Trading Arrangements and Industrial Development

This article outlines a new approach for analyzing the roleof trade in promoting industrial development. It offers an explanationas to why firms are reluctant to move to countries with lowerlabor costs and shows how trade liberalization can change theincentives for firms to locate in developing countries. It modelseconomic development as the spread of concentrations of firmsfrom country to country. Different trading arrangements mayhave a major impact on this development process. By changingthe attractiveness of countries as a base for manufacturingproduction, they can potentially trigger—or postpone—industrialdevelopment. The analysis shows that unilaterally liberalizingimports of manufactures can promote industrialization but thatmembership in a preferential trading arrangement is likely tocreate larger gains. South-South preferential trading arrangementswill be sensitive to the market size of member states, whileNorth-South arrangements seem to offer better prospects forparticipating southern countries, if not for excluded countries.     

Developing Countries and a New Round of WTO Negotiations

This article summarizes some of the results and findings emergingfrom an ongoing World Bank research and capacity-building projectthat focuses on the World Trade Organization (WTO) negotiatingagenda from a developing country perspective. Recent researchsuggests that the potential gains from further multilateralliberalization of trade remain very large. The payoffs associatedwith attempts to introduce substantive disciplines in the WTOon domestic regulatory regimes are much less certain. This suggeststhat the focus of current and future negotiations should beprimarily on the bread and butter of the multilateral tradingsystem—the progressive liberalization of barriers to tradein goods and services on a nondiscriminatory basis. In addition,priority should be given to ensuring that rules are consistentwith the development needs of poorer countries and to helpingdeveloping countries implement WTO obligations.      

南南外资银行的兴起及其发展特征——兼论中国银行业的跨国经营

南南外资银行的兴起既得益于相对竞争优势和金融监管的放松,又得益于发展中国家相互间国际贸易的发展。对南南外资银行的最新发展进行深入探讨的结果表明,南南外资银行多选择附属行形式和新设方式进入发展中国家,在进入区域上存在着明显的洼地现象且偏重于机构进入;与北南外资银行相比,南南外资银行的贷款占比较小,固定资产占比较大,融资能力较弱,融资方式较单一,经营成本较高,经营收益较低。因此,中国银行业应结合自身实际,借鉴南南外资银行发展的经验和教训,在充分利用相对竞争优势的基础上提高跨国经营的水平和绩效。     

Deregulating the Transfer of Agricultural Technology: Lessons from Bangladesh, India, Turkey, and Zimbabwe

Many transition and developing economies have reduced directpublic involvement in the production and trade of seed and otheragricultural inputs. This trend creates opportunities for farmersto realize improved access to inputs, including technology frominternational private research. Unfortunately, input regulationsoften derail these opportunities by blocking private entry andthe introduction of private technology. This study looks atthe experience in Bangladesh, India, Turkey, and Zimbabwe tosee whether regulations make a difference in agriculture andinput industries in developing economies. In all countries,companies and farmers responded to regulatory reforms by introducingand adopting more new technology and by expanding the production,trade, and use of inputs. The increased use of private technologyhas brought higher yields and incomes, allowing farmers andconsumers to reach higher levels of welfare. These results challengegovernments to open their regulatory systems to allow marketentry and the introduction of private technology through seedsand other inputs.      

THE IMPACT OF EC-92 ON TRADE IN DEVELOPING COUNTRIES

How is the attempt of the European Community (EC) to createa single market going to affect the developing countries? Thisarticle argues that the net direct effects of EC-92 may be rathersmall: the trade creation and trade diversion effects broughtabout by the program may cancel each other out, with few repercussionsfor the developing countries as a group. The expected changesin trade flows arising from relatively small changes in nominalprices and aggregate incomes, the changes in market structure,the removal of internal barriers, and a predicted 5 percentincrease in EC output may be important to European policymakers,but they are rather remote from the developing countries. The threat of EC-92 to the developing countries lies elsewhere:from diversion of investment from those countries to the ECand from the resurrection of protectionism by the EC, especiallyin the form of nontariff barriers, toward the outside world.      

