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Trade and Development Report 2007

Regional Cooperation for Development

image of Trade and Development Report 2007

The current edition of the Report anticipates a fifth consecutive year of overall output growth and continued strong demand for primary commodities contributing to an overall increase in per capita gross domestic product in developing countries. The main risk to this positive scenario, the Report warns, is that a major recession in the United States could sharply curtail exports from China and India, which are setting the pace for this growth. The report says regional cooperation can help reduce the vulnerability of developing nations to current account imbalances such as that of the US, and also reduce their vulnerability to major shifts in exchange rates caused by speculative capital flows.

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Globalization, regionalization and the development challenge

Developing countries seek to integrate into the world economy in the expectation that this will help raise productivity levels, improve growth prospects and boost living standards through increased trade, technology and capital flows. Most observers recognize, however, that deriving such benefits from “external integration” is contingent on a number of preconditions, including a certain level of local production capacity, skills and technological sophistication, an array of market supporting institutions and good infrastructure. Establishing such conditions is closely tied to a process of “internal integration” associated with expanding domestic markets, a shifting pattern of employment away from rural activities, and an increasing industrial division of labour that leads to a dense network of input-output linkages between sectors. Strong institutions are also required to forge the socio-political consensus needed to mobilize and channel resources to productive investment and to manage trade-offs incurred along a dynamic development path, including those arising from increased external integration. Accordingly, encompassing political structures, closely associated – but not synonymous – with democratic governance, make up the final component of most development strategies.

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