1. Global income changes: effects on export opportunities for developing countries Jörg Mayer Division on Globalisation and Development Strategies UNCTAD UNCTAD Training Course on Key Issues on the International Economic Agenda Global income and trade trends: Implications for export opportunities for developing countries Geneva, 7 March 2013

2. Main points – diagnosis What happened? Onset of current crisis led to global trade collapse with ensuing loss of dynamism in consumer goods imports by the US Why is this important? –US-consumption was a key driver of global growth in pre-crisis period –The growth slowdown in advanced economies is unlikely to be a temporary phenomenon –Crisis transmission through trade channel affects products whose exports to developed countries boosted developing country growth prior to the crisis and that have historically supported productive transformation

3. Main points – response What to do? Develop domestic and South-South markets to compensate for loss of export potential to advanced economies Is demand in developing countries large enough to compensate for lower demand growth in developed countries? In some sectors, demand in the large emerging economies is likely to exceed that in developed countries within the coming 10–15 years Policy implications? Pursue macroeconomic, trade and industrial policies that allow creating employment and purchasing power – to support demand – and expanding productive capacity – to benefit from arising market opportunities

4. Overview 1.The great trade collapse – evidence for selected product categories 3.Potential growth of consumer demand in developing countries 4.Policy considerations 5.Conclusions

5. 1. The global trade collapse in 2008–2009 The sharp, sudden and synchronized fall in trade in 2008–09 is striking because real world trade fell by about 15%, exceeding the fall of real world GDP roughly by a factor of 4 Changes in real final expenditure bear main responsibility Reasons for large size of impact: high import content of exports (GVCs) and high import content of household consumption in developed countries, especially the US The widely expected slow recovery towards a weak growth path in advanced economies is reducing the opportunities to export to these countries beyond the short term, during which developing countries might compensate resulting potential growth shortfalls by countercyclical macroeconomic policies

6. The impact of the global trade collapse varied considerably across individual economies, depending on their pattern of export specialization The price and volume effects of the global trade collapse in 2008–09, selected developing economies, trade shock as a percent of GDP

7. US-imports of consumer goods lost pre-crisis dynamism Consumer goods imports, United States, 1999 I – 2012 III, $bn

8. Loss of dynamism especially for durable consumer goods (excl automobiles), where developing countries have a large market share Consumer goods imports, United States, selected categories and source countries, 1999–2011, $bn

9. 2. Potential growth of consumer demand in developing countries The potential growth of consumer demand in developing countries depends on five variables: –Income elasticity of demand –Export orientation –Income distribution –Per-capita income growth –Demographic developments Simulations indicate that, in some sectors, demand in large emerging economies will exceed that in developed countries within the coming 10–15 years

10. Demand for consumer goods goes through periods of acceleration and deceleration – rapidly growing developing countries are in acceleration phase Relationship between per capita income and income elasticity of demand, selected consumer good categories

11. Country-specific positions and movements relative to the cross-country benchmark are related to the importance of consumption and exports in aggregate demand Relationship between per capita income and expenditure on durable consumer goods, selected economies, ‘90–‘11

12. Income distribution affects the number of people that belong to the middle class Per capita income and different income classes, selected countries, 2005

13. Per-capita expenditure on durable consumer goods in some developing and transition economies may overtake that in the United States within a decade or two Projections based on assumed growth rates, 2011–2050

14. 3. Policy considerations Demand potential in developing countries provides sizeable opportunities for development of productive capacity and boost productive transformation, driven by fixed investment Wage and employment policies must ensure sufficient growth of domestic purchasing power to create middle class Macroeconomic, trade and industrial policies must ensure that domestic firms meet emerging demand

15. Why developing country enterprises may be well placed to meet newly arising demand MNEs used “their existing high-end products and services through standard distribution channels to target the most affluent tier of customers in the largest cities” (Boston Consulting Group) Due to differences in consumer tastes etc., proximity to markets is important when targeting less affluent consumers – path of innovation Developing country firms can develop less material- and energy-intensive consumer goods, which may not match existing technologies or appeal to Western consumers, and preserve their environment – green industrial policies

16. 4. Conclusions Policies in developed economies should strive for sustained rapid growth and refrain from protectionism Yet, the two-speed world economy makes export-led growth strategies less viable in developing countries Greater importance of domestic consumption in developing countries lowers the per capita income of the median global consumer with attendant changes in the composition of demand Developing country enterprises may be well placed to meet newly arising demand Not all developing countries can easily change their production structure to match the emerging domestic demand structure – international trade remains important

17. Thank you ! joerg.mayer@unctad.org