Balance of Payments and Related Issues in the Uruguay Round of Trade Negotiations

Little attention has been paid to the balance of payments provisionsof the General Agreement on Tariffs and Trade (GATT), despitethe fact that they directly influence the trade policies ofthe developing countries. This article suggests that there isa need to reconsider these provisions in the context of theongoing Uruguay Round of multilateral trade negotiations. Thearticle traces the historical evolution of GATT practices ontrade restrictions for balance of payments purposes. With thegeneral introduction of more flexible exchange rate arrangements,the original rationale for temporary barriers to safeguard acountry's external financial position appears to have lost itsforce. Recent theoretical and empirical work has demonstratedthat neutral or export promoting trade strategies are more effectivefor development than the import substitution frequently advocatedby economists in the 1950s and 1960s. The current debt problemsof developing countries strengthen the argument for a relativelyopen trade and payments regime to attain balance of paymentsviability. The article suggests that stronger internationaldiscipline over trade restrictions for balance of payments purposeswould contribute to and presuppose other necessary improvementsin the multilateral trading system which are already on theagenda of the Uruguay Round.     

Using International Institutions to Improve Public Procurement

The World Trade Organization's voluntary rules on governmentprocurement are a useful mechanism for ensuring that publicprocurement procedures are efficient. They also provide an opportunityto reduce the uncertainty of participants by increasing transparencyand accountability. Yet most developing countries have chosennot to subject their procurement policies to international disciiplinesand multilateral surveillance. Their reasons may include anunfamiliarity with the government procurement agreement (GPA);a perception that the potential payoffs are small; a desireto discriminate in favor of domestic firms; or the successfulopposition of groups that benefit from the current regimes.Although the economic rationales for abstaining from the GPAare not compelling, a quid pro quo for accession may be neededto overcome opposition by special interests. Developing countryprocurement markets are large enough that governments may beable to make accession to the GPA conditional on temporary exceptionsto multilateral disczplines or on better access to export markets.      

Toward Transparency: New Approaches and Their Application to Financial Markets

The Asian financial crisis in the late 1990s not only highlightedthe welfare consequences of transparency in the financial sectorbut also linked this relatively narrow problem to the broadercontext of transparency in governance. It has been observedthat objections to transparency, often on flimsy pretexts, arecommon even in industrialized countries. This article arguesthat transparency is indispensable to the financial sector anddescribes its desirable characteristics: access, timeliness,relevance, and quality. The authors emphasize the need to weighthe costs and benefits of a more transparent regulatory policy,and they explore the connection between information imperfections,macroeconomic policy, and questions of risk. The article arguesfor developing institutional infrastructure, standards, andaccounting practices that promote transparency, implementingincentives for disclosure and establishing regulations to minimizethe perverse incentives generated by safety net arrangements,such as deposit insurance. Because institutional developmentis gradual, the authors contend that relatively simple regulations,such as limits on credit expansion, may be the most reasonableoption for developing countries. They show that transparencyhas absolute limits because of the lack of adequate enforcementand argue that adequate enforcement may be predicated on broaderreforms in the public sector.      

Why OECD Countries Should Reform Rules of Origin

With preferential trade agreements on the rise worldwide rulesof origin—which are necessary to prevent trade deflection—areattracting increasing attention. At the same time, preferenceerosion for Generalized System of Preferences (GSP) recipientsis increasing resistance to further multilateral negotiations.Drawing on different approaches, this article shows that thecurrent system of rules of origin that is used by the EuropeanUnion and the United States in preferential trade agreements(including the GSP) and that is similar to systems used by otherOrganisation for Economic Co-operation and Development countriesshould be drastically simplified if developed economies reallywant to help developing economies integrate into the world tradingsystem. In addition to diverting resources for administrativetasks, current rules of origin carry significant compliancecosts. More fundamentally, it is becoming increasingly clearthat they are often been designed to force developing economiesto buy inefficient intermediate products from developed economiesto "pay for" preferential access for the final product. Theevidence also suggests that a significant share of the rentsassociated with market access (net of rules of origin compliancecosts) is captured by developed economies. Finally, the restrictivenessof rules of origin is found to be beyond the levels that wouldbe justified to prevent trade deflection, suggesting a captureby special interest groups. The article outlines some alternativepaths to reforms. JEL codes: F13, F15     

Developing Countries' Changing Participation in World Trade

Recent years have seen substantial reductions in trade policyand other barriers inhibiting developing country participationin world trade. Lower barriers have contributed to a dramaticshift in the pattern of developing country trade—awayfrom dependence on commodity exports to much greater relianceon manufactures and services. In addition, exports to otherdeveloping countries have become much more important. Thesechanges have profound implications for the role played by developingcountries in the world economy and trade system.      

