Trade reforms boost global GDP by 6.8%, developing economies surge 33% — Report

THE World Trade Report 2024 has shown that trade reforms have been a key driver of economic transformation in low- and middle-income countries, accelerating income convergence and fueling productivity gains across sectors. 

It said trade cost reductions between 1995 and 2020 led to a 6.8% increase in global real Gross Domestic Product (GDP) over the period, with low-income economies growing by around 33%.

According to the report, the findings emphasized the vital role trade reforms play in fostering economic growth and innovation, particularly in developing economies poised for greater integration into global markets.

“Access to foreign markets for both exports and imports has boosted sectoral productivity through greater economies of scale, competition, technology diffusion and innovation. Foreign direct investment (FDI) within global value chains (GVCs) has further contributed to the diffusion of new technologies, innovation and production upgrading, in particular in middle-income economies.

Empirical evidence finds that unilateral trade reforms in developing economies have, on average, boosted economic growth by 1 to 1.5 percentage points, potentially resulting in a 10 to 20% higher incomes over a decade,” it said.

The World Trade Report, an annual publication by the World Trade Organisation (WTO) aims to deepen understanding about trends in trade, trade policy issues and the multilateral trading system.

The 2024 World Trade Report titled “Trade and Inclusiveness: How to make trade work for all” explores the complex interlinkages between trade and inclusiveness across and within economies, and discusses how trade policies need to be complemented by appropriate domestic policies to make the benefits of trade more inclusive.

High trade cost

The report said the high trade costs and limited diversification hampered convergence noting that some economies have not fully benefited from globalisation due to high tariffs at home and abroad, low regional integration, administrative red tape, poor physical and digital infrastructure, geographical remoteness and weak institutions which have limited their integration into international markets, and with it, diminished their access to foreign technology and to affordable high quality inputs.

“Exporters in poor economies often lack the capacity to comply with foreign market standards and technical regulations, and may struggle to utilize preferential access to large markets. Meanwhile, some other economies, despite more active participation in global trade, have failed to leverage trade for development due to a lack of diversification in their production and export baskets,” the report stated.

For instance, it said economies that were specialized in capital-intensive extractive and primary sectors could be vulnerable to commodity price volatility, and could fail to achieve sustained growth because of macroeconomic instability.

Reducing trade cost

According to the report, diversifying GVCs, increasing trade in services, and developing trade in renewable energies and in critical minerals for climate technologies can create new opportunities for low- and middle-income economies.

It how essential it is to address trade costs in services, bridge the digital divide, and tackle regulatory capacity and compliance issues if low- and middle-income economies are to take full advantage of these opportunities.

It explained that improving access for low-income economies to markets in both high-income and emerging economies, including by addressing tariff escalation on processed goods and trade-distorting subsidies, can also support economic growth in a world where an increasing share of trade is among developing economies.

However, it added that trade barriers arising from inadequate domestic infrastructure or institutional challenges also need to be addressed.