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Trade and Development Report 2004

Policy Coherence, Development Strategies and Integration into the World Economy

image of Trade and Development Report 2004

The current edition of the Trade and Development Report focuses on the global economic recovery currently underway. The Report raises questions about its considerable downside risks stemming from oil prices and exchange rates and the fact that both the sources and incidence of growth are unequally distributed around the globe. The TDR 2004 argues that, to enable developing countries to establish a virtuous interaction between external financing, domestic investment and export growth, a feasible development agenda has to be based on the concept of coherence. UNCTAD warns that attempts by many countries to keep their currencies undervalued could end up in competitive devaluations that could be disastrous for the world economy. UNCTAD suggests that changes in the exchange rate that imply deviation from purchasing-power parity should be governed by multilateral regulations.

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Openness, integration and national policy space

The move to unrestricted cross-border flows of goods, services and capital has always been one of the principles of globalization. Since the late 1970s, “the propensity to truck, barter and exchange one thing for another” (Adam Smith), unhindered by political boundaries, has been regarded as the cornerstone of a global system that would produce efficiency gains from allowing resources to be directed to their most efficient use, and specialization gains from accessing a greater variety of intermediate and capital goods. If improved institutional quality and technology spillover are added, trade and capital openness should automatically allow for catch-up growth in poorer countries and bring about income convergence at the global level (see, for example, IMF, 2002; WTO, 1998; World Bank, 2002; Winters, 2004). But the empirical evidence supporting this approach has been elusive. In fact, most of the evidence suggests that the impact of trade openness has been highly uneven, and contingent on a variety of institutional factors, and that there is room for discretionary policy measures at the micro and macro level.

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