Trade, Inclusive Growth and Inclusive Policy Making

1
Trade, Inclusive Growth and Inclusive Policy
Making

• Ponciano Intal, Jr.

2
Overview

• Inclusive growth broad-based, pro-poor growth,
  growth with equity
• International trade promotive of inclusive growth
  entails complementary measures in both policy and
  institution building
• Promoted by inclusive policy making
• Benefit from expansion and deepening of community
  based monitoring systems.

3
Benefits of International Trade

• International trade welfare enhancing overall.
• Globalizers grew faster, higher trade, higher
  share of manufacturing to total employment and
  output, and higher wage rates than
  non-globalizers (WB Rama)
• Trade key element of East Asian Miracle
• Trade reference against global competitors,
  impetus for greater efficiency, product quality,
  supply reliability, creativity, organizational
  adaptability.

4
Trade and Inclusive GrowthFactors

• However, international trade not automatically
  growth inclusive except with homogenous factors
  and factor mobility between sectors
• Critical factors toward inclusive growth (a)
  Investment climate and investment rate (b)
  capability, infrastructure and access to skill
  development ( c ) agriculture volatility and
  natural resources concentration (d) quality of
  institutions, regulatory climate and governance

5
Trade and Inclusive Growth Experiences

• Increasing inequality in high growth East Asia
  (e.g., China)
• Sharp trade expansion with rise in poverty
  incidence in some African countries e.g.,
  Madagascar, Burundi, Central Af Repblic
• Sharp rise and diversification in manufactured
  exports but declining share of manufacturing in
  total output and employment (Philippines)

6
Trade and inclusive growth

• Any happy resolution bet. the globalization
  demands of economic efficiency and the imperative
  of social equity of inclusive growth?
• Rests on
• quality of the investment response,
• workings of the labor market and industrial
  relations,
• overall macroeconomic environment, and
• quality of government institutions and related
  policies, among others.

7
Investment and Adjustment

• Effective restructuring and successful adjustment
  involves investments.
• Investment rates(2006) RP-17 Thailand-23
  Vietnam-34 China-43.
• Wrenching adjustment in RP manufacturing in
  tandem with low and declining investment rate
• Improving investment climate and performance key
  policy concern for RP

8
Investment ClimateDeterminants of FDI

• Regressed FDI to GDP ratio on selected indicators
  in World Competitiveness Survey 2002-2006 for
  selected Asian countries
• Ratio increases if GDP rises, school system
  meets demands of competitive economy, lower
  investment risk, more facilitative customs, lower
  unit labor cost, currency depreciates, lower
  bribery and corruption, better quality of the
  govt bureaucracy, improved infrastructure
• Ratio decreases if higher real domestic
  interest rate

9
Determinants of FDI (contd)

• FDI influenced by quality of economic governance,
  quality of institutions, structural factors like
  quality of infrastructure and educational system.
• Determinants of FDI above also echoed by domestic
  investors

10
Improving Agri Productivity and Transportation
Links

• Robust agri productivity growth key factor plus
  rising labor intensive manufactures for fast rate
  of poverty reduction in countries like China,
  Vietnam, Indonesia (1980s) among recent success
  stories.
• Stagnant agri productivity, high population
  growth, poor rural roads led to farmers as net
  food consumers and malnutrition in some African
  countries.
• RP turned agri net importer, hurt poverty
  reduction
• Agri development central to pro-poor growth esp.
  in Africa. Good roads important for farmers in
  hinterlands get access to main domestic markets
  under open trade
• Good seeds, fertilizer, irrigation, R D and
  farmer training important for robust agri
  productivity growth

11
Human capital, Safety net

• Improved human capital, labor management
  relations and basic social safety net in health
  and education increase labor productivity and
  mobility intersectorally and across skills,
  result to smoother adjustment and support
  inclusive growth.
• Rural education key factor for fast reduction in
  poverty in China in 1980s
• Social cost of labor displacement high
  globalization raises firm churning and labor
  displacement hence, basic limited duration basic
  safety net needed

12
Inclusive Policy Making

• Trade lib and inclusive growth not automatic.
  Needed pro-poor complementary measures that
  contribute to competitiveness productivity
• Inclusive policy making (IPM) facilitates
  effective pro-poor complementary measures
• IPM explicit regard of impact of policies on
  poor/marginalized groups, and enhance citizen
  participation in governance
• Benefits improved targeting and effective
  programs, better citizen appreciation of trade
  offs, higher probability of consensus and
  win-win solutions better policies supports
  dynamic local leaders cooperation with various
  local stakeholders (Bulacan, Cebu as examples)

13
Community Based Monitoring System

• CBMS supports IPM thru on the ground information
  useful for policy formulation, design of programs
  and monitoring/evaluation of impacts and
  effectiveness of policies and programs
• Directly supportive of local governance
  improvements
• Well designed system of designated CBMS areas as
  observation posts allow monitoring of impacts
  of national policies as well as structured
  feedback on household responses to shocks and
  national policies and programs.

14
CBMS (contd)

• Drive for inclusive growth in an open economy can
  come from better targeted programs and more
  pro-poor programs at the local level.
• CBMS contributes to improved resource allocation
  at the local level.
• Example Sta. Elena, Camarines Sur case CBMS
  digitized maps and data used as decision tools by
  local officials (e.g., selection of scholars),
  raise budget of social development fund, helped
  identify priority barangays for water system and
  rural roads project feasibility study proposals
  with funding from national government.
• If similar cases multiply, then government
  expenditures more effective and pro-poor (or
  growth inclusive).

15
Concluding Remarks

• Basic question raised how can trade
  liberalization and expansion be growth inclusive?
• Paper highlights importance of investment
  climate, investing in people (with a bias for the
  poor and the hitherto unskilled) and
  institutions, robust agricultural productivity
  and good domestic transport links, basic and
  limited-duration social safety nets in education
  and health for inclusive growth in an open
  economy
• Inclusive policy making and CBMS contribute to
  effective and pro-poor policies and programs
  needed to make trade expansion growth inclusive.