages Higher demand for natural resources/commodities and potential for services trade offer new opportunities to developing countries but also 3. Trade/GDP and South-South trade 3 Total trade as a percentage share of GDPPercentage share as indicated Imports from the South as % of total world importsSouth-South imports as % of total South imports40%60%35%30%25%20% 40% Low and middle-income countries15%10% All countries 5%20%0% 198519881991199419972000200320061990199319961999200220052008 4. Trend decouplingstarting in early 90s 108 6World Growth 1965 - 2011 High Income High Income Trend Developing Countries Developing Countries Trend4 2-21965 1967 1969 1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 20110-4 Sustained high growth levels associated with expanding trade World trade has grown twice as fast as global GDP 5. 5Services trade: expanding, but big differences across developing countries Average annual growth rate between 2000 and 200825% ServicesOther CommercialOther Business20%15%10%5%0% Latin AmericaAfricaMENAEast AsiaECASouth Asia 6. Services matter for Caribbean countriess 80 Caribbean Countries Services/GDP70 60Middle Income Countries Services/GDP50 40Low Income Countries Services/GDP30 20Caribbean Countries Service Exports/GDP10 LIC SXs/GDP0MIC SXs/GDPSource: World Development Indicators6 7. Trade Openness: Volatility & Risk of Shocks 7Trade / GDP ratio80% BRICs 70% Developing countries60%High Income 50% Lower Income 40% Lower Middle Income30%Upper Middle Inc. 20% 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010Source: World Bank 8. Commodity price increases and volatility 9. Drivers: Trade Liberalization 901020304050MFN Applied Tariff Rates versus GDP per Capita0Source: Mattoo and Neagu, 201120004000 GDP per capita(US dollars) 1980s 2000s1990s60008000 10. Integration of China/East/South Asia: Quadrupling of effective global labor supply (index, 1980 = 100)400Global Labor supplyExport-Weighted Labor Force by Region1 1000350 300Working-age population Total labor force Export-weighted labor force800Advanced economies East Asia250South Asia200600Central and Eastern Europe and CIS Other developing countries150400100 20050 0 1980 1National859095200005labor forces scaled by export-to-GDP ratios.0 1980859095200005 10 11. Drivers: Technology (FDI, ICT, global supply chains) 12Imports of parts etc. as a share of exports: 33% for developing countriesBig differences: Argentina and Brazil: 15% China and Mexico: > 30%Source: Canuto, Dutz, an d Reis (2010) 12. FDI: Rise of emerging-market multinationals Total cross-border M&A deals by firms from advanced and emerging economies, 19972010 13. Increase in South-South FDI flows Cross-border M&A investment to low income countries, 19972010 14. Changing political economy and policies Growing export sectors push to reduce input costs Greater focus on efficiency of producer services Interest in minimizing tariffs on intermediates Supply chains: restricting trade = raising costs throughout the chain Trade and FDI are increasingly complementary Source of technology and know-how; connect to supply chains Focus on behind-the-border issues: investment; IPRs Rise of China and other large emerging economies Threat effect but also source of demand and capital Move to North-South, East-West, South-South PTAs 15. Trade policy since 2008 16. Rising importance of non-tariff measures Have recently been seeing a rise in the use of NTMs but number of new measures during 2009-2011 stable; little year-to-year variation Do not have information on average number of new NTMs in the pre-2008 period Generally NTMs are applied to all trade, not bilaterally18 17. Implication: A More Complex Trade Agenda 20 Competition is fiercermore opportunities but also faster displacement of firms/farms/workers Many countries still highly dependent on relatively few exports and markets: diversification critical to sustain higher growth Productivity growth critical to avoid middle income trap Constraints to trade-driven productivity growth lie behind-the-border skills; logistics, (trade) finance, services inputs Infrastructure Policiesespeciallyfor services, public and private 18. Address market failures - SEZs - Enabling domestic policyLogistics services Customs & border management Trade Finance - IFC: Short-term products (GTFP, GTLP) - MIGA: longer term insurance Prodevelopment institutional environment - Analysis for advocacy (WTO; agricultural policy; climate change) Regional integration of markets (SouthSouth cooperation)Regulatory reform & cooperationNTMs, services Labor marketsMANAGING SHOCKS & PROMOTING INCLUSION Trade in services digitized - movement of suppliersTransit corridors; regional trade facilitationMARKET ACCESS & TRADE COOPERATION Trade policy - traditional policies - firm competitivene ssTRADE FACILITATION, LOGISTICS & TRADE FINANCETRADE COMPETITIVENSS & DIVERSIFICATION21World Bank Group Trade Strategy: Four Priority Areas of Focus Safety nets Skills Gender Lagging regions Food prices 19. 