Trade and development was the subject of the first issue of this report, in 2003, soon after the start of the Doha Round. This issue returns to the subject, not with another general review but focuses on four trends relevant to development: the growing role of developing countries in the world economy, the expansion of global value chains, the rise of commodity prices in the 2000s, and the increased synchronization of macroeconomic shocks. The report is based on a thorough review of the literature, supplemented with some original analysis.
The star of the show is the chapter on global value chains (GVCs), which occupies about a quarter of the report. GVCs are not new, but they are an area in which much has changed since 2003, in terms of the volume of activity and even more in terms of data, analysis, and literature. The chapter begins with a description of the facts. The import content of exports is now about one quarter, and intermediate inputs are almost 30% of world trade. Four nice stylized maps (Figure C.6) show how the global patterns of trade in final goods and intermediates differ from each other and changed between 1995 and 2012.
The chapter then seeks to document the importance of GVCs, using new data on the value added content of trade and new methods of measurement. The calculations suggest that for the world as a whole almost half of exports, both in developed and in developing countries, form part of such chains. A detailed view of the results yields various informative surprises. One of them (in Figures C.9–12) is that the contribution of the service sectors is much larger than is usually supposed.
Another surprise is that Russia and Saudi Arabia are listed in the top ten GVC participants, alongside Malaysia and South Korea. What puts them there is that their primary exports are later used in the manufactured exports of other countries. These calculations, which describe only input-output linkages, thus surely overstate the importance of GVCs. That the exports of Russia and Saudi Arabia are inputs into manufacturing elsewhere is by no means the same thing as their exports being commissioned and coordinated by multinational firms that control international networks that produce and distribute manufactures. These exports are mainly arms-length sales in anonymous international markets and part neither of ‘supplier-led’ nor of ‘buyer-led’ GVCs. The chapter should have made this distinction clearer.
The report then analyses at length both the upside and the downside of GVCs for developing countries. Involvement in GVCs provides great opportunities for developing countries – not only to increase their exports, but also to create jobs and raise incomes, especially for poor people drawn out of subsistence agriculture. But most of the value generated in these chains is appropriated, at one end or the other, by large firms, mainly in rich countries, and not by the developing-country workers in the middle who produce the goods and whose jobs would vanish if their wages exceeded the low level enforced by fierce worldwide competition.
The way to raise incomes above this floor is to upgrade participation in GVCs by moving into activities closer to the ends of chains, but this is difficult – and liable to be resisted by those who already occupy this profitable territory. Section C.2(c) is an excellent, well-supported evaluation of different directions and means of upgrading, and of the circumstances in which success is more or less likely. The discussion is well balanced, but it may still understate the difficulties of upgrading, some of which are aggravated by trade and investment agreements. For example, the report mentions that experiments in the domestic market can be helpful in upgrading, but such experiments may not be possible for small open countries.
However, as the economist Joan Robinson wrote about unemployment, ‘[t]he misery of being exploited by capitalists is nothing compared to the misery of not being exploited at all’. A major problem with GVCs and development is that many countries – mainly the poorest and the least developed – are left out, because their firms, infrastructure, or institutions are too far below the threshold levels of quality and efficiency required of candidates for participation. Section C.4 flags this problem, documents the causes of exclusion, and reviews policies and initiatives (including Aid for Trade) for bringing more countries into GVCs – and indeed into any sort of trade, to which quality and efficiency shortcomings are serious obstacles.
The second longest chapter is on the implications of higher primary commodity prices. This too contains some excellent material, including further analysis of GVCs in sections D.2(b) and D.3(c and d). But it adds less than the GVC chapter to what most readers will already know, and it is less successful as a coherent piece of analysis, for two related reasons. One is that it does not squarely enough face up to the fact that higher commodity prices are good news for some developing countries, but bad news for others, particularly for those that are not using their primary imports for rapid growth, as China is doing, but are just suffering the cuts in living standards imposed by higher food and fuel prices.
The other reason is that the ups (and, since the report was published, downs) of commodity prices are not really at the heart of the relationship between primary commodities and development. As a series of economists have argued, including me (Wood, Reference Wood, Pleskovic and Stern2003), trade and development trajectories – actual and optimal – differ substantially between land-abundant and land-scarce countries. A permanent change in commodity prices might alter the best choices for countries in the middle, but for most countries on either side of this divide it should not alter their trade and development strategies (even though it would tend to alter permanently the relative income levels of the two groups).
The other two new-trend chapters are shorter. The first reviews the increasing importance of developing countries in the world economy since 2000 – nicely distinguishing among three categories of developing country (G-20, least-developed, and others). The fourth chapter is about the increasing synchronization of cycles across the world, with special reference to the collapse and recovery of trade after the 2008 financial crisis. Emphasis is rightly put on the commendable non-resort of crisis-hit countries to protection, partly because of the rules culture fostered by the WTO, though also because of GVCs, which discourage restriction of imports (and because of Gordon Brown's leadership at the 2009 G-20 summit).
A final chapter reviews the role of the WTO in trade and development. It makes a good developmental case for the benefits both of multilateral rules on trade and of some flexibility in their application to developing countries. Sections F.3 and F.4 are valuable summaries of special WTO provisions and institutions for developing countries. I strongly agree that the WTO is good for development, but this chapter is rather rose-tinted, since for understandable reasons it skirts around the inability of the WTO to prevent anti-developmental violations of its agreements by its larger members. In particular, I wish cotton subsidies had not been cited in section F.3(a) as a success: the outcome of this dispute in October 2014 was that the US paid off Brazil while continuing to hurt small poor West African producers.
In many respects, the report scores highly on presentation – the exposition is clear, with some great figures and tables. However, the printed version is a struggle to read: the WTO's font, though no smaller than in other international organization reports, is thinner and fainter; there are too many words on each page; and some figures (e.g. C.21, D.12) are unclear because of their limited range of colours. Reading the pdf version on screen is no easier: the font can be enlarged, but the text is in two columns, so one cannot just scroll down. By contrast, the app version for iPads and other tablets is excellent – far better than that of the World Development Report – but by no means all target readers are owners or users of tablets.
The report would have been even better if it had been shorter – achieved not by condensing the exposition, but by cutting the coverage. The disconnected Part I on recent movements in world trade should become a separate report (as when Global Economic Prospects was split from the World Development Report in 1991). In the main part, Part II, it is important to recognize that people have limited time and digestive capacity, and that each additional topic therefore crowds out the others. If the fine reports in this series tried to do less, they might accomplish more in terms of readership and impact.
