Trade, Development and Poverty Reduction in 13 Developing

Countries from Asia and Sub-Saharan Africa: An Overview

Development strategy for growth, employment and poverty reduction

‘self-sufficiency’ foreign aid and campaign for ‘trade not aid’

Shift from inward-looking policy

actively engaged in MTNs

Unilateral liberalisation and MTNs promised a new era for growth and poverty reduction.

Background

However, trade and development experiences are far from being similar

…so diverse that the general relationship is a subject of regular empirical scrutiny.

Main objective of the TDP Project –

to study country cases and understand the nature and dynamics involving TDP linkages.

Background (contd.)

CUTS-TDP project – overall country and sectoral experiences

Volume – I brings together general

country case studies

A forthcoming volume will contain sectoral case studies

Background (contd.)

The 13 countries in CUTS-TDP

8 from Asia (Bangladesh, Cambodia, China, India, Nepal, Pakistan, Sri Lanka and Vietnam)

5 from sub-Saharan Africa (Kenya, South Africa, Tanzania, Uganda, and Zambia)

Set of diverse countries Large and Small High growth and erratic growth performance Large and low export response Commodity primary and manufacturing

Diversity offers invaluable insights into TDP linkages

Countries GDP ($ bill) PC GNI ($) PPP PC GDP POP (mill)

BGD 60 470 - 142

CAM 6 430 2,727 14

CHN 2234 1740 6,757 1,304

IND 805 730 3,452 1,095

NEP 7 270 1,550 27

PAK 111 690 2,370 156

SRL 24 1160 4,594 20

VNM 52 620 3,071 83

KEN 18 540 1,239 34

SAFR 239 4770 11,110 47

TAN 12 340 744 38

UGA 9 280 1,433 29

ZAM 7 500 1,022 12

X ($b) X/GDP(%) Mfg/Mer X (%)

Agr/GDP (%)

Poverty ratio (%)

BGD 10 16 91 20 44.2

CAM 4 65 97 34 35

CHN 837 38 92 13 7.9

IND 166 21 70 18 26.1

NEP 1 16 74 38 30.8

PAK 17 15 82 22 32.1

SRL 8 34 70 17 22.7

VNM 37 70 55 21 18.1

KEN 5 27 21 27 52.3

SAFR 65 27 57 3 57

TAN 2 17 14 45 35.7

UGA 1 13 17 33 37.7

ZAM 1 16 9 19 68

TDP Links – Theoretical Insights

TDP Linkages: (1) trade-growth (2) trade-income distribution

But the issue of trade liberalisation and growth draws most attention

Inconclusive theoretical arguments Static gains from trade arguments Dynamic gains leading to higher growth New growth theories - ambiguous

Empirical evidence is inconclusive

Powerful evidence found to be not credible identifying countries as open and closed is

difficult and often flawed

TDP – Empirical Evidence

Export-led growth and liberalisation

UNCTAD – ‘export-led growth’ is misleading

Countries that grow fast tend to experience rising export-GDP ratios

Trade-poverty direct relationship is complex

TDP – Empirical Evidence

TDP: Empirical Evidence

Striking econometric evidence from China 1981-2001 China’s trade-GDP ratio

increased from 15% to 45%. 1981-2001 poverty incidence fell

from 52% to 7%. Statistical analysis finds no evidence of the

relationship between the two indicators (Ravallion 2006).

Experiences of TDP Project Countries

Strong trade controls in the immediate post independence period

Started opening up with BWI support

Vietnam and China – liberalisation initiative mainly domestically-led

Liberalisation led to: a decline in QRs, rationalisation and diminution of import tariffs relaxation of foreign exchange controls privatisation of SOEs generous promotional measures for exports.

CountriesPre-reform avg tariffs

Most recent avg tariff

trade-wt avg tariffs

% of lines > 15%

BGD 94 (1989) 15 n.a. 40

CAM 35 (1996) 14 11 19

CHN 40.3 (1990) 9.9 4.7 16

IND 81.8 (1990) 19 15 22

NEP 23 (1988) 14 n.a. 17

PAK 64.8 (1990) 14 13 40

SRL 28.3 (1990) 11 7.4 21

VNM 30 (1989) 17 n.a. 41

KEN 43.7 (1990) 13 6.2 41

SAfR 12.7 (1988) 8 6.1 21

TAN 29.7 (1990) 13 9.7 41

UGA 19.9 (1987) 13 12 41

ZAM 29.9 (1987) 14 12 33

TDP Countries -stylised Facts

Rising significance of trade (X-GDP ratios)

Growth of exports

Growth of exports and GDPLiberalisation and Growth

GDP growth and poverty reduction

Exports and poverty reduction

Uganda

South AfricaTanzaniaZambia

Kenya

Vietnam

China

Cambodia

NepalSri Lanka

PakistanIndiaBangladesh

Export-GDP Ratio = -4.1447 ln(population) + 110.67

R2 = 0.0732

0

50

100

150

200

250

9 11 13 15 17 19 21

ln (population)

expo

rt-G

DP

ratio

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0Bangladesh Cambodia

China India

Nepal Pakistan

Sri Lanka Vietnam

Export-GDP Ratio in Asian TDP Countries

Export-GDP Ratio (%) in African TDP Countries

0.05.0

10.015.020.025.030.035.040.045.0

Kenya South Africa Tanzania

Uganda Zambia

Exports and GDP Growth: World Economies

y = 0.195x + 1.8339

R2 = 0.1824

-4

-2

0

2

4

6

8

10

12

Growth of exports (avg 1990-2005) (%)

