With rigorous economic research and practical policy solutions, we focus on the issues and institutions that are critical to global development. Explore our core themes and topics to learn more about our work.
In timely and incisive analysis, our experts parse the latest development news and devise practical solutions to new and emerging challenges. Our events convene the top thinkers and doers in global development.
Trade is an important driver of economic growth around the world. CGD’s research focuses on how trade policies can support poverty reduction and economic growth in developing economies by promoting market access that opens the door to foreign investment and job creation.
Get Trade Updates
CGD experts offer timely research, analysis, and policy ideas for the world’s emerging development challenges. Sign up to get the latest updates from CGD!
The benefits of global trade are numerous and well-documented, but trade channels can still be made more inclusive for women entrepreneurs and wage workers. Incorporating pre-ratification conditions into the trade agreement negotiation process to remove legal barriers against women’s equal participation in the economy (and therefore equal advantages from trade), as well as instituting follow-up enforcement mechanisms, can help to ensure trade benefits women and men more equally going forward.
This paper discusses selected issues in the analysis of trade misinvoicing. It starts by examining various motives for the misdeclaration of trade activities. It is argued that the broad range of incentives to fake customs declarations provides an important challenge for the empirical assessment of the extent of trade misinvoicing. After analyzing the costs and benefits of different empirical approaches to quantifying trade misinvoicing, the accuracy and reliability of estimation results reported in the literature are reviewed. It is shown that quantitative findings are heavily dependent on the underlying assumptions in the empirical analysis, making estimation results on trade misinvoicing practices largely a matter a faith.
The UK Government has today published a white paper on its broad approach to Brexit—what ’s missing though is a commitment to developing countries on the UK’s trade policy. Having emphasised trade at the heart of its economic strategy on international development, it now needs to commit to providing “duty free quota free” access for developing countries, or risk damaging investment and trade over the next two years and beyond.
DFID’s first economy strategy is welcome…
The UK Department for International Development (DFID) published its “Economic Development Strategy” this week. This is DFID’s first published strategy of this kind and the Government deserves credit for recognising that stimulating economic growth is essential to eradicate extreme poverty and delivering the ‘Global Goals.’ It is reassuring that the strategy focuses on growth in developing countries and not on the potential benefits for British business.
…and rightly has trade front and centre
The first of the strategy’s 11 priorities is “Focusing on trade as an engine for poverty reduction.” The strategy emphasises the UK’s role in funding developing countries negotiating capability (which played a part in getting rid of the developmentally horrendous export subsidies at the WTO’s biggest ever agricultural agreement in Nairobi). It also confirms its commitment to ‘aid for trade’ (which is meant to address in-country trade infrastructure).
But what about the UK’s own trade policy?
But the commitment that’s most important to developing countries – on the UK’s own trade policy—is incomplete. Here DFID’s commitment is to work with the Trade Department to “deepen our trade relationships with developing countries. We will continue to open our markets to the world’s poorest countries” and to use “our voice in the World Trade Organization, international institutions such as the World Bank, and the G20 to promote free trade … and to push back on emerging protectionist approaches.”
These are excellent sentiments but the UK is potentially just two years away from Brexit, and the Prime Minister has made it very clear the UK will have its own trade policy. Today’s White Paper is similarly non-committal suggesting the UK “...can prepare the ground… to ensure continued preferential arrangements for developing countries.“
Potential UK and other investors in developing countries need more clarity. The UK’s large developing country partners are already feeling the effects of depreciation and uncertainty. In Africa, the UK’s stock of investment has more than doubled since 2005 to some £42.5billion. Trade access could be quickly addressed and reduce the chance of the UK losing ground to other investors in the region (China and India are already sub-Saharan Africa’s largest export destinations). So it is a shame that neither document went further. The government should do so as soon as possible.
Post-2019—the first steps
The very first step in 2019, whether as part of transition arrangement or otherwise, is to continue to provide the “duty free quota free” access that some developing countries already enjoy, as my colleagues suggested in CGD’s first Brexit paper last summer. This step will have no bearing on the UK’s negotiation with the EU; it would encourage UK and other businesses to move ahead with investment plans in those countries; it will be good for British consumers and business who import from developing countries; and it will be entirely within the UK’s gift as it establishes a new schedule at the WTO. Indeed, the UK should also commit to exploring how it might improve on the EU’s current approach by, for example, extending free access to more developing countries, cutting red tape at the border (like improving “rules of origin” and simpler administration).
Political cover is also needed to make progress in other areas. Officials need to be able to discuss substance with both the WTO and developing countries. We proposed four steps for the UK to be a global leader on trade for development. Some elements—like low overall tariffs, agricultural subsidies, and reduced thresholds for VAT at the border—are clearly whole-of-Government issues but others, like defining and extending duty free access to more poor countries, can be progressed more quickly.
