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Trade and development report 2014

Global governance and policy space for development

image of Trade and development report 2014
The 2014 edition reviews recent trends in the world economy, examining the consistency and sustainability of the economic policies currently followed. It addresses the evolution and current conditions of the policy space needed for implementing growth-enhancing and inclusive development strategies. It discusses how countries can better manage capital flows in order to expand their policy space for pursuing development strategies. It looks at policy space as depending not only on the existing rules and commitments taken in international agreements, but also on the possibility of mobilizing resources for financing industrial policies, investment and growth. It argues that fiscal space is a key aspect of policy space, and that developing countries need to address loss of revenue stemming from illicit financial flows, tax havens and inadequate taxation of extractive industries.

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Fiscal space for stability and development: Contemporary challenges

An appropriate macroeconomic environment and industrial policies aimed at production upgrading and diversification need to be permanent elements of a long-term national development strategy, but they have become even more critical as economies are forced to adapt to the new economic landscape emerging from the global financial crisis (TDR 2013). Previous chapters of this Report have shown how current international arrangements in trade and capital flows can inhibit the national policy space needed for countries to adapt; they have also suggested ways for encouraging different patterns of economic integration that would open up new opportunities both for developing countries and their trading partners. Yet this is only one part of the story: even if governments were allowed, within the framework of multilateral, regional and bilateral agreements, to pursue their desired development strategy, they would still need to finance it. In the context of preserving policy space, strengthening fiscal revenues is key, as these are not only more sustainable than other sources of long-term finance, but also less constrained by restrictions and conditions that impose limits on policy space.

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