MACROECONOMIC ADJUSTMENT TO CAPITAL INFLOWS: LESSONS FROM RECENT LATIN AMERICAN AND EAST ASIAN EXPERIENCE

Capital inflows to some developing countries have increasedsharply in recent years. Impelled by better economic prospectsin those countries, lower international interest rates, anda slowdown of economic activity in the capital-exporting countries,the inflows have furnished financing much needed to increasethe use of existing capacity and to stimulate investment. Butcapital inflows can bring with them their own problems. Typicalmacroeconomic repercussions have been appreciation of the realexchange rate, expansion of nontradables at the expense of tradables,larger trade deficits, and, in regimes with a fixed exchangerate, higher inflation and an accumulation of foreign reserves. Should government intervene to limit some of these side effects—andif so, how? The question is especially pressing in the wakeof the Mexican crisis of December 1994. This article looks foranswers in the experience of four Latin American and five EastAsian countries between 1986 and 1993, examining the effectsof the capital inflows on the economy and comparing the differentways in which these countries responded to the problem of "toomuch" capital.      

REFORM OF TRADE POLICY: Recent Evidence from Theory and Practice

In the 1980s many developing countries began to recognize thatrestrictive trade policies can constrain growth. To facilitatetrade and integration into the world economy, many countrieshave embarked on reform programs. This survey synthesizes theconclusions of the literature on trade policy reform with thoseof a recent study by the World Bank analyzing reforms in developingcountries, particularly those supported by adjustment lendingprograms. Its objective is to shed light on some of the questionsabout these programs to guide policymakers in the future. Thearticle reviews conditions in these countries before trade policyreforms were implemented and examines how much reform actuallytook place. It also examines the effects of the reforms on economicperformance and reviews the factors that constrained the reformprocess. The survey considers the most important issues in designingand implementing trade policy reforms and concludes that althoughpast reforms have had a positive impact, future programs shouldemphasize three elements: reducing the level of protection,maintaining macroeconomic stability, and accounting for theconflicts and complementarities with other policies.      

From Prices to Incomes: Agricultural Subsidization without Protection?

Drawing from the experience of the direct income support programsrecently introduced in the European Union, Mexico, and the UnitedStates, this article highlights problems that may arise whenthe agricultural sector of a developing economy moves from price-basedsubsidization to less distorted income support. Such programsare a step in the right direction, but as currently implemented,they have many shortcomings. Moreover, developing countriesmay lack the necessary supporting arrangements needed to makesuch programs effective. The article argues that the programsshould not restrict the use of land, that the programs shouldlast for a stipulated period of time, and that the fiscal costsshould be contained by linking income support payments to worldprices.      

PARALLEL EXCHANGE RATES IN DEVELOPING COUNTRIES

Dual exchange rates and black markets for foreign exchange arecommon in developing countries, and a body of evidence is beginningto emerge on the effects that such parallel foreign exchangesystems have on macro-economic performance. This article presentsa simple typology of parallel systems, discusses their emergence,and looks at why countries prefer these arrangements to themain alternatives. The article examines the ability of parallelmarkets to insulate international reserves and domestic pricesfrom shocks to the balance of payments. Drawing on the findingsfrom eight detailed case studies, the authors discuss the determinationof the parallel premium in the short and long terms, the relationshipbetween the premium and illegal transactions, and the fiscaleffects of parallel rates. They compare the experiences of countriesthat have attempted to unify their foreign exchange marketsand discuss the implications for policy alternatives.      

HOW MUCH DOES TRADE WITH THE SOUTH AFFECT WORKERS IN THE NORTH?

Does trade with developing countries have a small and benigneffect on workers in industrial countries, as most economistshave maintained, or a large and adverse effect, as the generalpublic and advocates of protection believe? A review of theevidence suggests that neither of these positions is tenable.The methods that economists have conventionally used to measurethe effect of North-South trade are biased downward. The truesize of this effect remains uncertain, but some recent studiessuggest that it is much larger than previously estimated. Tradewith the South has probably significantly altered the sectoralcomposition of employment in the North, shifting workers outof manufacturing and into nontraded services. More important,it has probably significantly worsened the relative economicposition of unskilled workers in industrial countries, and mayalso have aggravated the problem of reconciling low inflationwith low unemployment. Even so, the adverse side effects oftrade with the South are much smaller than is popularly supposed.And the popular remedy—protection—is clearly wrong.What is needed instead is more action by governments to offsetthe reduction in the relative demand for unskilled labor throughtraining and education, job creation, and income redistribution.      

