Blog
Managing Globalization

by Amelia U. Santos-Paulino

Trade and financial liberalisation have been a feature of the world economy in recent decades. Multilateral tariffs reductions under the auspices of the General Agreement on Tariffs and Trade, and since 1995 the World Trade Organization (WTO), are at the heart of these developments. But International Monetary Fund (IMF) and World Bank conditionality and Structural Adjustment Programmes (SAPs) have also played a prominent role in this process. The outcome from this drive to more open trade regimes is encouraging: world trade has grown nearly five times faster than world output, and the GDP of most countries has been remarkable by historical standards. 

The resulting greater economic integration, generally known as globalization, mostly arises from innovation and technological progress. Importantly, this process affects the movement of people and knowledge across the world. In this context, cultural, political, and environmental concerns forcefully come into play. 

At least in theory, globalization entails benefits for all countries. Accessing world markets should allow countries to fully benefit from their comparative advantages. Likewise, trade openness implies more options in terms of low-cost inputs, access to final consumption goods, or better technologies.

However, globalization also implies substantial adjustment costs for individuals, communities, and societies as a whole. And this process can have important distributional impacts within and between countries. This is one of many issues that are critical in WTO-sponsored multilateral trade negotiations, and trade liberalisation under structural adjustment programmes. 

But the WTO’s credentials in addressing development-related problems have been condemned. That is why the future of the globalization effort largely depends on the WTO and its member countries successfully confronting its critics. In this regard, the state of market access in manufacturing and agriculture, subsidy reform in the OECD members, preferential trading arrangements, and exportpromotion in developing countries are some of the most pressing concerns. These issues are discussed in WIDER’s volume The WTO, Developing Countries and the Doha Development Agenda: Prospects and Challenges for Trade-led Growth, Edited by Basudeb Guha-Khasnobis (Palgrave McMillan, 2004). 

International trade is also vital for poverty reduction. But the links between trade expansion and poverty reduction are neither straightforward nor automatic. A major policy challenge is addressing the disparity between the strong role which international trade can play in poverty reduction on the one hand, and the ambiguous or depleting trade effects which are occurring in too many poor countries on the other hand.

The central policy issue facing the developing world and their advanced partners is how to promote poverty reduction in national economies. Therefore, in order to be an effective development tool trade should be mainstreamed into the poverty reduction strategies. The main areas discussed in several multilateral economic forums include: the design of better national development policies that integrate trade objectives as a central constituent; improvements in the trade regime to reduce international constraints on development; and increases in the volume of resources for building production and trade capacities.

Globalization in Africa

African economies have engaged in serious policy reforming. This has been so in spite of problems of implementation and disruptions. As a result, from the early 1990s many countries in the region have displayed profound changes in their national policy environment. And these policy changes have translated into many African countries being classified as possessing low-tomoderate trade policy regimes, according to their tariff and nontariff barriers. 

Likewise ,government’s participation in the economy has been enhanced across Africa. This has been achieved by restructuring and privatising state enterprises, and by undertaking fiscal reforms. Also, public spending has been improved and reoriented towards public investment and spending on vital social services, specially health and public education.

Regional integration is a further important indicator of the globalization efforts in the continent. African countries are taking concrete steps towards integrating their economies by building regional communities and increasing intra-regional trade. There are now 14 regional economic entities, regarded as the building blocks of the African Economic Community. Particularly important is the New Partnership for Africa’s Development, a strategic framework of the African Union designed to meet its development objectives. Moreover, several protocols have been signed to foster transportation and telecommunications links, and for allowing the free movement of workers and capital between countries.

Special international support measures are also important if trade is to serve as a more effective mechanism for poverty reduction. Nevertheless, current special measures, including both market access preferences and special and differential treatment for the least developed countries written into WTO provisions have various limitations. So, there is considerable scope for strengthening these schemes. 

Private sector development is another critical issue in managing globalization. Limited access to financial resources continues to impede the diversification of African economies and their fight against poverty. To tackle this problem, several innovative proposals to increase private flows and to improve access to finance for small and medium enterprises have been put on the table. 

Aid

Although developing and least developed countries, mostly African ones, have shown important commitments towards economic reforms, the poorer countries still need to be supported by adequate concessional financing. A larger volume of external finance is widely seen as vital for African development, in general, and in achieving the Millennium Development Goals (MDGs), in particular. 

To this end several proposals have been put forward, such as the United Kingdom’s International Finance Facility (IFF). Alternative suggestions include a developmentoriented allocation of the IMF’s Special Drawing Rights, a currency transactions tax, global environment taxes such as carbon tax, a global lottery, and facilitating remittances by migrants. These alternative sources of external finance are explored in WIDER’s study New Sources of Development Finance, edited by Anthony Atkinson, Oxford University Press (2004).

Increased and effective international assistance for building productive capacity and reducing supply constraints at the national level will contribute to trade expansion and poverty reduction. This should help to improve the trade–poverty linkage, and contribute to competitiveness. Trade capacity building is central to these processes. ​

What is the Way Forward?

Developing countries, including African ones, have made a considerable effort in restructuring their economies and opening up to world trade. Yet there are further challenges to be tackled. The full impact of economic liberalisation cannot be assessed without considering the adjust​ment implications for specific factors or groups. Crucial issues related to globalization include the changes in wages and profits; international labour and capital mobility and related changes in global markets and power structures; the nature of technical progress resulting from more openness to trade; and the connotations for human capital.

Amelia U. Santos-Paulino is a Research Fellow at WIDER. She has been a consultant for the World Bank and UNCTAD on trade and development Issues.