Global economic prospects 2001

Global Economic Prospects and the Developing Countries Copyright © 2001 by the International Bank for Reconstruction and Developmentffhe World Bank 1818 H Street NW, Washington, DC 20433, USA All rights reserved Manufactured in the United States of America First printing December 2000 This publication has been compiled by the staff of the Development Prospects Group of the World Bank's Development Economics Vice Presidency The World Bank does not accept responsibility for the accuracy or completeness of this publication Any judgments expressed are those of World Bank staff or consultants and not necessarily reflect the views of the Board of Executive Directors or the governments they represent The material in this publication is copyrighted The World Bank encourages dissemination its work and will normally grant permission promptly of Permission to photocopy items for internal or personal use, for the internal or personal use of specific clients, or for educational classroom use is granted by the World Bank, provided that the appropriate fee is paid directly to the Copyright Clearance Center, Inc., 222 Rosewood Drive, Danvers, MA 01923, USA, telephone 978-750-8400, fax 978-750-4470 Please contact the Copyright Clearance Center before photocopying items For permission to reprint individual articles or chapters, please fax your request with complete information to the Republication Department, Copyright Clearance Center, fax 978-750-4470 All other queries on rights and licenses should be addressed to the Office of the Publisher, World Bank at the address above or faxed to 202-522-2422 ISBN 0-8213-4675-X ISSN 1014-8906 Library of Congress catalog card number: 91-6-440001 (serial) Contents Acknowledgments vii Summary ix Abbreviations, Acronyms, and Data Notes xiii Chapter Prospects for Developing Countries and World Trade Long-term growth in industrial countries is projected to be higher World trade remains on a long-term high-growth path 11 Private capital flows remain volatile 18 Commodity prices exhibit divergent recoveries 21 Developing countries' recovery is unexpectedly rapid, and prospects for long-term growth have improved 25 Vulnerabilities are significant 32 Recent trends and prospects for poverty reduction 34 Notes 44 References 45 Annex Membership of selected major regional integration agreements (RIAs) and dates of formation 47 Chapter Trade Policies in the 1990s and the Poorest Countries Reductions in barriers to trade 51 Trends in trade and economic growth 53 Weaknesses in domestic trade-related policies 59 Protection in industrial countries 65 Notes 71 References 73 Annex Sample countries in various charts and tables 49 76 Chapter Standards, Developing Countries, and the Global Trade System The regulation of standards: setting the stage 82 Product standards and regulatory barriers to trade 83 Labor standards and trade sanctions 88 Environmental standards and trade 93 Notes 101 References 103 81 iii GLOBAL ECONOMIC PRO S P E C T s 111 Chapter Electronic Commerce and Developing Countries 112 Emergence of electronic commerce 113 The digital divide 116 Effects on productivity in industrial and developing countries 120 Effects on international trade in developing countries 122 Effects on income distribution Impediments to Internet use in developing countries and the role of policies 128 Challenges to regulatory regimes in developing countries 130 Notes 131 References 134 Annex Firm interviews and website survey 135 Companies Participating in Survey of Alibaba B2B Website Users 137 Appendix Regional Economic Prospects Appendix Global Commodity Price Prospects Appendix Global Economic Indicators Technical Notes 159 175 190 Classification of Economies 191 Figures Industrial production in developing regions 1.1 GDP growth for major industrial countries, 1998-2002 1.2 U.S retail sales and the NASDAQ index 1.3 Total retail sales of durable goods and autos 1.4 IT (information technology) investment growth per employed person 1.5 and productivity growth, 1980-99 Japanese corporate profits and private capital spending 1.6 11 German exports, foreign orders, and manufacturing output 1.7 Growth of GDP per employed person: United States and European 1.8 12 Union 12 Trade versus GDP growth 1.9 13 East Asia-5 industrial production and import volume 1.10 14 Export volume and market growth, 1997-2000 1.11 15 GDP and export volume growth 1.12 Number of WTO notifications of regional integration agreements (RIAs) 1.13 17 Intra-RIA exports as a share of RIAs' total exports 1.14 18 Net capital flows to developing countries, 1985-2000 1.15 Sectoral breakout of bond financing by developing countries, 1.16 19 January 1997-June 2000 20 FDI flows to developing countries, 1990s 1.17 21 Crude oil prices, January 1990-0ctober 2000 1.18 22 Crude oil prices, 1960-2010 1.19 23 Divergent recoveries of commodity prices 1.20 25 Real commodity prices, 1900-2000 1.21 26 Developing regions' real GDP growth, 1999-2002 1.22 27 GDP per capita growth, 1990-2010 1.23 IV 122 16 CON 1.24 1.25 1.26 2.1 2.2 2.3 2.4 2.5 2.6 2.7 3.1 3.2 3.3 4.1 4.2 