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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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International finance and policy space

To be fully effective, policies aimed at structural transformation require a favourable macroeconomic framework. This means economic policy must aim to keep the key macroeconomic prices (interest rates, wages and exchange rates) at levels that favour robust capital accumulation, domestic market growth and trade competitiveness. Macroeconomic policy must also avoid excessive instability or unsustainable domestic and external imbalances. In all these areas, international finance can play an important, but sometimes disruptive, role. Indeed, foreign capital inflows, depending on their size and composition, may increase or reduce economic policy’s room for manoeuvre and, more generally, support or undermine growth and development.

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