Gro

wth

of

GD

P (a

vg 1

990-

2005

) (%

)Exports and GDP Growth in TDP Countries

ZambiaSAfR Kenya

Tanzania

Sri Lanka

PakistanNepal

BGD

Uganda

India

China

Vietnam

CAM

y = 0.3039x + 1.9105

R2 = 0.7333

0

2

4

6

8

10

12

Growth of Exports (Avg 1990-2005) (%)

Gro

wth

of

GD

P (A

vg 1

990-

2005

) (%

)

Exports and GDP Growth in TDP Countries

Cambodia

Vietnam

China

India

Uganda

BGD

NepalPakistan

Sri LankaTanzania

KenyaSAfR Zambia

y = 0.3039x + 1.9105

R2 = 0.7333

0

2

4

6

8

10

12

Growth of Exports (Avg 1990-2005) (%)Gro

wth

of G

DP

(Avg

199

0-20

05) (

%)

Uganda

South Africa

Tanzania

ZambiaKenya

Pakistan

Vietnam

Sri LankaNepal

China

Cambodia

BangladeshIndia

-2.0

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

0 5 10 15 20 25 30 35Average tariffs in 2001

Ave

rage

GD

P gr

owth

(199

5-20

02)

Avg. grwoth of developing countries

Avg. tariffs of developing countries

Tariffs and Growth: TDP and Developing Countries

Pakistan (1991-2001)

Kenya (1992-97)

South Africa (1996-2001)

Cambodia(1993-2004)

Nepal(1991-2001)

Zambia(1998-2004)

Tanzania(1991-2001)

Sri Lanka(1991-2002)

Bangladesh(1992-2004)

Uganda(1992-2003)

India(1990-2000)

Vietnam(1993-2004)

China(1982-2001)

y = 0.7349x - 1.843

R2 = 0.5402

-3.0

-2.0

-1.0

0.0

1.0

2.0

3.0

4.0

5.0

6.0

0.0 2.0 4.0 6.0 8.0 10.0Avg GDP growth (%)

Ann

ual r

ate

of p

over

ty re

duct

ion

(%)

Growth and Poverty in TDP Countries

Pakistan (1991-2001)

Kenya (1992-97)

South Africa (1996-2001)

Cambodia(1993-2004)

Nepal(1991-2001)

Zambia(1998-2004)

Tanzania(1991-2001)

Sri Lanka(1991-2002)

Bangladesh(1992-2004)

Uganda(1992-2003)

India(1990-2000)

Vietnam(1993-2004)

China(1982-2001)

y = 0.7349x - 1.843

R2 = 0.5402

-3.0

-2.0

-1.0

0.0

1.0

2.0

3.0

4.0

5.0

6.0

0.0 2.0 4.0 6.0 8.0 10.0Avg GDP growth (%)

Ann

ual r

ate

of p

over

ty re

duct

ion

(%)

Growth and Poverty in TDP Countries

Growth Elasticity of Poverty

IndiaNepal

Vietnam

Uganda

China

Bangladesh

Pakistan

Kenya

South Africa

Tanzania

Sri LankaZambia

Cambodia

-0.80

-0.60

-0.40

-0.20

0.00

0.20

0.40

0.60

0.80

1.00

TDP Country Cases: Lessons

Ownership of the Policy Regime Home grown initiative – implications for PRSP

Export Response to Liberalisation Removing anti-export bias enough?

Initial Distribution of Endowments Can experiences of Vietnam and China be

replicated elsewhere

Easy Reforms versus Critical Reforms Institutional reforms and capacity

Lessons (contd.) The Role of Agriculture

Despite the need for diversification a dynamic agri sector is crucial

Priority for Future Reforms May not be mere tariff cuts but more

fundamental in nature Supply Capacity and Trade Barriers

Trade reforms do not generate SS-side capacity automatically

Policy Space and Making Use of It Policy space should be used carefully

Growth and poverty reduction and Pro-active Policy Initiative

Development of Domestic Productive Capacity

Taking Advantage of Liberalised Trade Regime

Lessons (contd.)

Concluding Remarks

Trade policy – a fundamental component of development strategies

Wide deviations from the general liberalisation and economic prosperity Same set of policies produces dramatically

different results

Country cases exhibit that ‘the same size fits all’ philosophy has failed to deliver

CUTS-TDP country cases show the need for learning from others’ experiences. But blind replication may not work

The orthodox route to dealing with developmental problems needs to be replaced with heterodox approaches.

requires analytical policy regimes capable of identifying structural weaknesses

Concluding Remarks (contd.)

In the absence pro-active initiatives growth could bypass the poor.

social and political instabilities and bad governance

a development-friendly international trade regime is important in promoting trade-development and poverty linkages in poor countries.

Concluding Remarks (contd.)