recent developments in trade and investment · recent developments in trade and investment ... •...
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Recent Developments in Trade and InvestmentPierre Sauvé
Trade and Competitiveness Global PracticeWorld Bank Group
MIKTA Workshop on Trade and InvestmentSession 2
Geneva, 20 March 2017
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Stucture of the presentation
I. Trends in global trade: causes and consequencesof the recent slowdown
II. Trends in cross-border investment: a call forgreater policy coherence
III. Sustaining a commitment to open markets: thinking beyond trade and investment policy
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I. Trends in global trade: causes and consequences of the recent
slowdown
• What is happening?• Why?• Does it matter?
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Except for digital flows, all types of cross-border flows have decelerated after the 2007-08 crisis
Global flows of goods and services, foreign direct investment, other financial flows and cross-border data, 1990-2015
(Index: 2003=100 and terabytes per second)
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5'000
10'000
15'000
20'000
25'000
30'000
35'000
-
50
100
150
200
250
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350
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1990 1993 1996 1999 2002 2005 2008 2011 2014
Goods exports Services exportsForeign direct investment Other financial flowsCross-border bandwidth use (right axis)
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World trade growth in 2016 was the weakest since 2010
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12.4
0.3
3.85.7
11.3
7.89.3
8.0
2.9
‐10.5
12.4
7.0
2.8 3.5 3.82.7
1.9
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
Source: International Monetary Fund World Economic Outlook (2000‐2014: IMF WEO Oct. 2016; 2015‐2016: IMF WEO Jan. 2017).Note: Simple average of growth rates for export and import volumes (goods and services).
World goods and services trade volume (percent change)
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Trade sluggishness in 2016: a characteristic of both advanced and emerging economies
‐0.5
0.0
0.5
1.0
1.5
2.0
2.5
3.0
2012 2013 2014 2015 2016
b. Imports
0.0
0.5
1.0
1.5
2.0
2.5
3.0
2012 2013 2014 2015 2016
a. Exports
‐5.00.05.0Advanced Economies Emerging Economies
Contributions to growth in merchandise trade volume (percentage points)
Source: CPB Netherlands Bureau of Economic Policy Analysis and staff calculations.
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The relationship between world trade and income has changed in recent decades
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1970‐1985 1986‐2000 2001‐2015 2012 2013 2014 2015 2016
World goods and services trade volume Real World GDP
Average Growth Rates across Selected Periods (percent)
Source: IMF World Economic Outlook.Note: GDP growth aggregation based on GDP at PPP rates. Trade growth is the simple average of growth rates for export and import volumes (goods and services).
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The trade slowdown: cyclical and structural factors
Cyclical factors- Sluggish worldwide growth- Changes in the composition of aggregate demand (the shift from C+I to G)- Policy uncertainty- Rising trade and investment protectionism, though held in check by closer
multilateral surveilance
Structural factors- The end of the commodity super-cycle- The shift to services (and the growing influence of FDI-led integration)- An ebbing momentum in negotiated market opening, esp. mega-regionals- The slowing pace of international vertical specialization/GVCs- Pressures to onshore-reshore and bring back jobs «lost» to trade: the
combined influence of technology (robotics, AI), politics, and environmentalism
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The end of the global value chain revolution?
• Unwinding international production networks, especially in manufacturing, cannot be achieved easily nor without major disruptions to cross-border patterns of trade and investmentand the sourcing networks (and suppliers) of MNEs.
• Doing so would also unwind an international division of labor that has generated far-reaching pro-poor benefits for workers and their families in the developing world in recent decades, alongside major consumer welfare gains globally.
• But stagnating GVCs have implications for (lower) productivity - and hence income - growth worldwide, as a major source of gains in cross-border allocative efficiency loses its influence.
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Interim conclusions
• The slowdown in trade warrants policy attention as it weakens a key engine of global growth and heightens vulnerability to protectionism in major economies.
• Restoring momentum to trade and investment liberalization is important for reinvigorating global growth and advancing an inclusive trading environment.
• Tackling the substantial barriers to cross-border activity that remain in large and growing areas of the global economy, such as services and digital trade, can make a particularly strong contribution to growth.
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2. Trends in cross-boder investment: a call for greater policy coherence
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Global FDI flows slipped in 2016
• Global FDI flows fell 13% in 2016, reaching US$1.52 trillion according to UNCTAD estimates, amidst weak global economic growth and world trade anemia.
