On the margins: the poor in LDCs in a global trade era.

• Author: Gibbons, Andrea

The "age of globalization" has brought unprecedented levels of communication, exchanged ideas and shared technologies. However, in many arenas, globalization has meant controversy and fragmentation. The debate over free trade has escalated tremendously in the last fifty years, as physical boundaries inhibiting international trade have fallen. The United Nations Conference on Trade and Development (UNCTAD) recently contributed its findings to the abundant research on this topic in The Least Developed Countries Report 2004--"Linking International Trade with Poverty Reduction". UNCTAD condemned "money transfers" from rich to poor countries and acclaimed the benefits of open trade. But even as such research might contribute to a loss of millions of dollars in aid to least developed countries (LDCs) (see box on page 37), it is important to recognize the plight of the poor in these countries as the rest of their economies are swept into the globalization atmosphere.

Empirically, the existing international trade system has appeared beneficial to the countries it incorporates. David Dollar and Aart Kraay, economists at the World Bank's Development Research Group, argue that trade encourages economic growth and investment in countries and the development of productive capacities, eventually leading to increased gross domestic product (GDP). These claims are supported by case studies of most countries, both developed and least developed. In its most recent report, UNCTAD found that over the last ten years, as exports proliferated, GDPs of LDCs have risen almost universally. Merchandise exports alone increased 44.5 per cent between 1998 and 2002, compared to 15.3 per cent in other developing countries (not including China). While their average annual growth rates vary from 1.6 per cent in Malawi to 36.6 per cent in Equatorial Guinea, very few countries have seen a negative growth rate during this period. Overall, trade appears to be the answer for struggling economies.

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Unfortunately, trade in LDCs has not followed the pattern outlined by Adam Smith and his contemporaries. In a perfect Ricardian world, every farmer in the United States would turn in his hoe for a computer, and produce would be collected daily from small Rwandan farms and sent to developed countries in exchange for their technology and manufactures. However, this is not the case in most LDCs; instead, many have used export-promoting tools, such as export processing zones (EPZs), to encourage trade (see box on page 37). These policies have increased exports greatly but failed to include all...