A British Trade Promise
The Government has rightly taken its time to establish its broad approach to Brexit, and has now made clear the UK will have its own trade policy. Decisions and negotiations are complex and interdependent. Still, on trade for development, the way is clear and urgent—Britain should make a British Trade Promise to confirm the continuation of duty free quota free access, and commit to improve on the EU approach by including more countries, and making administration simpler.
Since mid-2016, a new wave of political developments in advanced countries has been shaking Latin America. This latest assessment of the Latin American Committee on Financial Issues (CLAAF) examines how the anti-globalist movement sweeping the West will affect macroeconomic trends in Latin America.
Kudos to Finland in 2016 for ascending to the top spot in CGD’s annual Commitment to Development Index, our ranking of how a country’s policies help or hinder development. Other countries of note this year include France, New Zealand and Austria. We just published the latest rankings, and I discuss them, their implications, and the political landscape that could affect them in our latest CGD Podcast with Owen Barder, senior fellow and director of CGD Europe, which produces the Index.
Now in its 14th year, we derive the CDI rankings by crunching the numbers from millions of data points across seven policy areas: aid, trade, migration, finance, security, technology and environment. The result is a measure of which country has the most development-friendly policies. It shows where countries do well and how they can learn from each other to do better.
We want to show how development can be a race to the top. Most of the policies that score well on the index require some sort of international cooperation—so what does the CDI tell us about the apparent retreat of globalism across the political landscape? Take a listen to the podcast to find out! And please also check out the interactive CDI rankings to see where each country stands and how they could improve.
Kudos to Finland for ascending to the top spot in CGD’s 2016 Commitment to Development Index, our ranking of how a country’s policies help or hinder development. Most of the policies that score well on the index require some sort of international cooperation—so what does the CDI tell us about the apparent retreat of globalism across the political landscape? I discuss the latest rankings, their implications, and the politics that could affect them with Owen Barder, senior fellow and director of CGD Europe, which produces the Index.
Global policymaking is at risk, threatening the international liberal order which has, for all its faults and lacunae, served the world well since the second world war. There has never been a period of such rapid progress in the human condition. Most of humanity has benefited from unprecedented increases in life expectancy, reductions in violent deaths, progress on equality and rights, and improvements in the standard of living.
This progress has been, in part, the happy consequence of better global policies. This prosperity is the result of the spread of market economies, open trade, investments in science and evidence, wider availability technologies, the establishment of norms and standards, the movement of people and capital to where the opportunities are greatest, and, though we have sadly not eliminated war, a significant reduction in violent interstate conflict.
The policies and international cooperation that have brought all this about are not always easy. Our Commitment to Development Index, the 14th annual edition of which is published today, measures the progress of the world’s industrialised economies towards policies that contribute to make this world better for everyone. We use literally millions of pieces of data to calculate each country’s performance in seven categories: trade, environment, security, technology, finance, migration and aid. This short video explains.
How Countries Ranked in the 2016 CDI
Not surprisingly, Scandinavian countries top the list again this year, with Finland, Denmark and Sweden, respectively, in the first three slots. They tend to have open and transparent financial systems and support sustainable investments in developing countries, while doing the most, relative to their size, to contribute to the global system. Such a functioning system protects the environment and improves standards of living for everyone through international security regimes and shared technology to enhance global progress. Lagging countries like Switzerland (last) and Japan (second last) demonstrate how much potential for contribution to global progress even rich countries have. While the Swiss still have room for improvement regarding financial transparency, Japan could increase its contribution to fighting climate change. But as both countries perform well in some other components, their case illustrates that the CDI is an instrument for a race to the top, inspiring the public and policy makers on how we all can do more to fight global poverty.
The US is 20th out of 27 in the latest rankings, with performances above average in aid and trade but lagging especially on its environmental policies. Although they get credit for signing the Paris agreement on climate change, the US still has by far the lowest gasoline taxes and could do much more to fight global climate change. The UK ranks 9th out of 27, and also does well on aid and trade. Though they are among the leading nations for science and research, neither country does enough to help spread that knowledge to developing countries. Together with Sweden, they have the most stringent intellectual property rights in place, which restricts access to innovation for poorer countries.
In the last 14 years, there has been considerable progress—the CDI shows that rich countries can do more to fight global poverty and have done so. 24 CDI countries have improved their overall score since our first edition in 2003, thereby demonstrating that more equal international policies are possible. No countries have gotten worse overall. The case of Austria, which shows the biggest improvement and now tops the index on security, demonstrates that even small and landlocked countries can pursue policies which have a significant impact on the wellbeing of millions of people in developing countries.
Have we now seen the highpoint of this international cooperation? Obviously we hope not. There is a huge amount to do—if all countries raised their standards up to just the current average in each dimension of the CDI, that would transform the quality of life for hundreds of millions of people.
What holds us back, and indeed threatens the progress the world has made, is our apparent inability to manage change.
