Aid for Trade: Mainstreaming Trade Richard Newfarmer Special Representative to the WTO and UN World Bank Geneva WTO Aid for Trade Meeting November 19, 2007

Source: Bank staff calculations based on data from World Economic Outlook Should trade receive greater attention in national development strategies? …Yes, in most countries Average ratio of exports / GDP LDCs [N=37] MICs [N=44] High Performing 13 [N=13] [N=13]

LDCs’ share of the global market is stagnant, and competitiveness has lagged Total share in world exports of goods LDCs [N=37] MICs [N=44] High Performing 13 [N=13] [N=13] High performing countries are the 16 fastest growing, non-oil countries over the 25 year period, ; here we exclude three high performing LDCs (Burkina, Cambodia and Uganda), and remaining 13 are: Botswana, Chile, China, India, Indonesia, Korea (Rep.), Malaysia, Mauritius, Pakistan, Singapore, Sri Lanka, Taiwan, Thailand. Averages are unweighted to eliminate effects of country size. LDCs include 3 high performers, but exclude 12 of the 49 LDCs for which data are not available.

Improving competitiveness goes beyond trade ministry… and includes trade-related institutions Source: Bank staff calculations based on data from Doing Business Report Days Average Days to Export and Import in 2005 MICs LDCs HPs

Source: Bank staff calculations based on data from WDI. USD Internet Price in 2005 (USD per month) LDCs MICs HPs Improving competitiveness goes beyond trade ministry… and includes trade-related institutions... And infrastructure

Source: Bank staff calculations based on the latest data available from Enterprise Surveys. Days Average Number of Electrical Outrages (days) Improving competitiveness goes beyond trade ministry… and includes trade-related institutions... And infrastructure

Ways to make trade more central to development strategies? Country awareness that competitiveness matters – for growth and poverty reduction Country awareness that competitiveness matters – for growth and poverty reduction  Importance of openness – to drive productivity growth Exports provide wider markets and economies of scale Exports provide wider markets and economies of scale Imports provide lower cost inputs, embodied technology and competition Imports provide lower cost inputs, embodied technology and competition Movement of people provides access to greater skills Movement of people provides access to greater skills Easing restrictions on financial flows can lead to increases in investment and in technology Easing restrictions on financial flows can lead to increases in investment and in technology  Investors, including domestic ones, have a choice of location… Governments have to develop their own strategies and integrate into national development programs Governments have to develop their own strategies and integrate into national development programs  Some country-specific combination of liberalization + complementary policies Competitiveness requires that the whole economic cabinet be involved -- and eventually private sector and civil society involvement Competitiveness requires that the whole economic cabinet be involved -- and eventually private sector and civil society involvement

The Enhanced Integrated Framework can help LDCs with the competitiveness agenda Country control of resources and projects is essential to ownership and success Country control of resources and projects is essential to ownership and success  Governments can commission diagnostics and obtain policy advice  Governments can use it to mobilize and organize donors  Governments can use it to lever project finance …but creating a new institution has taken time …but creating a new institution has taken time  Meantime, Government should use existing mechanisms to secure greater investment in overcoming constraints Non-LDC low income countries have to look for other facilities Non-LDC low income countries have to look for other facilities  Including the World Bank’s Multidonor Trust Fund  Other Trust Funds and resources: e.g., EU funds associated with EDF might help; Japanese trust funds

Ways the World Bank supports government programs to improve competitiveness… Goal: Helping governments leverage trade to faster growth Comprehensive Trade Diagnostics Programmatic & Infrastructure Lending Trust Fund Activity Country studies Country studies Regional studies Regional studies Policy Policy Sector loans Sector loans Project loans Project loans Small projects Small projects Technical assistance Technical assistance World Bank is the largest provider of aid for trade to LICs, providing $3.1 b. World Bank is the largest provider of aid for trade to LICs, providing $3.1 b. Source: WTO/OECD

