ECONOMICS AND TRADE | Achieving growth through open markets
10 January 2008
Trade Spurs Economic Growth Among Poorest Countries
World Bank experts see correlation between trade liberalization and GDP growth
Washington – Developing countries participating in liberal trade have enjoyed an average annual economic growth rate of 5 percent during the most recent wave of globalization from the 1990s to present.
“China and Vietnam are two good examples of countries whose growth rates accelerated after they joined the WTO (World Trade Organization) and further liberalized their trade regimes,” said David Dollar in an e-mail to America.gov. Dollar is a World Bank country director for China and co-author of the book Globalization, Growth and Poverty. Dollar's World Bank colleague, Paul Collier, is the other co-author.
Dollar said that, as those countries became more open to trade, they created confidence and attracted foreign investment and technology.
The Economist magazine predicts real GDP growth to average almost 8 percent for Vietnam and 9 percent for China annually over the coming five years.
Dollar's and Collier's book focuses on what happened during the 1990s in what the authors call the “new globalizing” developing countries. The book states that during the 1990s, the rate of growth in per capita gross domestic product (GDP) for those countries increased by 5 percent annually. It is a trend that has continued during the early 2000s.
The authors attribute recent economic success in many large, developing countries to advances in transportation and communications and to the fact that these countries opened up to foreign trade and investment. One result: manufactured goods rose from less than 25 percent of developing country exports in 1980 to more than 80 percent by 1998.
Dollar and Collier name Brazil, Hungary, India, Malaysia, Mexico, the Philippines and Thailand, as well as China, among the countries taking the strongest pro-trade measures in recent years and point out that 24 developing countries doubled their trade levels from 1980 to 2000. Countries with liberal trade policies have seen faster GDP growth than countries not participating in globalization, according to the authors.
The book notes that the more globalized developing countries are not drawn from those that were higher-income developing countries to begin with, whose economies tended to rely on export of natural resources. In fact, the more globalized developing countries were among the poorer countries.
The new globalizers cut import tariffs significantly. They also established reliable property rights, liberal investment climates and strong rule of law. Since 1980, they have made strides in basic education. The average years of primary schooling for adults increased from 2.4 years to 3.8 years in the fast-growth developing countries.
“The spread of basic education tends to reduce inequality and raise health standards, as well as being complementary to the process of raising productivity,” Dollar and Collier conclude. This is important, the authors say, because while there is economic pressure for migration among countries, “compared to 100 years ago, the world is much less globalized when it comes to labor flows.”
