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WORLDBANK-TRADE-POVERTY
Persistent trade tensions risk worsening poverty: World Bank
WASHINGTON, Oct 9, 2019 (BSS/AFP) – As global trade tensions persist,
investments are put on hold and without that cash to boost economic growth,
poverty could surge, the World Bank’s chief economist warned Tuesday.
Without growth “inevitably, people will struggle,” Pinelopi Koujianou
Goldberg said in an interview with AFP.
The US-China trade war — involving hundreds of billions of dollars in
two-way trade — is at the center of global disputes that also include
Washington’s friction with the European Union, changing rules over US trade
with Canada and Mexico, and Brexit.
Amid the uncertainty, investments have declined, which undermines growth,
especially in poor regions like Africa.
“This means that some countries will never manage to get out of poverty,”
said Koujianou Goldberg, who has joint US-Greek nationality.
“But it also means countries that have managed to lift themselves out of
poverty, that have become middle income countries by now, they may revert,
they may go backwards.”
Koujianou Goldberg said it is a particular concern for Africa, where
poverty is concentrated and economies are more fragile — but also where debt
levels are “higher than ever,” increasing the risk of a financial crisis.
The World Bank and International Monetary Fund are among forecasters who
have cut projections for growth this year and next, and the trade wars have
continued and even worsened in recent months.
“Many of us thought the trade tensions were a temporary phenomenon, that
they would have gone away by now. But instead, they have escalated over
time,” she said.
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WORLDBANK-TRADE-POVERTY 2 LAST WASHINGTON
– ‘Global value chains’ –
The World Bank released a report Tuesday warning that if the trade
conflict worsens “more than 30 million people could be pushed into poverty
(measured as income levels below $5.50 a day).”
That equates to a drop in global income of as much as $1.4 trillion, the
report said.
But trade continues to provide a lifeline to pull countries out of
poverty, Koujianou Goldberg said, if policymakers take steps to plug into
worldwide production linkages knows as “global value chains.”
These production links involve parts and components going back and forth
across borders to finally produce finished goods for sale.
The advantage for less developed countries is that they can step onto the
production ladder with just one component, without needing the advanced
technology and skills to manufacture a finished product.
“And little by little — and many countries have managed to do that — you
can climb up the value chain, you can transition from producing very simple
parts to producing more sophisticated parts,” she said.
That increases productivity and boosts economic growth.
These links expanded rapidly prior to the global financial crisis,
accounting for nearly half of trade worldwide, but the report says the growth
has slowed or even dipped in the years since.
The World Bank is urging countries to focus on reforms that allow them to
tap into these global value chains. For the least developed economies, that
could be as simple as improving logistics to reduce log jams for goods at the
border, she said.
For middle income economies, it is improvements in roads and ports and
joining free trade agreements to ensure “trade across countries is
frictionless.”
“Your strategy really depends on your stage of development.”
South Korea and Poland “have managed in a relatively short period of time
to transition from very simple manufacturing to innovation-intensive
activities.”
Mexico had success early on with auto manufacturing but then “got stuck,”
Koujianou Goldberg said, partly because of a conscious decision to not invest
in education and training in order to keep wages low.
“If you try to keep wages low forever, and you don’t invest in your
people, eventually you’ll be stuck,” she said.
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