Trade is a key means to fight poverty and achieve the Millennium Development Goals. It allows countries to import ideas and technologies, realize comparative advantage and economy of scale, and foster competition and innovation to increase productivity and achieve higher sustainable employment and economic growth.
Countries open to international trade have tended to provide more opportunities to their population and to grow faster. As noted by the Commission on Growth and Development, all developing countries that have experienced sustained periods of high economic growth prospered by being open to global markets. However, a number of developing countries continue to face obstacles in accessing global markets due to limited supply (infrastructure) capacity and unfavorable business and investment climates.
What are the key areas of trade that the World Bank focuses on?
The World Bank Group (WBG) trade programs aim to (a) promote a multilateral trading system that is more supportive of development; (b) make trade competitiveness a centerpiece of countries’ development strategies; and (c) support trade and trade facilitation reforms through effective “Aid for Trade” programs.
To achieve these objectives, the WBG launched a new trade strategy in 2011 following consultations with a diverse group of stakeholders. The new strategy, Leveraging Trade for Development and Inclusive Growth (PDF), will target four priority areas: trade competitiveness and diversification; trade facilitation, transport logistics and trade finance; support for market access and international trade cooperation; and managing shocks and promoting greater inclusion.
The WBG supports trade-related reforms in developing countries through analytical and advisory services, financial assistance, technical assistance, and capacity building activities.
IDA and other WBG programs have worked to help developing countries cope with the effects of the crisis and position themselves to take advantage of the global economic recovery. World Bank trade-related lending for fiscal year 2012 (FY12) is a total of $3.2 billion to help developing countries achieve their trade-reform objectives. This is nearly a six-fold increase from FY03 levels of $566 million. The share of trade-related lending in total Bank lending has grown from an average of 2 percent in FY02-FY03 to an average of 7 percent in FY11-FY12. Overall Bank lending for FY12 stands at $43.6 billion.
Trade facilitation and market access continues to account for the bulk of the trade-related portfolio. Trade-related projects supporting trade facilitation and market access comprised almost half the FY12 trade portfolio, followed by projects with a focus on regional integration, export development and competition. The WBG’s Trade Facilitation Facility supports improvements in trade facilitation systems that reduce developing countries’ trade costs and improve competitiveness. As of March 2012, 48 projects with a total budget allocation of $34.6 million were approved, mainly benefiting African countrie.
The WBG has stepped up its support of trade finance since the 2008-09 crisis. As of January 2012, the International Finance Corporation (IFC), the Bank’s private sector arm, has supported over 32,000 global trade transactions worth $40 billion, through the Global Trade Finance Program (GTFP) and the Global Trade Liquidity Program (GTLP). The GTLP is being re-launched for another 3 years, following the recent global uncertainty and drop in liquidity. The IFC has also launched the Critical Commodity Finance Program (CCFP), supporting trade finance in global agricultural commodities trade and energy-related goods in the world’s poorest countries. In addition, the WBG is monitoring the effects of developments in agricultural markets and rising food prices.
The Bank also introduced a regional trade integration website featuring the Global Preferential Trade Agreements Database, which provides detailed information on free trade agreements around the world. In cooperation with other international development partners, the World Bank launched the Transparency in Trade Initiative to provide free and easy access to data on country-specific trade policies, such as tariffs, non-tariff measures, and services regulations. In addition, during the fall of 2010, the WBG revamped World Integrated Trade Solutions, a trade analysis software tool that allows users to access a global trade database.
For all sectors, trade facilitation is a central element of trade integration. Customs and border management modernization, upgrades in trade-related infrastructure, inland transit, corridor management, logistics services, information systems, and port efficiency facilitate on-time trade in goods and services at lower transaction costs.
In general, research findings point to the need for a focus on how developing countries can diversify trade, how to connect remote areas and lagging regions to world markets, which types of trade facilitation are most effective, how best to design regional and multilateral trade agreements, and on how to increase formal-sector employment of the poor and women in the production of internationally traded goods and services.