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Managing Openness : Trade and Outward-oriented Growth After the Crisis

Author

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  • Mona Haddad
  • Ben Shepherd

Abstract

The global financial crisis is stimulating a broad reassessment of economic integration policies in developed and developing countries alike. The crisis was associated with a great trade collapse, the sharpest in recorded history and the deepest since Second World War (Baldwin 2009). The trade collapse affected all countries and products, although to different extents. While signs of recovery are starting to solidify, deeper questioning of the causes of the crisis and the merits of globalization has surfaced. The emergence of China and the imbalances of its trade with the United States are shaking the stability of the global system. Are these imbalances sustainable, or do they need to be adjusted to avoid another global crisis? What impact will these adjustments have on the trade of developing countries if they mean that China consumes more and the United States saves more? Openness has helped support growth in many countries, to unprecedented levels in Brazil, China, Indonesia, Malaysia, and others. Yet today many are concerned that openness is creating vulnerability, and vulnerability can hurt growth. No one believes that inward orientation is the solution or that domestic consumption alone can boost growth, even in large countries. The longer-term benefits of openness more than compensate for the short-term negative impacts of trade shocks. The question is not whether to remain open but rather what kind of safety and insurance systems, at the micro and macro levels, to put in place to better hedge against shocks from globalization. As developing countries try to find answers to these questions, they also face a drastically changed trade environment. The crisis proved that protectionism is no longer the name of the game; it remained largely under control thanks to a solid multilateral regime as well as to a new system of production sharing across countries, which does not lend itself naturally to broad-based protectionism. Moreover, the role of South-South trade is growing, giving developing countries new opportunities to export and new opportunities to import cheaper capital goods, now produced in countries like China or India, that allow them to industrialize faster. Thus, while outward-oriented growth is here to stay, it needs to be put in a different perspective and packaged with additional policies. As the world emerges from the crisis, the author expect to see the development of an 'export-led growth version 2.0' model that reflects these new dynamics.

Suggested Citation

  • Mona Haddad & Ben Shepherd, 2011. "Managing Openness : Trade and Outward-oriented Growth After the Crisis," World Bank Publications, The World Bank, number 2283, April.
  • Handle: RePEc:wbk:wbpubs:2283
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Balavac, Merima & Pugh, Geoff, 2016. "The link between trade openness, export diversification, institutions and output volatility in transition countries," Economic Systems, Elsevier, vol. 40(2), pages 273-287.
    2. Elias A. Baracat & J. Michael Finger & Raúl León Thorne & Julio J. Nogués, 2013. "Sustaining Trade Reform : Institutional Lessons from Argentina and Peru," World Bank Publications, The World Bank, number 15794, April.
    3. Ari Van Assche & Byron Gangnes, 2011. "Product Modularity and the Rise of Global Value Chains: Insights from the Electronics Industry," CIRANO Working Papers 2011s-64, CIRANO.
    4. World Bank, 2012. "From Political to Economic Awakening in the Arab World : The Path of Economic Integration - Deauville Partnership Report on Trade and Foreign Direct Investment, Volume 1. Overview Report," World Bank Other Operational Studies 11886, The World Bank.
    5. United Nations ESCAP (ed.), 2011. "Asia-Pacific Trade and Investment Report 2011: Post-crisis trade and investment opportunities," STUDIES IN TRADE AND INVESTMENT, United Nations Economic and Social Commission for Asia and the Pacific (ESCAP), number aptir2596.
    6. Daniel Saslavsky & Ben Shepherd, 2014. "Facilitating international production networks: The role of trade logistics," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 23(7), pages 979-999, October.
    7. ANDO Mitsuyo & KIMURA Fukunari, 2012. "International Production Networks and Domestic Operations of Japanese Manufacturing Firms: Normal periods and the Global Financial Crisis," Discussion papers 12047, Research Institute of Economy, Trade and Industry (RIETI).
    8. Jing Wang & Dana Medianu & John Whalley, 2011. "The Contribution of China, India and Brazil to Narrowing North-South Differences in GDP/capita, World Trade Shares, and Market Capitalization," NBER Working Papers 17681, National Bureau of Economic Research, Inc.
    9. Rudy Rahmaddi & Masaru Ichihashi, 2013. "The role of foreign direct investment in Indonesia's manufacturing exports," Bulletin of Indonesian Economic Studies, Taylor & Francis Journals, vol. 49(3), pages 329-354, December.
    10. World Bank, 2012. "From Political to Economic Awakening : The Path of Economic Integration - Deauville Partnership Report on Trade and Foreign Direct Investment, Volume 2. Main Report," World Bank Other Operational Studies 11887, The World Bank.
    11. repec:wsi:jicepx:v:05:y:2014:i:01:n:s1793993314400018 is not listed on IDEAS
    12. repec:wsi:jicepx:v:08:y:2017:i:01:n:s1793993317500053 is not listed on IDEAS

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