1 Istanbul, 18 November 2008 Europe and CIS Jacek Cukrowski Economic Development and Trade Advisor, UNDP, Europe and the CIS Bratislava Regional Centre Economic approach vs. human development approach to trade

2 Outline  Economic context of international trade  How trade and trade policy can reduce poverty?  Trade and human development  Mainstreaming trade into National Development Strategies  Conclusions Europe and CIS

3 Economic context of international trade Economic context of international trade Europe and CIS

4 Some theoretical results  International trade leads to more efficient utilization of the resources available globally  Countries voluntarily exchange goods because they gain from trade  Gains from trade are not equally distributed within the country Europe and CIS

5 … and empirical observations  International trade expands markets, broads consumer choice, facilitate competition and disseminate knowledge  Trade can also raise productivity and increase exposure to new technologies  creates opportunities for economic growth Europe and CIS

6 Trade liberalization and economic growth Europe and CIS “General equilibrium analysis shows that halving tariffs and distribution margins would increases real GDP in 2015 by about 20 % in Kazakhstan and by 55% in Kyrgyzstan” Central Asia Human Development Report Bringing down barriers: Regional cooperation for human development and human security

7 … but no systematic relationship between liberal trade policies* and subsequent economic growth Europe and CIS * countries’ average levels of tariffs and non-tariff barriers

8 Trade vs. economic growth  Trade can be a powerful source of economic growth … but trade liberalization does not automatically lead to higher growth  The impact of trade liberalization on economic growth should be analyzed on case by case basis Europe and CIS

9 How trade and trade policy can reduce poverty? How trade and trade policy can reduce poverty? Europe and CIS

10 Long vs. short term impact of trade and trade policies  Liberal trade policies could have significant impact on growth and poverty reduction in long term … but trade policies have strong redistributive impacts in short and medium term  Even if the overall impact of the trade policy is to enhance welfare, some segments of population can be hurt, with possible negative repercussions on poverty Europe and CIS

11 Trade and poverty: Transmission channels Europe and CIS

12 Redistributive outcomes of trade policies  The redistributive outcomes of trade liberalization are much larger than the efficiency gains  Trade reforms can be easily captured by stakeholders and lobbies that favor protectionists status quo  Governments have historically raised significant revenues by taxing trade  Distributional consequences are key reasons for many incomplete implementation and reversals in trade policy reforms  Predictive analysis of the distributional effects and identification of winners and losers is crucial Europe and CIS

13 Trade and Trade and human development Europe and CIS

14 Human development “… is about creating an environment in which people can develop their full potential and lead productive, creative lives in accord with their needs and interests. … Fundamental to enlarging choices is building human capabilities — the range of things people can do or be in life. The most basic capabilities for human development are to lead long and healthy lives, to be knowledgeable, to have resources needed for a decent standard of living and to be able to participate in the life of the community. ” Europe and CIS Source: UNDP Human Development Report 2001 “ … – это создание окружающей среды, в которой люди могут полностью развивать свой потенциал и вести продуктивную, творческую жизнь в соответствии со своими потребностями и интересами. Принципиально важным для расширения возможностей выбора является создание возможностей для человека – всего того, что люди могут делать, или кем они могут быть в жизни. Самым основным условием человеческого развития является возможность вести долгую и здоровую жизнь, быть хорошо информированным, иметь средства, необходимые для достойного существования, принимать участие в жизни общества.”

15 Linking human development and trade  Trade can be a powerful source of economic growth … but while broadly based economic growth is necessary for human development, it is not enough … but while broadly based economic growth is necessary for human development, it is not enough  Human development also requires enlarging people ’ s choices and opportunities — especially poor people ’ s liberalizing trade does not ensure poverty reduction or human development, nor does it guarantee immediate economic growth liberalizing trade does not ensure poverty reduction or human development, nor does it guarantee immediate economic growth  The nature of resource allocation and social inclusion are important determinants of growth leading to poverty reduction and human development for women and those participating in the informal sector, especially for women and those participating in the informal sector, especially Europe and CIS

16 Trade and national development strategies  If trade is to serve as an engine of economic growth countries must develop a multidimensional strategy for trade expansion  Framed in an appropriate macroeconomic environment  Structural and social concerns should be treated equally with macroeconomic and financial concerns  Trade reforms should be an integral part of comprehensive development frameworks Europe and CIS

17 Mainstreaming trade …  Mainstreaming trade into a country ’ s development strategy means assessing and integrating the following issues trade reform under a pro-poor agenda trade reform under a pro-poor agenda  trade reform and complementary policies, including macroeconomic policy, impact on fiscal revenues, labor market, agricultural sector, social safety nets assessing market access impediments assessing market access impediments establishing the benefits of WTO and global rule making to developing countries establishing the benefits of WTO and global rule making to developing countries strengthening the capacity of developing countries to trade strengthening the capacity of developing countries to trade Europe and CIS

18 Conclusions Europe and CIS

19 J. Stiglitz (2006): J. Stiglitz (2006): “…Trade is not a zero-sum game in which those who win do so at the cost of others; it is, or at least can be, a positive-sum game, in which everybody is a winner. If that potential is to be realised, first we must reject two of the long-standing premises of trade liberalisation: that trade liberalisation automatically leads to more trade and growth, and that growth will automatically “trickle down” to benefit all. Neither is consistent with economic theory or historical experience.”

20  While growth is important to poverty reduction, countries cannot rely on high growth rates as the primary way to reduce poverty  Linking international trade to poverty reduction is best achieved by national development policies which are inclusive  Expansion of trade might be necessary but not sufficient for poverty reduction Main messages (1)

21  Opening trade is key for human development improves economic base improves economic base broadens a range of human choice broadens a range of human choice … but there could be some short-term human development risks that needs to be well understood and countries need to be prepared to minimize possible negative impact of trade on selected social groups Main messages (2)

22 Thank you… United Nations Development Programme, United Nations Development Programme, Europe and the Commonwealth of Independent States, Europe and the Commonwealth of Independent States, Bratislava Regional Centre Europe and CIS