Thinking outside the box about trade, development, and poverty reduction

This policy paper proposes considerations for an alternative framework for thinking about trade, development, and poverty reduction. It moves away from the current approaches that focus on public investment in infrastructure and human capital as complimentary tools to make trade liberalisation work for reducing poverty. It argues that these approaches still do not address the systemic critique that trade liberalisation hinders development by eliminating important policy tools.

The paper also argues that the focus on public investment in infrastructure and human capital raises numerous unanswered questions about how to finance public investments, whether these investments should be sequenced in advance of liberalisation, and whether trade liberalisation is desirable if the investments are not made.

The paper proposes the following considerations:

• domestic commerce promotion yields deeper development linkages than does export-led growth, which tends to promote forms of enclave development analogous to a modern plantation economy
• regional trade agreements can be very beneficial as regional neighbours often tend to be at similar stages of development and thus avoid the heavyweight-lightweight mismatch problem, and in addition to that the value created in production and trade is captured within the region rather than being siphoned off to the North
• strategic value-chain analysis that takes on a bargaining-power perspective and emphasises value-capture can focus labour standards and codes of conduct, which can be a tool for developing countries to capture more of the value they create
• incremental policy change is more advisable rather than grand liberalisations
• a tropical-products trade round involving commodities such as rice, sugar, cotton, and orange juice can produce a win-win outcome for both North and South, and all sides of the theoretical debate agree on the economic justification for such a move.