4.3 4.4 4.5 4.6 4.7 4.8 4.9 4.10 4.11 4.12 4.13 Tables 1.1 1.2 1.3 1.4 1.5 1.6 1.7 1.8 1.9 1.10 T E,N T s Growth of real per capita GDP, developing countries as a group, 1963-2008 33 Growth of real per capita GDP, Latin America and the Caribbean, Sub-Saharan Africa, Middle East and North Africa, 1965-2000 34 Nonperforming loans of commercial banks in the East Asia-5 35 Average unweighted tariff rates by region 53 Merchandise export growth and GDP per capita growth in developing countries in the 1990s 55 Merchandise export and GDP per capita growth in poor developing countries in the 1990s 58 Real effective exchange rate volatility and growth in the 1990s 62 Real effective exchange rate behavior in selected poor countries, 1993-99 63 Imports of manufactures from developing countries as a percentage of apparent consumption 69 Share of developing countries in world trade 70 WTO enquiry point notification, by country group, 1995 and 1999 89 Number of notifications under the TBT agreement, 1995-2000 90 Number of notifications under the SPS agreement, 1995-2000 90 Estimates of electronic commerce in industrial countries, 1999-2000 113 Estimates of Internet access, 1990-2000 114 Regional Internet access 114 Access to telecommunications 115 Cost savings from electronic commerce 120 New customers gained from alibaba website 121 Increased sales reported because of alibaba website 122 Internet monthly access charge as a percentage of GDP per capita, 1998 123 Telephone mainlines per 100 inhabitants, developing countries, 1998 124 Developing country privatization in telecommunications, 1990-98 125 Information technology jobs unfilled because of skill shortages, 1998 126 Internet use in industrial countries by knowledge of English, 1998-99 127 Bond versus bank financing 129 Global conditions affecting growth in developing countries and world GDP growth Intra- and extraregional trade 17 Current account effects for a sample of developing countries from a $10 increase in oil prices 23 Annual percentage change in nominal oil and non-oil commodity prices, 1981-2010 25 Growth of world GDP, 1998-2002 27 Growth of world GDP per capita, 1980s through 2010 28 Forecast assumptions: developing countries 29 Population living on less than $1 per day and head count index in developing countries, 1987, 1990, and 1998 36 Population living on less than $2 per day and head count index in developing countries, 1987, 1990, and 1998 37 Population estimates and projections, developing countries, 1998-2015 41 v GLOBAL ECONOMIC 1.11 1.12 1.13 2.1 2.2 2.3 2.4 2.5 2.6 2.7 2.8 2.9 2.10 2.11 2.12 2.13 3.1 3.2 4.1 Boxes 1.1 1.2 1.3 2.1 2.2 2.3 2.4 2.5 2.6 3.1 3.2 3.3 4.1 4.2 vi PROSPECTS Poverty in developing countries under scenarios of base case growth (scenario A); low case growth (scenario B); and 1990s average growth, 1990, 42 1998,2015 Regional breakdown of number of people living on less than $1 per day and head count index in developing countries, under scenarios of base case growth (scenario A) and low case growth (scenario B), 1990, 1998, 42 and 2015 Regional breakdown of number of people living on less than $2 per day and head count index in developing countries, under scenarios of base case growth (scenario A) and low case growth (scenario B), 1990, 1998, and 2015 43 Standard deviation of tariff rates 53 Frequency of total core nontariff measures for developing countries, 1989-98 53 Countries imposing restrictions on payments for current account transactions 54 Average black market premium 54 The international environment 55 GDP and merchandise export growth rates 55 GDP, services, and merchandise export growth rates 57 Decomposition of merchandise export growth for the sample countries 57 Growth rates by income level for the sample countries 59 Tariffs in selected African countries 64 Developing-country exports to Quad countries facing tariffs of more than 50 percent 67 Average tariff rates by importing and exporting region 67 Producer support estimates for OECD countries 68 Summary of economywide studies assessing the impacts of trade liberalization on pollution 97 Evidence on international competitiveness and environmental regulation 98 Future Internet access speeds 115 U.S labor productivity and information technology North-South regional arrangements 16 Trends in inequality 38 Openness and growth-evidence, old and new 52 Trends in volatility 56 Economic factors contributing to conflict 58 Exchange rate overvaluation in the CFA countries 61 The integrated framework for least-developed countries 66 Food processing 70 Mutual recognition agreements 88 The Trade-Related Intellectual Property Agreement (TRIPs) and developing countries 94 Evidence on the "race to the bottom" 99 Electronic data interchange (EDI) systems 117 119 The Internet and primary commodity exporters Acknowledgments T his report was prepared by the Development Prospects Group, and drew from resources throughout the Development Economics Vice Presidency, the Poverty Re~uction Board, and World Bank operational regions The principal author of the report was William Shaw, with direction by Uri Dadush The