A partnership with academia

Building knowledge for trade and development



As part of activities of the Trade, Investment and Development Observatory at Vi core Colombian member, Universidad EAFIT, the Vi organized a presentation of the latest edition of UNCTAD's Trade and Development Report (TDR) November 10. The event, introduced by Carolina Herrera, analyst at the Observatory, was attended by 21 participants -- students and lecturers from the university and representatives of the press.
The presentation was delivered by the leader of the TDR team, Alfredo Calcagno, of UNCTAD’s Division on Globalization and Development Strategies, who situated the report "in between academic work and policymaking, tackling in a rigorous way the problems in the world economy, in particular in developing countries, from the economic policy perspective."

According to Calcagno, the current relatively low growth rates of the world economy are essentially a demand problem triggered by low wages and low real investment in developed countries.
"A part of the problem," he said, "is that the roots of the crisis -- distributional inequality and financial speculation -- have not been addressed."
This has negative repercussions on growth prospects of developing countries:  as developed country imports now grow more slowly than their total output, this limits developing countries' export opportunities.
"Is this a short-term trend or a structural change?," he asked. 
Evidence seems to point to the structural change hypothesis. In Calcagno's view, therefore, developing countries need to reorient their growth strategy from exporting to developed countries and put more emphasis on domestic and regional markets.
To adjust their offer to the demand of these markets, in particular the growing middle class with more diversified patterns of consumption, developing countries will need to adapt their industrial basis to be able to offer a wider assortment of manufactured goods, but also services. 
To achieve such structural transformation, the TDR calls for the use of industrial policy supported by appropriate macroeconomic policies, and public investment in infrastructure and human capital.
Addressing the current structural weaknesses and ensuring inclusive growth in developing countries requires both policy space (i.e. the legal framework allowing the use of industrial policy instruments) and fiscal space (i.e. financial resources to undertake such policies).
"Some multilateral, and in particular bilateral agreements, contain limitations with regard to the use of industrial policy instruments," Calcagno said, "but there is still some margin of manoeuvre." 
"Developing countries should carefully consider potential loss of policy space when engaging in bilateral and regional trade and investment agreements," he added.
With increasing globalization and the use of fiscal havens by transnational corporations (TNCs) and banks, it is becoming more difficult to mobilize domestic fiscal revenues, Calcagno explained. 
"Corruption and capital flight by households are only a small part of this problem," he affirmed.  "A large part of foregone revenue is related to tax evasion and transfer pricing by TNCs, along with ‘race to the bottom’ tax competition in extractive industries."
Possible solutions include renegotiations of royalty contracts with mining and oil companies, a bigger role for developing countries in the efforts to increase transparency, universal taxation of companies irrespective of the physical location of their headquarters and affiliates, as well as a possible UN-led international convention against tax avoidance and evasion.
The audience highly appreciated the presentation and the arguments that were laid out. 
"According to the participants, this has been one of the best conferences they have ever attended on macroeconomics," wrote Maria Alejandra Gonzalez-Perez, Vi coordinator at Universidad EAFIT.