United Nations Trade and Development Report

2225-3262 (online)
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The Trade and Development Report (TDR), launched in 1981, is issued every year for the annual session of the Trade and Development Board. The Report analyses current economic trends and major policy issues of international concern, and makes suggestions for addressing these issues at various levels.
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Trade and Development Report 2016

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Trade and Development Report 2016

Structural Transformation for Inclusive and Sustained Growth You do not have access to this content

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23 Sep 2016
9789210583145 (PDF)

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Development is a transformational process, combining a series of interactive and cumulative linkages to create a virtuous circle of enhanced resource mobilization, higher incomes, expanding markets and investment, leading to more and better jobs. Such a structural transformation requires selective government policies to shift a country's productive structure towards activities and sectors with higher productivity, better paid jobs and greater technological potential ‒ what is commonly called "industrial policies". The Trade and Development Report (TDR) 2016 highlights the central role of industrialization, given the higher productivity of manufactures in relation to other sectors. Manufactures can also generate strong cross-sectoral linkages (e.g. backward, forward, income and knowledge linkages) and complementarities that enhance productivity and employment growth in the primary and tertiary sectors. Countries that have been able to narrow the productivity and income gap with developed countries are those (mostly in Asia) that managed to expand investment, employment and productivity in their manufacturing sector in a sustainable way, which contrasts with other countries and regions affected by "stalled industrialization" or "premature de-industrialization". Successful structural transformation requires a comprehensive policy approach. This includes strategic policies for international trade, pro-growth macroeconomic policies to ensure high levels of aggregate demand and investment and a stable and competitive exchange rate, policies in support of the profits-investment nexus to provide finance for structural transformation, and closing tax loopholes through fiscal and regulatory measures that would bring greater transparency to corporate decision making and finance public expenditure that provides an enabling context for production upgrading and economic diversification.
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  • Explanatory notes
  • Abbreviations
  • Overview
    In 1997, the Trade and Development Report argued that a return to faster growth and full employment in developed economies was a prerequisite for tackling the problem of rising inequality, and warned that failure to achieve this could provoke a “backlash against globalization, which might put the gains of global economic integration at risk”.
  • Current trends and challenges in the world economy
    The world economy in 2016 is in a fragile state, with growth likely to dip below that registered in both 2014 and 2015. The mediocre performance of developed countries since the 2008–2009 economic and financial crisis is set to continue, with the added threat that the loss of momentum in developing countries over the past few years will be greater than previously anticipated. Without a change of course in the former, the external environment facing the latter looks set to worsen with potentially damaging consequences for their prosperity and stability in the short to medium run. More widespread contagion from unforeseen shocks cannot be ruled out, knocking global growth back even more sharply. The decision by the United Kingdom electorate to leave the European Union (EU) is such a shock.
  • Globalization, convergence and structural transformation
    In the classical development literature, and its related policy advice, the relationship between economic growth and changes in the structure of production took centre stage. While there were differences across this literature, particularly on policy detail, there was general agreement that successful industrialization in a small group of “Northern” countries had created, and perpetuated, an international division of labour involving a high-income and technologically sophisticated “core” that exported mainly manufactured goods and a low-income and technologically weak “periphery” that was largely dependent on primary exports. Industrialization in the South was seen as the key to rebalancing the international division of labour, maximizing the gains from international trade and delivering “prosperity for all” (UNCTAD, 1964).
  • The catch-up challenge: Industrialization and structural change
    In recent years there has been a renewed interest in the role of industrialization in promoting sustained economic growth and development, reflected in Goal 9 of the 2030 Agenda for Sustainable Development which calls for promoting inclusive and sustainable industrialization. Five important factors have contributed to this revival of interest. First, many developing countries have failed to deepen and diversify their existing industrial capacity in a more open global economy; indeed, several of them have experienced a premature decline in the share of manufacturing in their gross domestic product (GDP). Second, there is a perception that export-led growth strategies in developing countries face more constraints than in the past, in particular due to the slower growth of global demand, especially from industrialized countries. Third, many developing countries continue to remain vulnerable to external trade and financial shocks. Fourth, and related to the latter point, there has been an end to the enormous windfall gains from primary exports generated by the commodity price boom during the first decade of the 2000s, which saw accompanying growth and investment spurts. And lastly, further deindustrialization in several developed countries is being observed with growing concern.
  • Revisiting the role of trade in manufactures in industrialization
    Export-led industrialization, along with the trade in manufactures that is presumed to drive it, often seems like the last best idea for using trade to speed up development in the modern era. It simultaneously evokes the successes of the East Asian tigers and the alleged failures of import-substituting industrialization. Moreover, it confirms the significance of industrialization as an essential stepping stone to development, as there is little else that has proved as effective in fostering catching up. And it appears to conform to the prescriptions for trade liberalization in conventional trade theory.
  • Profits, investment and structural change
    Adequate investment finance to priority sectors is essential for achieving structural transformation. It helps enhance a virtuous circle of rapid productivity growth, more and better paid jobs, higher household incomes and expanded markets – both at home and abroad – leading in turn to higher levels of investment, and thus helping to further boost productivity. As discussed in previous chapters of this Report, investment in industrial capacity appears to play a catalysing and sustaining role in this process.
  • Industrial policy redux
    The preceding chapters have described both long-standing and emerging challenges facing developing countries as they seek to transform the structure of their economies in support of sustainable and inclusive growth. This chapter draws some broad policy lessons. In particular, it reconsiders the contribution of industrial policy in the context of a more open and interdependent but uneven world economy, an economy which has also become increasingly financialized. Moreover, in many developing countries over the past few decades, industrialization has stalled or there has been premature deindustrialization.
  • Growth and structural change: An updated assessment of the role of the real exchange rate
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