24Trade Competitiveness and Diversification 20. How to link constraints to exports?Trade Competitiveness Diagnostic In-depth analysis of trade data aggregate and firm-level generates hypotheses about obstacles to export performance Allows for premised on comparisons to other countries Firm-level data allows to directly connect to detailed transactions customs data Combined with qualitative information can help to reject or to identify constraints Exporters have to be productivelink to broader competitiveness agenda 25 21. Link outcomes to factors that affect firms capacities and productivity TRADE OUTCOMES ANALYSIS Growth and share (Intensive margin)Diversification (Extensive margin)Quality & sophistication (Quality margin)Entry & survival (Sustainability margin)Channels Entry costsFactor and transaction costTechnology and efficiencyCOMPETITIVENESS DIAGNOSTICSSupply side factors Market accessIncentive frameworkFactor conditionsBackbone/business servicesTrade/investment promotion infrastructure SEZs 22. Services export competitiveness Assist policy makers to improve their understanding of the size, scope and potential of services exports as well as prevailing obstacles Address the following questions: Assessrole of services as inputs in the tradedsector Determinants of services trade performance Relative importance of determinants across services 32 23. Regulatory assessments in services Step 1 Mapping regulations Horizontal regulations affecting a wide range of sectors Specific regulations affecting a sector, subsector, or an activity Assessing regulation-making process: transparency, necessity, and non-discrimination Assessing institutional arrangements in light of international best practicesStep 2 Assessing the impact of regulations in market structure, prices, quality, and access through econometrics toolsStep 3 Assessing alternative regulations Proposing new institutional arrangements, if any Assessing feasibility of alternatives regulations and institutional arrangements 33 24. Services Knowledge Platforms Mechanism to bring stakeholders together: Togenerate information on options for regulatory reforms to integrate services markets; Learn from experiences elsewhere; and Focal point for effective implementation/monitoring Demand-driven and action oriented Ongoing pilots and activities in Europe (CEFTA) and East and Southern Africa (EAC; COMESA) 25. 35Trade Facilitation/Logistics & Finance (and trade-related infrastructure) 26. Productivity losses (%)Logistics is a driver of competitiveness 30OECDLAC25 20 1510 5 0 Merchandise losses: Share of primary goods that do not arrive at marketLogistics costs as share of market valueLevels of InventorySources: World Bank, Guasch (2008) 27. Logistics costs key factor for SMEs LAC Logistics Costs: % of Total Value of Firm Sales 454240 3512.730 25 18157.3111.3629.4186.28201810.631110 56.90 Less than US$ 5 MUS$ 5 M to US$ 50 M US$ 50 M to US$ 500 MInventory Management &WarehousingMore than US$ 500 MTransport &DistributionFuente: Centro Logstico de Latinoamrica, Bogot, Colombia. Benchmarking 2007: Estado de la Logstica en America Latina Anexo, Mara Rey Logistics Summit 2008 28. Logistics Performance Index, 2012TOP 10 COUNTRIES UPPER MIDDLE INCOME Country South Africa China Turkey Malaysia Bulgaria Thailand Chile Tunisia Brazil MexicoTOP 10 COUNTRIESTOP 10 COUNTRIESLOWER MIDDLE INCOMELOW INCOMELPI RankCountryLPI RankCountryLPI Rank23 26 27 29 36 38 39 41 45 47India Morocco Philippines Vietnam Egypt, Arab Rep. Indonesia Yemen, Rep. Ukraine Pakistan Guatemala46 50 52 53 57 59 63 66 71 74Benin Malawi Madagascar Niger Tanzania Guinea-Bissau Togo Central African Republic Cambodia Zimbabwe67 73 84 87 88 94 97 98 101 103Bahamas 80 Dominican Rep. 85 Jamaica 124Haiti:153 29. Improve connectivity In part an infrastructure agenda Majorfactor underpinning improvement in LPI indicators over timeBut policies are critical as well Bordermanagement Transport services competition . as is cooperation and coordination, especially landlocked and small island states and regions Regionalports and hubs Transshipment and regular feeder services 30. http://www.worldbank.org/tradeThank you