World Trade Report 2008: Trade in a Globalizing World

The WTO, in a new report Trade in a Globalizing World, extols virtues of free trade and at the same time reminds us that deeper integration has not benefited all sections of society. It argues that globalization, which is basically driven by technological innovation (chiefly low transportation, communication, production, and manufacturing costs), political change, and economic policy choices, has led to increased fusion of product, capital, and labor markets internationally and resulted in a more efficient allocation of economic resources. The report examines “the gains from international trade and the challenges arising from higher levels of integration.” This is what the report has:

The Report explores a range of interlinking questions, starting with a consideration of what constitutes globalization, what drives it, the benefits it brings, the challenges it poses and what role trade plays in this world of ever-growing interdependency. We ask why some countries have managed to take advantage of falling trade costs and greater policy-driven trading opportunities while others have remained largely outside international commercial relations. We also consider who the winners and losers are from trade in society and what complementary action policy-makers need to take in order to secure the benefits of trade for society at large. In examining these complex and multi-faceted questions, the Report reviews both the theoretical trade literature and empirical evidence that can help to give answers to these questions.

The report looks at the total change in output (product, capital, and labor outputs), which obviously has increased relative to cost structure, but does not fully explore distributional impacts of the existing model of globalization led by Western interest(it discusses production fragmentation based on cost-effectiveness)! However, it discusses the conflicts between globalization and domestic trade policies and its impact on the people. The rate of waning of support for globalization would depend on the “balance between the need for open markets and complementary domestic policies, along with international initiatives that manage the risks arising from globalization.”

A warning against autarky:

When different sources of gains from trade are taken together, it has been shown that protectionist policies may carry significant economic costs. However, the benefits from opening up to trade may not be equally distributed across countries.

Poor countries face hindrances in the process of evolution of production networks because of poor quality of infrastructure, high cost of establishing a business, and poor quality of institutional frameworks (in other words unfavorable trade costs and supply-side constraints). Moreover, the report argues that poor countries are not gaining as much as the richer ones because the pace of technological change (which the report argues is the main cause of any negative impact on poverty and inequality), the timing of trade policy change, the pre-existing level of protection and a range of factors relating to such factors as the structure and functioning of markets, education, and basic infrastructure. It asserts that trade helps alleviate poverty, which is still debatable if we look at he progress in the sub-Saharan Africa.

In general, however, empirical evidence continues to support the idea that trade is good for the poor, although trade is likely to affect individual households differently. The strength of the poverty-reducing effect of trade appears to be country-specific and will to a large extent depend on the policies accompanying trade reform.

Here is Pascal Lamy, director general of the WTO:

Countries missing out on international production opportunities risk being marginalized from globalization – indeed, this is a vivid example of how globalization can leave countries and societies behind. But the good news is that much of what can be done to avoid this outcome is in the hands of responsible government.

The report is informative and will be a good refresher/review of trade theories and controversies (starting from Ricardo to recent ones)!

Rodrik calls for 'new Keynes'

[...]The first three decades after 1945 were governed by the Bretton Woods consensus – a shallow multi-lateralism that permitted policy-makers to focus on domestic social and employment needs, while enabling global trade to recover and flourish. This regime was superseded in the 1980's and 1990's by an agenda of deeper liberalisation and economic integration. That model, we have learned, is unsustainable. If globalisation is to survive, it will need a new intellectual consensus to underpin it. The world economy desperately awaits its new Keynes.

More here.

Nepali garment sector in troubled waters

What happens when the largest exporters in an industry have a single major customer, which goes bankrupt without paying outstanding dues of imports, of another country? Well, the whole industry plunges in troubled waters, putting the survival of the industry at stake. This is happening to Nepali garment sector recently. Four big firms' production and exports are in limbo as its buyer Stephen Berry has sought protection under US Chapter 11 bankruptcy law, which suspends or delays payments of outstanding debts. More misery for the already troubled industry...a result of poor industrial policy!

Knowledgeable people in the industry said it's not only a question of delay. Since the buyer has declared bankruptcy exporters will lose at least a chunk of the payments due.

Stephen Berry, known for dealing in cheap university labels in the US, has been importing a substantial volume of garments from Nepal over the last half decade.

In the latest deal, it placed orders worth US$ 5.25 million with the four Nepali manufacturers in January. Of that, the exporters said they have received payment of only US$ 400,000. While they are yet to dispatch last consignments worth US$ 850,000, they

are also supposed to have received payment of $ 4 million for consignments already dispatched.

According to exporters, the Stephen Berry bankruptcy is bad news for the four exporters and for the Nepali garment industry as a whole. As chances of the US economy going into recession are heightening, exporters warned that more such cases can surface in the days to come.

Delay in payment, which they said is the best case scenario in the Stephen Berry deal, would still affect timely release of bank guarantees, freeze assets, subject them to fines and affect future operations, unless the banks came to the rescue.

"If the court refuses Stephen Berry's appeal, the company will have to go into liquidation, which will be a disaster for Nepali manufacturers," said an official at the Garment Association of Nepal, requesting not to be named.

More here.

Gains from Goats

This is why we need selective intervention (funding source may be either internal or external or both) in the developing countries if we are really and economically serious about reducing poverty. This intervention is about providing what is needed the most to generate sustainable livelihood, in this case goats, to the most affected people. Here, goats are given to lower caste families (aka intervention because market always keeps them in dark!) to help them build livelihood. Incentive mechanism works well and there is rise in real income as well.

