Poorest Economies Can Export More

• Author: Katrin Elborgh-Woytek and Robert Gregory
• Position: a Senior Economist and is an Economist, both in the IMF's Strategy, Policy, and Review Department.

A MAJOR contributor to widespread poverty is the lack of integration of poorer economies into the global economy. Although trade is only part of the solution, were poorer economies able to sell more goods to advanced and emerging economies, they would benefit mightily.

But exporters in poorer economies face obstacles both abroad and at home. Access to foreign markets is frequently limited by import barriers, while inadequate infrastructure and weak domestic policies often frustrate producers seeking to compete abroad. As a consequence, exports of the poorest countries have remained far below potential. The 49 poorest, or “least developed,” countries (LDCs; see box) account for nearly 1 percent of global gross domestic product (GDP) but less than 0.5 percent of global non-oil exports—a level virtually unchanged over the past 15 years (see chart). Only 1 percent of advanced economies’ imports come from LDCs.

There are steps the poorest economies themselves could take to boost exports—such as reducing the often prevailing antitrade bias in their trade, tax, customs, and exchange rate regimes; issuing more transparent trade and customs regulations; and taking steps to improve such key service sectors as communications and transportation (see World Bank, 2010).

But the poorest exporting economies would benefit considerably if emerging as well as advanced economies gave them better opportunities for trade, which would improve their growth and productivity prospects (see Elborgh-Woytek, Gregory, and McDonald, 2010). There are a number of steps better-off countries could take to boost poor economies’ export potential. Some of them are well known to policymakers—in particular, concluding the current World Trade Organization (WTO) trade-negotiation talks, known as the Doha Round. Wide-ranging multilateral trade liberalization could spur growth and foster secure and open global trading. Poorer countries would gain from successful Doha Round conclusion through better access to advanced and emerging export markets.

Although broad-based multilateral trade liberalization is the ultimate policy target, there are less-obvious intermediate avenues—such as the extension and improvement of duty-free and quota-free (DFQF) trade preferences both by advanced and emerging economies—that could add nearly $10 billion a year to the coffers of poorer economies. These preference systems are designed to offset for the poorest countries some of the high trade barriers in sectors such as light manufacturing and agriculture—areas in which LDCs are likely to export.

Main avenues of integration

There are three main avenues for the more advanced and emerging economies to help integrate LDCs into the global economy:

•Remove all tariffs and quotas on products from...