UNDP Background Paper
Executive Summary: It is widely accepted, not least in the agreement establishing the World Trade Organization (WTO), that the purpose of the world trade regime is to raise living standards all around the world—rather than to maximize trade per se. Increasingly, however, the WTO and multilateral lending agencies have come to view these two goals—promoting development and maximizing trade—as synonymous to the point, where the latter easily substitutes for the former. The net result is a confounding of ends and means. Trade has become the lens through which development is perceived, rather than the other way around.
Imagine a trading regime in which trade rules are determined so as to maximize development potential, particularly that of the poorest nations in the world. Instead of asking, How do we maximize trade and market access? negotiators would ask, How do we enable countries to grow out of poverty? Would such a regime look different than the one that exists currently?
The answer depends on how one interprets recent economic history and the role that trade openness plays in the course of economic development. The prevailing view in G7 capitals and multilateral lending agencies is that economic growth is dependent upon integration into the global economy. Successful integration in turn requires both enhanced market access in the advanced industrial countries and a range of institutional reforms at home (ranging from legal and administrative reform to safety nets) to render economic openness viable and growth-promoting. This can be called the enlightened standard view—enlightened because of its recognition that there is more to integration than simply lowering tariff and non-tariff barriers to trade, and standard because it represents the conventional wisdom. In this conception, the WTO's focus on expanding market access and deepening integration through the harmonization of a wide range of trade-related practices is precisely what development requires.
This paper presents an alternative account of economic development, one that questions the centrality of trade and trade policy and emphasizes instead the critical role of domestic institutional innovations. It argues that imported blueprints rarely spark economic growth and opening up the economy is hardly ever critical at the outset. Initial reforms instead tend to combine unconventional institutional innovations with some elements from the orthodox recipe.
To obtain permission for the use or further distribution of this paper, please contact the UNDP.