The innovative project gives participants breeding stock, allowing them to build up herds to the point where they can return the same number of animals they originally received to the program operator, the District Livestock Services Office (DLSO). In turn, those animals are then given to other needy communities who repeat the process.

In the case of the Pokharathok Goat Lending Group-made up of 50 women from the village including Padma Bhitriya-each member was given three female goats, and each group was given two bucks to kickstart the breeding program.

The program has been a major success, with group members' annual incomes rising to NRs17,000 ($270) each, a far cry from their income of around NRs6,000 three years ago.

The goats were provided under the Community Livestock Development Program, a project funded by the ADB which, in 2004, superseded the successful six-year long Third Livestock Development Program (TLDP). The initial program was kickstarted with an $18 million loan from ADB, supplemented by an additional $4 million from the Government of Nepal and local financing institutions.

More here from the ADB.

What is 'feminization of poverty'?

Marcelo Medeiros and Joana Costa from the International Poverty Center (IPC) define feminization of poverty as:

[...] We propose a definition that is in line with many recent studies in the field: the feminization of poverty is a change in poverty levels that is biased against women or female-headed households. More specifically, it is an increase in the difference in poverty levels between women and men, or between households headed by females on the one hand, and those headed by males or couples on the other. The term can also be used to mean an increase in poverty due to gender inequalities, though we prefer to call this the feminization of the causes of poverty.

[...] Feminization is a process, whereas a “higher level of poverty” is a state. Feminization is also a relative concept based on a comparison of women and men, including households headed by them. What is important here is the difference between women and men at each moment. Since the concept is relative, feminization does not necessarily imply an absolute worsening in poverty among women or female headed-households. If poverty is reduced sharply among men and only slightly among women, there would still be a feminization of poverty.

[...]The feminization of poverty can also be defined as “an increase in the share of women or female-headed households among the poor”. In contrast to our proposal, this definition focuses on changes in the profile of the poor and not on poverty levels within gender groups. Thus it has a potential disadvantage. It is difficult to interpret the results from this approach because measures of the feminization of poverty can be affected by changes in the demographic composition of the population. For instance, the impoverishment of female-headed households can be offset by a decline in the total number of such households, and thus the result in terms of feminization can be zero. The definition we propose gives rise to indicators that are not affected by these composition effects, which can be analyzed separately.

 

New book: Mexico's transition to a knowledge-based economy

New book about Mexico's transition to a knowledge-based economy from the WBI. I have not read the book yet but will do so in the following weeks. Here is the link for download. Here is a snapshot:

Mexico's Transition to a Knowledge-Based Economy provides a broad assessment of the country's readiness to join the global knowledge economy, highlighting the importance of education and institutional reform, and of creating an environment that is conducive to innovation.

This transformation, however, is not only about shaping the reform agenda from the top down. It is also means trial-and-error experimentation to test what works and what doesn't in the Mexican context, and then taking successful bottom-up initiatives to scale. The book takes a dual approach in its analysis and recommendations. It tackles both the strategic long-term agenda, which entails many difficult changes and choices, while also proposing a diversity of pragmatic, short and medium-term entry points to initiate and promote the transition within the current institutional structure.

Famine in far-west Nepal

Famine-hit people from Sappata village in Bajura district who came to the Nepal Food Corporation depot at Kolti in the district Sunday in search for rice look dejected after the depot stocks ran out before their turn came. Thousands of people in 11 VDCs in northern Bajura are facing food shortage. (Source: The Kathmandu Post)

Many rural areas which are not connected with vital infrastructures for development, including roads, are facing severe food shortages. These are the same regions where incidence of poverty is also the highest. The people depend on subsidized food supply from the state and aid agencies like the WFP.

More here. Rising food prices coupled with short supply, famine, and rising fuel prices have been crippling food supply in the remote areas. Earlier, the WFP predicted that one-third of the population (about 10 million) would starve if similar situation persist long. The WFP needs more aid and funds to effectively reach these people. Where is all the donor money going or are the donors becoming stingy this year?

The acute food crisis has been looming in at least 11 VDCs in north-eastern Bajura district, leaving thousands of villagers in a state of famine.

Thousands of locals gathered at Kolti food depot for foodgrains. However, some 6,000 quintal foodgrain that the depot received had already been distributed.

And this is very sad for the people who are not only poor but chronic poor:

"Ultimately we will have to die since there is no food in the depot and our meager production has already finished," said Rana BK, a local from Sapta village.  Dhansure BK of Sapta-9, who reached the Kolti depot for food, said, "I am not sure whether my children will be alive when I return home with food."

A local NGO distributed 40 kilograms of rice one month ago under the aegis of World Food Program. However, the people have almost finished up that small quantity of food stuff by now.

Some three weeks ago, hundreds of women had gathered at the District Development Committee (DDC) and threatened to commit suicide consuming poison en masse unless they were provided food at the earliest.

But the political parties settled such a grave issue by providing just 25,000 rupees as relief amount to each VDCs.  Similarly, the remote Kalikot district has also witnessed food scarcity. 

There is a shortage of foodgrain in the north-west Patala area in the district. Locals said that the damage to crops from hailstone in April was the major cause of the looming food crisis in the area.

Political response to solve this problem has been so-so. The leaders too busy bickering on restructuring the state at a time when one-third of the population is going hungry. But, what more can we expect from a virtually bankrupt state? The donors( World Bank, IMF, WFO, UNDP, FAO) should release more immediate funds to tackle this problem. Starvation and hunger is going to wash away the progress Nepal made in poverty reduction in the last decade.