As developing countries become enmeshed in the global economy, and dependent on exports rather than aid to finance imports, is it possible to measure and forecast the impact of structural changes, such as the composition of exports, on trade performance?

Two papers from the Overseas Development Institute, commissioned for DFID’s 2nd White Paper on international development, assess the prospects for developing country trade and how to measure integration into the global economy. Forecasts made by the World Bank, IMF and Project LINK (a consortium of economic forecasters in more than 60 countries in the industrial and developing world) are put under the microscope.

The studies suggest that forecasts for Africa tend to be optimistic, assuming a shift to better policies without considering either negative adjustment effects from the introduction of the policies or the prospects of military or other unrest. Africa is the only region to buck the general developing world trend towards increasing foreign direct investment. The upside is that the least globally integrated economies (Africa and South Asia) are less vulnerable to economic shocks.

The price of oil is a forecaster’s nightmare. The custom among forecasters of assuming a constant real oil price throughout the forecast periods makes predictions highly sensitive to unanticipated oil price fluctuation. Although oil has a much lower share in world imports than in the 1970s, high prices nevertheless affect growth in developed countries and have a serious impact on non-oil producing commodity exporters in Africa, Latin America and Asia.

Evidence in the papers also suggests that:

• the performance of exporters of primary goods was poor because manufacture prices rose, while agricultural prices remained steady and mineral prices fell
• the economic performance of countries did not correspond closely to their initial exports; rather, those that moved into faster growing markets or produced commodities in demand did well
• the rise in developing countries’ share in world trade slowed in the 1980s and 1990s, after their relative success in the 1970s
• the low rate of manufactured imports in India and Pakistan indicates that they are still relatively closed from the global economy.

The papers recommend that the extent of developing economies’ integration into the world economy should be measured by:

• shares of trade or investment: is their performance converging towards that of the rest of the world?
• policies on tariffs, foreign investment (inwards or outwards) and adherence to international trade rules or regional trade agreements
• the policies other nations adopt towards them
• the degree of participation and representation in international negotiations
• the extent of integration of cross-national companies and such non-economic actors as NGOs and pressure groups with an impact on the economy.

Source(s):
‘Trends in developing country trade’, paper commissioned for the DFID White Paper ‘Eliminating World Poverty: Making Globalisation Work for the Poor’, by Sheila Page, 2000 Full document.
‘Developing countries’ integration into the world economy’, paper commissioned for the DFID White Paper ‘Eliminating World Poverty: Making Globalisation Work for the Poor’ by Sheila Page, 2000 Full document.

Funded by: Department for International Development, UK

id21 Research Highlight: 10 July 2002

Further Information:
Sheila Page
Overseas Development Institute
111 Westminster Bridge Road
London SE1 7JD
UK

Tel: +44 (0)20 7922 0300
Fax: +44 (0)20 7922 0399
Contact the contributor: s.page@odi.org.uk

Overseas Development Institute, UK

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