The "Cotton Problem"

Cotton is an important cash crop in many developing economies,supporting the livelihoods of millions of poor households. Insome countries it contributes as much as 40 percent of merchandiseexports and more than 5 percent of GDP. The global cotton market,however, has been subject to numerous policy interventions,to the detriment of nonsubsidized producers. This examinationof the global cotton market and trade policies reaches fourmain conclusions. First, rich cotton-producing countries shouldstop supporting their cotton sectors; as an interim step, transfersto the cotton sector should be fully decoupled from currentproduction decisions. Second, many cotton-producing (and oftencotton-dependent) developing economies need to complete theirunfinished reform agenda. Third, new technologies, especiallygenetically modified seed varieties, should be embraced by developingeconomies; this would entail extensive research to identifyvarieties appropriate to local growing conditions and the establishmentof the proper legislative and regulatory framework. Finally,cotton promotion is needed to reverse or at least arrest cotton’sdecline as a share of total fiber consumption.      

Privatization and Corporate Governance: Principles, Evidence, and Future Challenges

Unless developing countries embrace a corporate governance perspective,privatization is unlikely to provide the benefits of improvedperformance with accountability. This article introduces theconcept of governance chains that can constrain the grabbinghands of public and private actors by providing informationand accountability mechanisms to help investors monitor managers.Empirical data on established firms from 49 countries provideestimates of the relative importance and strength of privateand formal chains of governance. The framework and empiricalbenchmarks help explain the outcomes of past privatizationsand suggest certain steps that governments can pursue to besure to get the most out of future privatization activity.      

THE ECONOMICS OF MUNICIPAL SOLID WASTE

This article examines the generation and management of municipalsolid waste through the lens of economics. The authors estimatethat the global burden of municipal solid waste amounted to1.3 billion metric tons in 1990, or two-thirds of a kilogramof waste per person per day. Industrial countries account fora disproportionately high share of the world's waste relativeto their share of world population, while developing countriesaccount for a disproportionately high share of the world's wasterelative to their share of world income. Analyses across countriesand over time reveal that the generation of municipal solidwaste is positively related to variations in per capita incomeand that the generation of municipal solid waste per capitadoes not vary with population size among countries with comparableper capita income. Practices for collecting, processing, and disposing of municipalsolid waste vary widely across countries, generally in accordwith the nature of the waste stream and key environmental andeconomic features. The least efficient practices tend to befound in developing countries, creating serious threats to localenvironmental quality and public health. Although considerableevidence indicates that the generation and management of wasteis sensitive to income and price variables, natural incentivesto overuse common property and the presence of inter- generationalexternalities both suggest that private economic behavior willnot yield socially optimal outcomes in this area. Communityintervention may be needed to promote the social good, withevidence accumulating in support of arrangements involving theparticipation of private firms. The authors' calculations alsosuggest that improvements made now in the handling of hazardouswaste will be far less expensive in discounted terms than undoingin the future the damage being caused by current practices.Addressing these issues from a rational societal perspectivewill become increasingly urgent in the future, especially inthe developing countries, where the authors project that municipalsolid waste will increase at an annual rate of 2.7 percent throughthe year 2010.      

Demographic Dividends in the ‘South’, Ageing ‘North’, and ‘South-South’ Trade Diversification

The absence of clear convergence in incomes per capita and welfare between the North and the South, even in the face of spectacular growth rates in GDP in the emerging South, might be due to a terms of trade deterioration resulting from an expansion of production in the South which depresses the product’s price on world markets. This may originate from a “technical catch up” and also from a “demographic dividend” in the South relative to an ageing North. This article illustrates that some South-South trade diversification might mitigate the terms of trade deterioration and increase welfare gains in the South. We use a multicountry overlapping-generation general equilibrium model to simulate the magnitude of the terms of trade effect due to a demographic dividend in Turkey, and show that some trade diversification away from EU toward the South is a welfare improving policy for Turkey.     

THE ROLE OF GROUPS AND CREDIT COOPERATIVES IN RURAL LENDING

Lending groups and credit cooperatives have the potential toprovide affordable credit to small-scale farmers because theycan reduce transaction costs and lower the risk of default.In developing countries these two kinds of lending arrangementshave a mixed record, although their difficulties reflect shortcomingsin implementation rather than in the lending arrangements themselves. The article indicates that successful group lending schemeswork well with groups that are homogeneous and jointly liablefor defaults. The practice of denying credit to all group membersin case of default is the most effective and least costly wayof enforcing joint liability. Another way to encourage membersto repay is to require mandatory deposits that are reimbursedonly when all borrowers repay their loans. The article points out that credit cooperatives that mobilizesavings deposits are less dependent on external sources andincrease the borrowers' incentive to repay. The success of creditcooperatives requires training of members as well as management.Experience suggests that credit cooperatives should not expandtheir activities beyond financial intermediation until theydevelop strong institutional and managerial capabilities