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Building knowledge for trade and development


Thirty-five students and lecturers from Vi core member, the Belarus State Economic University, gathered at the UNDP office in Minsk for a videoconference presentation of UNCTAD's Trade and Development Report (TDR) 2014 December 2.
The findings of the TDR were presented by report co-author, Jörg Mayer, of the Division on Globalization and Development Strategies.
"Six years after the outset of the crisis, economic growth in the world still remains rather low, in particular in advanced countries," Mayer said while introducing the context of the report. "Our argument is that the main problem in this group of countries is insufficient demand. Developed countries need a more ambitious policy agenda and to combine monetary and fiscal stimulus with incomes policy.”
Developing countries have been faring better in terms of growth, but their future prospects may be affected by several potential risks. On the trade side, their growth may suffer from lower import demand from developed countries, as well as a less favorable development of commodity prices. 
In addition, "capital inflows follow the economic fluctuations in developed economies and do not depend on what happens in developing countries themselves. The resulting financial instability is a threat to these countries," Mayer warned.
Faced with these challenges, developing countries should adopt more ambitious policies and look for new growth drivers. 
"They need less emphasis on exports and more emphasis on domestic demand," he suggested.
To benefit from these new growth drivers, developing countries will need to address their structural weaknesses, in particular through public investment in infrastructure and human capital. Also needed is better use of industrial policy supported by appropriate macroeconomic measures, and stable long-term capital flows rather than relying on volatile short-term portfolio flows.
In order to implement such ambitious policies, developing countries will need policy space (the availability of effective policy instruments) and financial resources.
In the area of trade and investment, the report suggests that developing countries should use their existing policy space to the fullest and carefully consider new international commitments. 
With regard to financial flows, "it is necessary that they use capital account management as a standard policy instrument, not only as last-resort measures in the time of crisis, but to anticipate and address problems before they get out of hand," Mayer stressed.
Greater policy space must be complemented by greater fiscal space. To finance investment and other public spending for development, developing country governments should mobilize, on a priority basis, domestic fiscal revenues, which are more reliable than aid, and more sustainable than debt, i.e. potential  other revenue sources. Domestic fiscal revenues have been seriously constrained by tax optimization practiced by transnational companies, as well as tax competition among countries wishing to attract foreign investment.
"Both national policies and international measures are needed to redress this situation," Mayer said. "At the national level, countries can try to renegotiate contracts in extractive industries. They can also adopt legislation preventing the misuse of transfer pricing."
"At the international level, led for example by the OECD or the G-20, there have recently been some initiatives that go in the right direction as they improve transparency and constrain tax evasion. A possible UN-led multilateral framework, which would for instance extend transparency commitments also to private enterprises, could also be envisaged," he concluded.
The presentation triggered a number of comments and questions from the participants. They related to the reasons for the currently observed low share of wages in GDP, the use of industrial policies, the approach toward the participation in global value chains, the recent evolution of world oil prices, the reasons for their fall and their impact on the exchange rate of the Russian ruble and on prices of other commodities.