World Bank programs: services government can request Concessional lending : $ 3.1 billion lending (WTO/OECD, 2007) Concessional lending : $ 3.1 billion lending (WTO/OECD, 2007) Development policy lending : $1.7 billion ( ) (WTO/OECD) Development policy lending : $1.7 billion ( ) (WTO/OECD) Nonconcessional lending for economic infrastructure: 4.7 b. Nonconcessional lending for economic infrastructure: 4.7 b. Training : Over FY , the WBG held an average of 48 trade-related training courses (around 14,000 participant training days per year), Training : Over FY , the WBG held an average of 48 trade-related training courses (around 14,000 participant training days per year), Technical assistance activities (free-standing): 36 per year in Technical assistance activities (free-standing): 36 per year in Analytical and policy advice (policy notes, country studies, regional studies): 72/year Analytical and policy advice (policy notes, country studies, regional studies): 72/year Guarantees to leverage private finance: For example, Global Trade Finance Program $1 b. revolving fund to stimulate trade financial flows to developing countries Guarantees to leverage private finance: For example, Global Trade Finance Program $1 b. revolving fund to stimulate trade financial flows to developing countries  on 87 banks in 48 developing countries Trust funds, for example Trust funds, for example  Standards Trade Development Forum -- Trust Fund  IF and EIF  Multi-donor Trust Fund  Africa Catalytic Growth Fund Global public goods: Doing Business, Overall trade restrictiveness index; WITS Global public goods: Doing Business, Overall trade restrictiveness index; WITS

LDC and other Low income countries Middle Income Countries Total aid for trade US $Billion % of total US $Billion % of total US $Billion % of total Japan % % % United States % % % EC %0.87.5% % Other EC Members a/ %0.76.1%1.87.2% United Kingdom %0.22.2%1.14.6% Germany0.43.0%0.76.0%1.14.3% France0.42.9%0.33.0%0.72.9% Canada0.21.1%0.10.8%0.21.0% Italy0.10.7%0.11.1%0.20.9% Other bilateral b/ %0.21.8%0.62.4% Sub total bilateral % % % World Bank %0.54.2% % Asian Development Bank %0.43.9%1.04.1% African Development Bank %0.10.5%0.72.8% Interamerican Development Bank %0.11.0%0.20.9% Other agencies %0.76.6%0.83.4% Sub total multilateral % % % Total % % % Aid for trade, according to the WTO/OECD Source: World Bank “Aid for Trade: Harnessing the Global Economy for Development” Oct 2007 Average in constant 2004 dollars

Three elements to improve competitiveness… Improving incentives to private investors to move resources to more productive activities… tariffs, taxes, business regulations Improving incentives to private investors to move resources to more productive activities… tariffs, taxes, business regulations Up-grading services industries: telecoms, air transport, ports, energy Up-grading services industries: telecoms, air transport, ports, energy Index of connection costs

Three elements to improve competitiveness… Improving incentives to private investors to move resources to more productive activities Improving incentives to private investors to move resources to more productive activities Up-grading services industries: telecoms, air transport, ports, energy Up-grading services industries: telecoms, air transport, ports, energy Adopting pro-active policies to help firms and labor adjust Adopting pro-active policies to help firms and labor adjust Government Program (June 2006) Development Policy Loan $30 m. (Conditionality is govt program) (Conditionality is govt program) Investment Lending Technical Assistance Co-financing: French Agency for Development $30 m. Aid for Trade Report

Improving competitiveness is central to achieving high and sustained growth rates – and has to be made a pillar of national development strategies Improving competitiveness is central to achieving high and sustained growth rates – and has to be made a pillar of national development strategies Aid for trade can help, but country ownership of the competitiveness agenda is critical success Aid for trade can help, but country ownership of the competitiveness agenda is critical success The role of the Bank and donors role is to support government programs with diagnosis and finance. The role of the Bank and donors role is to support government programs with diagnosis and finance. Key lessons from experience in aid for trade ….

References Brenton and Newfarmer (2007) “Watching more than the Discovery Channel: Export Cycles and Diversification in Development,” World Bank Policy Research Working Paper Brenton and Newfarmer (2007) “Watching more than the Discovery Channel: Export Cycles and Diversification in Development,” World Bank Policy Research Working Paper World Bank Mauritius– From Preferences to Global Competitiveness Report of the Aid for Trade Mission, April World Bank Mauritius– From Preferences to Global Competitiveness Report of the Aid for Trade Mission, April World Bank/IMF “Aid for Trade: Harnessing the Global Economy for Economic Development” Paper prepared for the Development Committee, October 2007 World Bank/IMF “Aid for Trade: Harnessing the Global Economy for Economic Development” Paper prepared for the Development Committee, October 2007

Aid for Trade: Mainstreaming Trade Richard Newfarmer Special Representative to the WTO and UN World Bank Geneva WTO Aid for Trade Meeting November 19, 2007