Economists will tell you that it is "win-win" to have free trade, to end agricultural subsidies, to let workers move to where they can earn more money, and to spread technologies faster. But while it might be good for every country on average, there are always individual winners and losers. In theory the losers can be compensated, but in practice we don’t seem to be able, or willing, to do that. The consequence of their resistance, and justifiable anger, is that all this progress is now under threat.
We are unrepentant globalists: there is no doubt that better international cooperation has brought about, and can continue to bring about, unprecedented sustainable prosperity. The right response to the present political challenge to this agenda is to do a far, far better job of making sure that we properly manage the negative effects for people who have lost out, and work much, much harder to share the gains more widely.
Since 1964, the UN has agreed on a list of the “Least Developed Countries” (LDCs)—supposedly the poorest countries in the world—to receive support such as trade preferences and international aid. The EU for example offers duty-free quota-free access to all goods exports from LDCs (with the exception of arms).
The possibility of leaving the EU means that the UK now needs to revisit the questions of whether and for which countries to offer trade preferences, particularly since the key ‘enabling clause’ underpinning trade preferences does not confine preferences to least developed countries.
Taking a closer look at the group of (currently 48) countries that make up the LDCs throws up a few surprises. First of all, as a group LDCs are on average 50 percent richer than the World Bank’s 31 “low-income countries” (those with a GNI per capita of $1,025 or less). The simple explanation for this is that the LDC category is also based on measures of human development and economic vulnerability, which means that it includes some (but not all) lower-middle income countries in addition to low-income countries.
Data from 1990-2015
It seems particularly odd that a couple of upper-middle income countries still make the cut. This is partly to help out small (and vulnerable) island states, but why help upper-middle Tuvalu, and not include lower-middle Tonga or Micronesia? Though there are plans for them to “graduate,” Angola and Equatorial Guinea are still currently included despite being upper-middle because their wealth is driven by oil exports that don’t benefit the majority of the population. Nigeria though is not included because its economy is too large and therefore not deemed to be vulnerable, despite its heavy reliance on a single export commodity and high level of poverty.
In total there are 35 lower-middle income countries that are excluded from the LDC list. Three countries (Ghana, Papua New Guinea, and Zimbabwe) actually refused the offer of being classified as LDC , presumably because they didn’t think the stigma of being classed as “least developed” would help their investment promotion efforts.
How are LDCs Classified?
The formula for classifying LDCs is byzantine. It’s a composite index including per capita income, a “Human Asset Index” (itself comprised of 4 indicators), and an “Economic Vulnerability” index (comprised of 6 indicators).
The median income and the Human Development Index suggest that LDCs are indeed *amongst* the poorest countries, but there is certainly overlap with other countries, and no particular “kink” at the “graduation” point. Whilst four countries have “graduated” from LDC status, they don’t seem to have really moved to a substantially higher level of average incomes or human development.
A recent paper by Marcin Wojciech Solarz and Małgorzata Wojtaszczyk makes a similar point, showing the overlap between LDCs and other poor countries on a range of indicators: for every indicator (including for example life expectancy and life satisfaction) there is a group of non-LDC countries that do worse than LDCs.
Should we even be talking about “least developed” countries any more?
The World Bank doesn’t. Earlier this year, they scrapped the term “developing countries” altogether, replacing it with the more neutral income classifications (low/ lower-middle/ upper-middle/ high) and regional groupings (Africa, Asia). Tariq Khokhar noted that Bill Gates has called the label developing country label ‘passe,’ and Hans Rosling ‘intellectually lazy.’ In many respects there is less of a stark contrast between “developing” and “developed” countries than there is used to be (for instance in infant mortality and fertility), while in other respects there are more differences within developing countries than there are between developing as a group and developed (e.g. income).
So if not LDCs, who should we give trade preferences to?
Notwithstanding the case for the unilateral reduction of all import tariffs, if the UK does choose to maintain tariffs for some higher income countries but offer preferentially lower tariffs to poor countries, who should get those preferences? The grouping of “Least Developed Countries” is really pretty arbitrary. Paul Collier has argued that preferences should be offered to those countries that are on the cusp of being able to engage in modern sector exports, and who are therefore able to take advantage of them. This group of countries may not always be the “least developed.”
So, this would argue for giving preferences to both those who need them most (the poorest countries) and those who could benefit most (those on the cusp of trade integration). A further ambition would be to have a simpler metric. One simple rule for extending preferences would be to include all low-income and lower-middle income countries. This classification would include some of the larger countries such as Nigeria or Pakistan that are currently excluded from the LDC list because their economies are too large. It’s possible that extending preferences to a larger group of countries would erode the value of these preferences. But when the EU temporarily cut tariffs for Pakistan after the 2010 flooding, it didn’t seem to hurt exports from other low-income countries.
We’ll explore this issue in more detail in a follow-up post.