chapter authors were Hans Timmer (chapter 1), Ataman Aksoy (chapter 2), Dominique van der Mensbrugghe (chapter 3), and William Shaw (chapter 4) The report was prepared under the general direction of Jo Ritzen and Nicholas Stern The report drew on inputs by other staff of the Development Economics Vice Presidency and from throughout the Bank Ibrahim Al-Ghelaiqah, Caroline Farah, Himmat Kalsi, Robert Keyfitz, Annette De Kleine, Robert Lynn, Fernando Martel Garcia, Dominique van' der Mensbrugghe, Shoko Negishi, and Mick Riordan contributed to the analysis of global economic trends and prospects in chapter Tamar Manuelyan Atinc, Shaohua Chen, Valerie Kozel, Giovanna Prennushi, Martin Ravallion, and Aristomene Varoudakis contributed to the discussion of poverty Betty Dow, Faezeh Fouraton, Carol Gabyzon, Theresa Goldberg, Dorsati Madani, Donald Mitchell, Ashish Narain, Francis Ng, and Konstantin Senyut contributed to chapter Constantine Michalopoulos and John S Wilson contributed to chapter Carol Gabyzon, Somik Lall, Ashish Narain, Andrew Sunil Rajkumar, and David Wheeler contributed to chapter And John Baffes, Betty Dow, Donald Mitchell, and Shane Streifel contributed to the analysis of commodity prices in chapter and the annex Many others from inside and outside the Bank provided inputs, comments, guidance, and support at various stages of the report's publication John Beghin, David Rohland-Holst, and Matthew Slaughter wrote background papers on trade issues Henry Ergas and lain Little wrote a background paper on electronic commerce Gary Hufbauer, Arvind Panagariya, Francisco Rodriguez, and Alan Winters served as outside reviewers Carlos Braga, Shanta Devarajan, Richard Newfarmer, and Gene Tidrik were discussants at the Bankwide review We would particularly like to thank Gordon Betcherman, Milan Brahmbhatt, Sara Calvo, Richard Eglin, David Ellerman, Michael Finger, Carsten Fink, Andrea Goldstein, Bernard Hoekman, Albert Keidel, Ioannis Kessides, Michael Klein, Amy Luinstra, Will Martin, Aaditya Mattoo, Marcelo Olarreaga, Gary Pursell, David Tan, and Edith Wilson for their helpful comments The Development Data Group contributed to the appendix Betty Sun served as the External Affairs task manager, Robert King managed dissemination from the Development Prospects Group, and Phil Hay managed media arrangements Sarah Crowe served as the principal assistant to the team and Katherine Rollins assisted with chapter Book design, editing, and production were directed and managed by the Production Services Unit of the World Bank's Office of the Publisher VB Summary T ECHNOLOGICAL INNOVATIONS AND THE dismantling of trade barriers over the past decade have contributed to an acceleration of growth in global trade This acceleration has been associated with faster g.J;owth in developing countries as a group However, many of the poorest countries have not kept pace This year's Global Economic Prospects focuses on international trade and discusses policies that are required if developing countries are to benefit from global integration Prospects for developing countries and world trade T he global economy is likely approaching a cyclical high in 2000, boosted by a further acceleration of growth in the United States, the recovery in Europe and Japan, and the sharp rebound in countries affected by the global financial crisis World trade volumes are likely to increase by 12.5 percent, the highest rate of growth since before the first oil shock of the 1970s A moderation of growth in the crisis countries and slower consumption growth in the United States are likely to lead to a deceleration of output gi'owth over the next year The apparent shift upward in trend productivity growth in the United States, increased labor market flexibility and product market competition in Europe, and steps toward financial and corporate restructuring in Japan have improved the prospects for long-term growth The same applies in developing countries, where liberaliz,ation ,o~ mar,kets, more stable macroeconomlC poliCies, and technological change have promoted integration Indicators of human capital, including school enrollment and literacy rates, show broad improvement across most developing regions However, cyclical and structural aspects of the current boom have increased imbalances and tensions in the global economy Easier monetary policy in the United States and increased fiscal stimulus in Japan boosted growth from the depths of the financial crisis, but these policies also increased the already large U.S current account deficit (4.5 percent of GDP) and Japanese government debt (115 percent of GDP) The strong global recovery of 1999-2000, coupled with the sharp reduction in OPEC (Organization of Petroleum Exporting Countries) supply, caused a surge in oil prices Structural reforms and rapid technological change have also generated political tensions The fast pace of global economic integration has accentuated competition and increased uncertainty, particularly for firms in declining industries and their workers Inequality both among and within countries appears to have risen, in part the result of technological progress A low-case scenario assumes a less favorable resolution of these imbalances and tensions, marked by continued high oil prices and a reversal of international investment flows from the United States The resulting reces- ix SUMM,ARY taged by poor access to information The Internet will raise productivity through increased procurement system efficiency, strengthened inventory control, lowered retail transaction costs, and elimination or transformation of intermediaries The cost of reaching industrial country markets will fall, generating large gains from trade Developing-country firms that sell labor-intensive, differentiated products (for example, crafts, software, and business.