Common Development Strategies for Asian and Latin American Developing Countries: from the perspective of foreign trade

• Author: Wei Dan
• Position: Assistant Professor Faculty of Law of University of Macau
• Pages: 143-153

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I Introduction

The biggest developing countries in the world in terms of territory size, population and GDP are located in the continents of Asia and Latin America. In these regions, there are also the most emerging-market economies with great potential for sustaining high growth rates in the coming decades (so called the BRICs) like China, India and Brazil. The developing countries of the two continents have contributed to the fast pace of global growth. Many forecasts indicate that the developing countries in Asia and Latin America can become the locomotive of world economy of the 21st century¹.

In the context of the mercantilism of global economy and the globalization of market economies, many developing countries in the two regions share similar concerns of poverty reduction and face similar challenges of national policies adjustments. Among them, trade frictions and competitions coexist with common interests, such as to redress imbalances of global trading system and build an equitable international economic order.

The paper makes an analysis of globalization's influences, the strengths and weaknesses of the system of WTO, participation of Asian and Latin American developing countries in the negotiations of Doha Round, development strategies to be adopted by these economies and also some important implications for building new balance in international agenda of 21st century.

2. Positive agenda in an era of globalization

2. 1 Growth stimulated by trade liberalization: an overview

In view of historical² figures, the economic globalization has deepened the international division of labour and offered all countries ample opportunity to integrate themselves more fully into the world economy.

Since the last quarter of the nineteenth century to the present, the major developing countries in Asia and in Latin America, such as China, India, Brazil, Argentina, Chile and Mexico, etc have gone through various stages of development. In the case of Asian developing countries, China and India were very much alike in the development path. Both of them lost their leading positions as big trading powers in the period from the 1820s3 to the 1970s and began trying to catch up industrial economies afterwards. Right after independence, both China and India adopted a planned economy and an import-substitution strategy, choosing heavy industry as a priority of their national developments. However, price system distortions, low efficiency in the allocation of resources and the strategy not based on comparative advantage did not achieve a good record. From 1980s onward, the economic liberalizationPage 144 and more active participation in the economic globalization played an important role in accelerating industrialization and development⁴. Both countries have maintained rapid growth rates in recent years and are reaping the fruits of globalization. Beginning in 1970s, the emergence of a highly dynamic of East Asian economies (Asian tigers) became the most striking feature of world economy, thanks to their adoption of export- oriented economy strategies. And today, all of them have shaken off financial crisis and are much less vulnerable of big shocks.

In Latin America, between 1950 and 1973 when many countries used import substitution and export promotion measures, the region's share of world exports fell steeply, it stabilized between 1973 and 1990, and then began to increase. The foreign debt crisis in the 1980s exposed the fragility of the economies of some of the most important countries in the region, including Mexico, Brazil, Argentina, etc. The 1980s and 1990s exposed the growing diversity of the economic performances and social conditions in developing countries in the region. Some developing countries have been more successful than others, thanks to their national choices of trade liberalization. Brazil⁵, Mexico6 and Chile7 are the countries that have already benefited and will continue to benefit from the globalization process. The left-wing politicians in some Latin American countries today still persist in the policies of their predecessors, such as fiscal austerity, openness of economies to foreign trade and stability of national currency.

The results to date have been spectacular. Trade has grown twice as fast as world output over the past decade or more. Both developed and developing economies have had economic growth and benefited from economic freedom. The globalization has raised 375 million people out of extreme poverty over the past 20 years⁸. On average, poor countries that have opened their markets to trade and investment have grown five times faster than those that kept their markets closed⁹. UNCTAD figures show that, in the period 1990-2003, developing economies enjoyed an average 7.3% annual average growth in their merchandise exports against 4.9% for developed economies. In the same period, inward FDI stock in developing countries increased by over four times (by over three times, if China is excluded) - about the same as for developed countries¹⁰ In 2004, eight of the world's top twenty exporters in merchandise trade are now developing countries¹¹. The developing countries have contributed to the fast pace of global growth, with strong investment dynamics and an overall growth rate averaging about 6% for the group as a whole. In particular, rapid growth in China and India has contributed to this outcome. Many Latin American countries have also maintained high growth rates.¹²

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1. 2 Core values in economic theories

Over the past fifty years after the establishment of multilateral trading system run by GATT/WTO, namely, from Havana to Doha, the world has secured the highest levels of prosperity, the greatest increase in human welfare and greatest fall in absolute poverty. Economic theories are read as clearly supportive of the proposition that free trade has a positive effect on economic growth and real incomes.¹³

From the classical view of the benefits of free trade¹⁴, Adam Smith argued an absolute advantage according to which the division of labour (specialization) promotes productivity¹⁵. David Ricardo extended this concept to the doctrine of comparative advantage (so called "deepest and most beautiful result in all economics"). He believed that trade allows each country to specialize in what it does best, thus maximizing the value of its output. Even a country is relatively worse than any other country at producing every good, it can still benefit from free trade¹⁶. The Hecksher-Ohlin-Samuelson model of comparative advantage explains the benefits stemming from international trade. The character of a country's factor endowments (capital, labour and natural resources) will determine the type of goods a country will import and export. International trade serves essentially to extend the size of domestic markets, granting competitive exporters a wider range of potential consumers, and freeing labour and capital from uneconomic pursuits. The New trade theory¹⁷, taking into account imperfect competition, increasing returns to scale and changing technology, provides stronger support for free trade policies throughout the post-war¹⁸ and suggests dynamic benefits from trade, such as greater market size, enhanced competition and technological improvements.

On all accounts, trade and economic openness can promote growth through increased specialization according to comparative advantage, greater exploitation of increasing returns, learning of knowledge and technological capacities and improving economic performance through positive impacts on institutions and the political process. The idea that openness to trade is inherently good for both growth and development enjoys almost universal support and is deeply ingrained nowadays. International trade can play a major role in thePage 146 promotion of economic development and the alleviation of poverty¹⁹. Just as the UN Secretary-General Mr. Kofi Annan put it, "Trade has been a critical force for development. It has boosted prosperity, spurred innovation and brought people more choices. It has contributed to stability and predictability in international affairs and to peaceful relations among nations"²⁰.

1. 3 Strategies for developing countries in the globalized world

However, the costs and benefits of present multilateral trading system have been unevenly distributed across countries. Like any dynamic economic change, participation in international trade creates both winners and losers, despite trade's net positive effects on the economy. In spite of the expansion in world trade share and great efforts in liberalizing trade by the South, it seems that trade is a driver of global prosperity as well as inequality. There are some successful Asian and Latin American developing countries as globalisers that are catching up, but still a great majority of developing countries are marginalized and left far behind.

Some economists argued divergence between the rich countries and the poor countries (Romer, 1986²¹), while others found empirical evidence of convergence (Sala-i-Martin, 1991²²). Many economic researches have been made to analyze factors that may lead to the convergence or the divergence. In our view, the increased...