Globalisation has eroded traditional barriers to trade and finance allowing many economies to enjoy free trade that enabled prosperity. As a result, globalisation is responsible for large increases in world trade, fluid flows of capital and higher returns, lower cost imports, job creation and escape from poverty for hundreds of millions of people.
However, whilst globalisation was championed as the foundation of improved global growth, we now know that the prosperity it delivered between the 1960s and 1990s was typically neither fair, nor equal. As economist Richard Baldwin pointed out, nearly all of the gains from globalisation have been concentrated in six countries.
This is because for the millions of people living in rural areas of Least Developed Countries (LDCs) – where extreme poverty and food insecurity are concentrated – significant barriers continue to prevent the full benefits of open trade. These barriers include poor and unreliable access to infrastructure and public services, high costs for goods, services and transport, lower population densities and poor connectivity. As a result of these discrepancies, over the last eight years, the percentage of global trade generated by LDCs declined from 1% to 0.8%
Open trade and market access are proven drivers of economic growth and poverty reduction in countries at every level of development. Consequently, countries that engage in new supply chains and markets through international trade typically grow faster and provide more opportunities than countries that do not trade openly.
Further, by increasing growth, trade can make available the necessary resources to implement other development targets in the social and environmental sphere. It also contributes directly to poverty reduction by opening up new employment opportunities and reducing the prices of goods and services for poor consumers, including foodstuffs. In addition, integration into the multilateral trading system also helps the long-term growth prospects of developing countries by providing them with access to new markets, new technologies and new investment, making their development sustainable.
As a result, fostering inclusive trade is an important part of the implementation of the Sustainable Development Goals a set of objectives established the United Nations to address poverty reduction, trading challenges and inequalities in less developed economies.
However, in order for LDCs to increase or improve their levels of trade, it is necessary to adopt approaches that ‘mainstream trade’ into their national sustainable development strategies to improve inclusivity. As the World Trade Organisation (WTO) points out: ‘mainstreaming trade policies into development plans enhances coherence in the use of trade as a proactive tool in achieving poverty reduction and fulfilling other SDGs among all stakeholders’.
The WTO also suggests actions that would help to ensure that international, inclusive trade contributes to accelerating progress in achieving the SDGs. These include;
The common denominator in all of the points is the need for fresh ideas and new approaches. Consequently, innovation is an essential driver of economic progress that benefits consumers, businesses and the economy as a whole.
In economic terms, innovation describes the development and application of ideas and technologies that improve goods and services or make their production more efficient. One of the major benefits of innovation is its contribution to economic growth. Simply put, innovation can lead to higher productivity, meaning that the same input generates a greater output. As productivity rises, more goods and services are produced – in other words, the economy grows.
For example, whilst traditional theories of economic development consider trade and Foreign Direct Investment (FDI) as catalysts of international technology transfer, innovation can take this a step further, enabling “inclusive structural change” of the wider economy, bringing about far reaching benefits across multiple sectors. For instance, innovation enables productivity to rise or new markets to be accessed, meaning that the wages of workers increase, they have more disposable income and so can buy more goods and services in their local economy. At the same time, businesses become more profitable, which enables them to invest and hire more employees.
Greater comprehension of the innovation pathways that ensure autonomous, sustainable and inclusive growth, sustainable open trade and poverty reduction at scale, could reverse the decline in global trade contributions from LDCs. It could also allow a more level playing field for trade in the future.
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