Eighty students and lecturers of international economics, international trading system, international relations and public economics from the Moscow State Institute of International Relations, the St. Petersburg State University and the North-West Institute of Management joined in for a videoconference presentation of the Trade and Development Report (TDR) 2014 October 15.
- Vlasta Macku
Developed countries managed to avoid a great depression, but remain plagued with high unemployment, stagnant wages, low investment, and sluggish growth. This is the result of an inappropriate policy mix: sole reliance on monetary expansion spurs asset price bubbles, as fiscal austerity and wage restraint dampen demand. Developed countries need a more ambitious policy mix and focus on reflation, regulation and redistribution to boost aggregate demand.
The group of CIS countries experienced an economic slowdown in 2013-2014, mainly driven by the slowdown in the Russian Federation which is expected to continue this year and probably next year. A specific feature of the Russian Federation was that private capital outflows have exceeded the current account surplus. This has created a financing gap that has to be covered by drawing down foreign-exchange reserves, raising foreign financing or a combination of both.
Further growth in developing countries is faced with several risks.
On the trade side, "economic growth in developed countries has come to be associated with much lower additional demand for imports from developing countries," Mayer said. This indicates that export-oriented policies in developing countries are becoming less effective as a strategy of economic growth.
"There are also risks on the financial side," he warned. "Capital flows to developing countries are parts of global financial cycles that tend to be driven by events in developed countries, rather than domestic needs of developing country economies."
Faced with these risks, developing countries need to find new drivers of growth.
In the area of trade, Mayer argued that "especially large middle-income developing countries need to rebalance their growth strategies from reliance on exports to developed countries to a greater role of national or regional demand." Commodity producers should continue to strive for getting a fair share of resource rents and using these revenues to spur diversification.
The greater policy ambition needed to foster such structural transformation and rebalance growth strategies, according to Mayer, " requires adequate policy space and fiscal space".
In this context, the report calls for public investment in infrastructure and human capital, industrial policies, the use of capital-account management as an ordinary instrument in a policymakers' toolkit, and efforts to increase domestic fiscal revenues.
Developing countries are advised to skilfully use the policy space available under the current trade and investment agreements. When engaging in Global Value Chains (GVCs), they should carefully consider potential trade-offs between short-term benefits from joining GVCs and difficulties in obtaining longer-term developmental benefits from upgrading within GVCs.
"Such trade-offs might arise if foregoing the use of certain policy instruments has been required to join GVCs. Bilateral and regional trade and investment agreements often contain such requirements", Mayer noted.
Finally, governments need to have enough fiscal space to mobilize more domestic revenues to finance investment and other public spending required for development. This involves containing transnational corporations’ "tax optimization" strategies and improving tax transparency at national and international levels.
The presentation was followed by a discussion about reasons for the sluggish growth, methods to measure growth and well-being, developments in international commodity prices and terms of trade, developing countries' influence on global rule making, the effectiveness of regional integration versus multilateral negotiations, the adequacy of policy instruments at countries' disposal to attain the goals of the post-2015 development agenda, and issues related to the Russian Federation, such as its diversification away from natural resources.