~ servicesparticularly services involving the remote processing of routine information) will experience increased demand Developing-country firms also will benefit from the opportunity to leapfrog to the most advanced technologies Nevertheless, Internet access is grossly unequal across countries, and the Internet also brings increased danger of economic marginalization to countries that cannot access it effectively For example, developing-country firms that lack the reputation to bid on the new online exchanges or the technology to interact efficiently with more sophisticated firms could see reduced demand While the growing use of cell phones and other technologies should increase Internet access rapidly over the next 10 years, access is likely to remain limited in per capita terms, especially in the poorest countries Taking advantage of electronic commerce requires an open economy to promote competition and diffusion of Internet technologies; improved international coordination (for example, in confronting challenges to domestic tax and financial systems); and efficient socia I and infrastructure services, in particular a competitive telecommunications ,sector and a well-educated labor force The importance of network effects and first-mover advantages emphasizes the importance of government support for achieving these goals xi Technical Notes The principal sources for the data in this appendix are the World Bank's central databases Regional aggregates are based on the classification of economies by income group and region, following the Bank's standard definitions (see country classification tables that follow) Debt and finance data refer to the 137 countries that report to the Bank's Debtor Reporting System (see the World Bank's Global Development Finance 2000) Small economies have generally been omitted from the tables but are included in the regional totals Current price data are reported in U.S dollars Notes on tables Tables A3.1 through A3.4 Projections are consistent with those highlighted in Chapter and Appendix Tables A3.5 and A3.6 Merchandise exports and imports exclude trade in services Imports are reported on a c.iJ basis Growth rates are based on constant price data, which are derived from current values deflated by relevant price indexes Effective market growth is the export-weighted import growth rate of the country's trading partners The IMF's Balance of Payments database is the principal source for data through 1998; in some cases these data 190 have been supplemented by UNCTAD and UN Comtrade databases or by World Bank staff estimates Trade figures for countries of the former Soviet Union reflect the total of non-CIS and intra-CIS exports and imports Tables A3.7 and A3.8 Growt·h rates are compound averages and are computed for current dollar measures of trade Table A3.9 Long-term debt covers public and publicly guaranteed external debt but excludes IMF credits Concessional debt is debt with an original grant element of 25 percent or more Nonconcessional variable interest rate debt includes all public and publicly guaranteed long-term debt with an original grant element of less than 25 percent whose terms depend on movements of a key market rate This item conveys information about the borrower's exposure to changes in international interest rates For complete definitions, see Global Development Finance 2000 Table A3.1 O Long-term net resource flows are the sum of net resource flows on long-term debt (excluding IMF) plus non-debt-creating flows Foreign direct investment refers to the net inflows of investment from abroad Portfolio equity flows are the sum of country funds, depository receipts, and direct purchases of shares by foreign investors For complete definition, see Global Development Finance 2000 Classification of Economies ... Survey of Alibaba B2B Website Users 137 Appendix Regional Economic Prospects Appendix Global Commodity Price Prospects Appendix Global Economic Indicators Technical Notes 159 175 190 Classification... ago )-suppressing any increase in unit labor costs-and the appreciation of GLOBAL ECONOMIC PROSPECTS GLOBAL ECONOMIC PROSPECTS short-lived, however, and third-quarter data revealed a rebound in... van' der Mensbrugghe, Shoko Negishi, and Mick Riordan contributed to the analysis of global economic trends and prospects in chapter Tamar Manuelyan Atinc, Shaohua Chen, Valerie Kozel, Giovanna