• FDI flows have yet to recover levels reached prior to the Great Recession.
• The decline in aggregate FDI flows was far from homogeneous across regions, reflecting the asynchonousnature of global economic conditions.
• FDI flows to developed economies dipped by 9% in 2016, to an estimated US$872 billion, reflecting weak European economic activity in particular.
• Slowing economic growth and falling commodity prices weighed on FDI flows to developing economies, which reached US$600 bn in 2016.
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Regional contribution to global FDI flows, 2015–2016(Billions of US dollars)
Source: UNCTAD12
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But FDI remains by far the leading source of external funding for development…
Source: UNCTAD, based on based on data from IMF (for portfolio and other investment), OECD (for ODA) and the World Bank (for remittances).* Other flows are loans among non-affiliated enterprises.
External development finance to developing economies, billions of US dollars
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…and FDI makes an increasing contribution to capital formation in developing economies
Source: UNCTAD.GFCF=Gross Fixed Capital Formation
Global FDI stock as a share of GDP
FDI stock(US$ billions)
FDI flows(US$ billions)
701 2 197 7 488 24 983
54 205 1 359 1 762
Global FDI flows as a share of GFCF, 2015
8 374
765
7%10%
22%
34%
10% 9%12%
17%
13%
7%
1980 1990 2000 2015 World Developingeconomies
Africa LAC Oceania Asia
740
54
1 719
168
29
2
5 886
541
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Developing Asia, a region characterized by a continued push towards deeper integration,
remains the largest FDI host
Source: UNCTAD.
FDI inflows, by region, 2013–2015 (Billions of dollars)
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FDI inflows in selected mega-groupings, 2014 and 2015 (Billions of dollars and per cent)
FDI remains concentrated: mega-groupings absorb a predominant share
Source: UNCTAD
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Developing economies account for half of the world’s top-10 FDI hosts Estimated FDI inflows: top 10 host economies, 2016
(Billions of US dollars)
Source: UNCTAD 17
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Services account for almost two thirds of the global FDI stock in developed and developing economies
Global inward FDI stock, sectoral distribution by grouping and region, 2014 (Per cent)
Source: UNCTAD.
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Trends in national FDI policiesGlobally, investment liberalization and promotion measures continue topredominate over restrictive policies, reflecting a more globally contestable marketto attract FDI, especially efficiency-seeking investment.
Changes in national investment policies, 2002−Feb. 2017 (%)
Source: UNCTAD 19
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On the rise: trade and FDI linkages
• Trade and investment were long substitute means of serving international markets.
• The success of the GATT-WTO (and of PTAs) in dismantling border impediments has led to a relationshipof increasing complimentarity between trade and investment.
• The GVC revolution and resulting new geography of cross-border production and exchange has been largelydriven by trade and investment linkages.
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Looking ahead
• The ever closer links between trade and investment, including in the digital realm, call for greater policy coherence at the policy interface (also with competition law and policy).
• Newer generation PTAs all aim to harness trade-investment linkages.
• How best to address such linkages in a multilateral context warrants renewed attention, all the more so as the geography of FDI – and the underlying political economy of FDI governance - have changedmarkedly in recent years.
• A focus on investment facilitation may be a useful anchor in scalingup mutual understanding and confidence-building in policy circles.
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3. Sustaining a commitment to open markets: thinking beyond trade and investment policy
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Context matters: evidence of mounting dissatisfaction with globalization, especially in developed countries
(results from a Pew Research survey)
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Trade destroys jobs Trade lowers wages Foreign companies buyingdomestic companies is bad
Global median (40 countries) France Italy Japan United States
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Needed: policies aimed at enhancing the resilience of workers most at risk from the multiple sources of change
in open economies
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Addressing the distributional downsides of market openness
It is important to assign to trade and investment policy what they are best at: as means of promoting orderly, progressive, structural change of benefit to all.
Structural change, even when it is pursued in an orderly manner, always comes with distributional downsides for certain categories of industries, workers or regions.
Responding adequately to globalization‐induced dislocation requires enhanced investments in adjustment assistance, skills upgrading and connectivity infrastructure, arguably a missing link in past liberalization efforts.
A sustained commitment to open markets requires better safety nets and a greater investment in human capital.
Domestic policies that address the short‐ and long‐term adjustment costs resulting from trade ‐ alongside other sources of disruptive change ‐ are needed to ensure that trade and investment liberalization remain engines of growth for all.
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