Students and faculty members from Vi Pakistani core university member, the Institute of Business Administration (IBA), joined UNCTAD for a videoconference presentation of the latest Trade and Development Report (TDR). The event, held December 2, attracted an audience of around 160 participants, and included several representatives of the print and electronic media.
TDR co-author, Padmashree Gehl Sampath, of UNCTAD’s Division on Globalization and Development Strategies, highlighted the loss of dynamism in the global economy, with GDP growth rates below 2.5 percent, and a marked slowdown in global trade.
“The loss of dynamism in developed economies, combined with low commodity prices, is having knock-on effects on most developing countries," she said. "Outside Asia, developing countries are no longer reducing the income gap with advanced economies, and mining and oil exporters are the most affected.”
According to the report, developing countries should not simply rely on exports to foster development and achieve sustained growth.The export-led growth strategy has diminishing returns now and it is no longer welfare enhancing. Therefore, broader industrialization policies are needed to enhance inclusive growth.
“Manufactures still matter for structural transformation,” Gehl Sampath said. “Such activities create formal employment, incomes and demand, and accelerate productivity growth.”
A critical issue is how the industrial policies are designed, she explained. It is not about picking winners of a particular economic activity, but rather about using industrial policy to strengthen capabilities of a large number of actors across sectors. To that end, the report emphasizes the need to strengthen production and knowledge linkages between manufacturing industries and the rest of the economy, including services.
Positions in the debate on how to promote industrialization typically supported either export-led or import-substitution strategies as two distinct approaches.
“But these are not two unconnected options to industrialize,” she said. “All the countries that were successful in industrializing over the last four or five decades, definitely relied on export-led growth and did not give up on import substitution.”
Structural transformation requires reinvestment of profits into the business, but most developing countries are currently investing well below the rate required for an investment push.
According to the report, policymakers should provide the right conditions to enhance an investment-profit nexus. Proper taxation rules can facilitate profit reinvestment, and incentives for the financial system can provide adequate liquidity to allow small and medium enterprises to boost their investment.
"The presentation by UNCTAD was insightful and added an interesting extension of industrial development to the debate on the changing patterns of international trading activities," said IBA Vi member coordinator, Aadil Nakhoda. "This discussion was relevant to the case of Pakistan, as lack of industrial diversification has contributed to declining exports and increasing import dependency."