Trade, Inclusive Growth and Inclusive Policy Making Ponciano Intal, Jr.

Overview Inclusive growth : broad-based, pro-poor growth, growth with equity International trade promotive of inclusive growth entails complementary measures in both policy and institution building Promoted by inclusive policy making Benefit from expansion and deepening of community based monitoring systems.

Benefits of International Trade International trade welfare enhancing overall. Globalizers grew faster, higher trade, higher share of manufacturing to total employment and output, and higher wage rates than non- globalizers (WB; Rama) Trade key element of East Asian Miracle Trade: reference against global competitors, impetus for greater efficiency, product quality, supply reliability, creativity, organizational adaptability.

Trade and Inclusive Growth: Factors However, international trade not automatically growth inclusive except with homogenous factors and factor mobility between sectors Critical factors toward inclusive growth: (a) Investment climate and investment rate; (b) capability, infrastructure and access to skill development; ( c ) agriculture volatility and natural resources concentration; (d) quality of institutions, regulatory climate and governance

Trade and Inclusive Growth: Experiences Increasing inequality in high growth East Asia (e.g., China) Sharp trade expansion with rise in poverty incidence in some African countries; e.g., Madagascar, Burundi, Central Af Repblic Sharp rise and diversification in manufactured exports but declining share of manufacturing in total output and employment (Philippines)

Trade and inclusive growth Any happy resolution bet. the globalization demands of economic efficiency and the imperative of social equity of inclusive growth? Rests on: – quality of the investment response, –workings of the labor market and industrial relations, –overall macroeconomic environment, and –quality of government institutions and related policies, among others.

Investment and Adjustment Effective restructuring and successful adjustment involves investments. Investment rates(2006): RP-17%; Thailand-23%; Vietnam-34%; China-43%. Wrenching adjustment in RP manufacturing in tandem with low and declining investment rate Improving investment climate and performance key policy concern for RP

Investment Climate: Determinants of FDI Regressed FDI to GDP ratio on selected indicators in World Competitiveness Survey for selected Asian countries Ratio increases if: GDP rises, school system meets demands of competitive economy, lower investment risk, more facilitative customs, lower unit labor cost, currency depreciates, lower bribery and corruption, better quality of the govt bureaucracy, improved infrastructure Ratio decreases if: higher real domestic interest rate

Determinants of FDI (cont’d) FDI influenced by quality of economic governance, quality of institutions, structural factors like quality of infrastructure and educational system. Determinants of FDI above also echoed by domestic investors

Improving Agri Productivity and Transportation Links Robust agri productivity growth key factor plus rising labor intensive manufactures for fast rate of poverty reduction in countries like China, Vietnam, Indonesia (1980s) among recent success stories. Stagnant agri productivity, high population growth, poor rural roads led to farmers as net food consumers and malnutrition in some African countries. RP turned agri net importer, hurt poverty reduction Agri development central to pro-poor growth esp. in Africa. Good roads important for farmers in hinterlands get access to main domestic markets under open trade Good seeds, fertilizer, irrigation, R & D and farmer training important for robust agri productivity & growth

Human capital, Safety net Improved human capital, labor –management relations and basic social safety net in health and education increase labor productivity and mobility intersectorally and across skills, result to smoother adjustment and support inclusive growth. Rural education key factor for fast reduction in poverty in China in 1980s Social cost of labor displacement high; globalization raises firm “churning” and labor displacement: hence, basic limited duration basic safety net needed

Inclusive Policy Making Trade lib and inclusive growth not automatic. Needed: pro-poor complementary measures that contribute to competitiveness & productivity Inclusive policy making (IPM) facilitates effective pro- poor complementary measures IPM: explicit regard of impact of policies on poor/marginalized groups, and enhance citizen participation in governance Benefits: improved targeting and effective programs, better citizen appreciation of trade offs, higher probability of consensus and “win-win” solutions; better policies; supports dynamic local leaders & cooperation with various local stakeholders (Bulacan, Cebu as examples)

Community Based Monitoring System CBMS supports IPM thru on the ground information useful for policy formulation, design of programs and monitoring/evaluation of impacts and effectiveness of policies and programs Directly supportive of local governance improvements Well designed system of designated CBMS areas as “observation posts” allow monitoring of impacts of national policies as well as structured feedback on household responses to shocks and national policies and programs.

CBMS (cont’d) Drive for inclusive growth in an open economy can come from better targeted programs and more pro-poor programs at the local level. CBMS contributes to improved resource allocation at the local level. Example: Sta. Elena, Camarines Sur case: CBMS digitized maps and data used as decision tools by local officials (e.g., selection of scholars), raise budget of social development fund, helped identify priority barangays for water system and rural roads project feasibility study proposals with funding from national government. If similar cases multiply, then government expenditures more effective and pro-poor (or growth inclusive).

Concluding Remarks Basic question raised: how can trade liberalization and expansion be growth inclusive? Paper highlights importance of investment climate, investing in people (with a bias for the poor and the hitherto unskilled) and institutions, robust agricultural productivity and good domestic transport links, basic and limited-duration social safety nets in education and health for inclusive growth in an open economy Inclusive policy making and CBMS contribute to effective and pro-poor policies and [programs needed to make trade expansion growth inclusive.