Over the past three decades, global trade grew almost twice as fast as global gross domestic product (GDP). The massive process of commercial integration was made possible by technological revolutions in transport (like containerized shipping) and communications technologies, and by a dramatic decline in import tariffs. This allowed many developing countries to implement export-led growth strategies that lifted hundreds of millions of people out of poverty. Some succeeded in sought-after manufacture markets and, more recently, even in services.
Commodity prices are experiencing a lot of volatility right now, with food and oil prices nearing record highs. But what about the medium-term? The answer is fundamental for developing countries as commodity prices will be the key external variable for them to watch—perhaps even more than interest rates. Commodity prices are expected to stay high until at least 2015, before supply responses and lower relative demand by a burgeoning global middle-class moderate them. And while commodity dependence has been declining for decades, exports and fiscal revenues will remain dominated by natural resources in many developing countries.
Is this commodity price increase good news? The literature on whether commodity wealth is a “curse” is as vast as it is ambivalent—as we show it in The Day After Tomorrow: A Handbook on the Future of Economic Policy in the Developing World (World Bank Publications, Washington D.C.). What is certain from empirical evidence is that good policies and good governance are necessary, but not sufficient, conditions for natural riches (especially oil and minerals) to support development. For that to happen, it is necessary to solve five main problems associated with those riches: (a) “Dutch Disease” (non-commodity exports becoming less competitive), (b) price volatility (complicating investment decisions), (c) over-borrowing (lenders are less stringent with governments that expect to collect lots of cash), (d) sustainability (the amount of the natural wealth to preserve for future generations), and (e) corruption (the larger the rent, the more voracious the rent-seeking).
The 2008–09 crisis opened the door to a different kind of thinking in international macroeconomics—and closed it on some of the previous orthodoxy. Let’s take a look at some of the most obvious cases.
Why is it that some countries are more developed than others? A country is “less developed” not only because it lacks inputs (labor and capital) but because it uses them less efficiently. In fact, inputs are estimated to account for less than half of the differences in per capita income across nations. The rest is due to the inability to acquire, adopt and adapt better technologies to raise productivity. As an engine of growth, the potential of technological learning is huge—and largely untapped. Four global trends have begun to unlock that potential, and are bound to continue.
This is the fourth in a series of blogs where we take a look at the issues and the countries that will be at the forefront of the development agenda, not now, not next year, but over the next 2 to 5 years—thus, “after tomorrow”.
This is the third in a series of blogs where we take a look at the issues and the countries that will be at the forefront of the development agenda, not now, not next year, but over the next 2 to 5 years—thus, “after tomorrow”.
This is the second in a series of blogs where we take a look at the issues and the countries that will be at the forefront of the development agenda, not now, not next year, but over the next 2 to 5 years—as we discuss it in more detail in the recently released book The Day After Tomorrow: A Handbook on the Future of Economic Policy in the Developing World.
It is becoming common wisdom that developing countries are doing well while the rich world is stuck in long-overdue austerity. Barring another subprime crisis (this time, in public debt), the locomotives of global growth are about to “switch over.” How come? Will this hold?
These are just two of the many questions asked and answered in the new book, The Day After Tomorrow: A Handbook on the Future of Economic Policy in the Developing World, which collects the views of some 40 World Bank economists.