Active Trade policy for economic development 0 448

Biznomics-active-trade-policy5

Professor W. D. Lakshman

Biznomics-active-trade-policy2Do countries with lower barriers to international trade experience faster growth? This has been one of the most vigorously debated questions in economics and political economy. Mainstream economics since Adam Smith strongly favours free or freer trade. In contrast, different strands of political economy have been critical of these views. Liberal trade has become a policy position pursued by international trade organizations like the GATT (and after 1995, the WTO), and by international financial institutions like the IMF and the World Bank. For many in this line of thinking free trade has become an ideology. Renato Ruggiero, the first Director-General of the WTO, writing in the last decade of the twentieth century, argued that liberalization had “the potential for eradicating global poverty in the early part of the next [twenty-first] century—a utopian notion even a few decades ago, but a real possibility today”. The free trade ideology has attracted traditional elites and economic bureaucracies in many developing countries as well.

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The free trade policy prescription is based on the theory of comparative advantages developed by a long series of well-known economists starting from David Ricardo of the nineteenth century. (Ha-Joon Chang in our issue of May-June 2019 presents a lucid explanation of the fundamentals of comparative advantages theory). In reality however, international trading has never been free.  During the period of European colonialism, foreign trade was controlled by the imperial powers and a few large and powerful trading companies. Colonial territories were opened up for foreign trade using imperial power. Countries that could not be brought under direct colonial rule (e.g. Japan and Thailand in Asia) were compelled to open up for foreign trade through unequal treaties which they were forced into signing. Foreign trade in colonies and countries brought under unequal treaties was seriously disadvantageous to the territories concerned.

 

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After World War II and in the era of decolonization, there was the US domination of world trade matters. The currently prevailing pattern of international division of labour and the rules of the game governing international trade are being governed and managed by the set of international institutions referred to earlier, working according to dictates of the US-led bloc of Western powers. Various global forces operate in support of these institutions – the ideological commitment to free trade, bribery and corruption unleashed by MNC-led international capital, and numerous political pressures, occasionally backed up by military power of dominant nations.

Foreign trade has been described as an engine of growth (implying causality) or at least as a handmaiden of growth (implying concurrent movement). Countries which have experienced export-led or outward-oriented growth processes are cited in support of growth-engine or growth-handmaiden hypotheses.  Mainstream theory however ignores inward-oriented import substitution activities which often pioneered the economic growth processes of the countries concerned. The export-led characteristic developed later once production capacities were developed through import substitution. Historically, in the initiation, sustenance and guidance of both these growth processes – import substitution and export orientation – active trade policy has played a crucial and critical role. The effective policy stance here has never been free trade, passively leaving trade flows to global market forces. In effective trade policy stances there were always complex and dynamic combinations of openness and restrictiveness.

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A point of great significance in trade policy discussion is that every process of development, taking place over time and space, is unavoidably uneven from one region to another at the country level and across different countries at the global level. As development processes take place at different rates in different countries, some regions and countries have achieved development earlier than the others. In this process, the “developing countries” always have got themselves stuck in a “late development” syndrome, subjecting them to more disadvantage than advantage. The “one suit fits all” type of development policies advocated in different versions of neoliberal packages, are hardly likely to meet the development challenges of all developing countries. This point comes out strongly in the extensive trade policy debates in development theory and practice.

Cont..

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Rupee still not out of the woods 0 657

By : Kenneth De Zilwa

The USD/LKR has halted its slide temporarily. The main factor had being CBSL “Moral Suasion” and regular intervention in the spot market.  Despite these measure the external environment vulnerability had seen the currency slip by 19pct in 2018.

USD-&-LKR
Source: Thomsonreuters

 

The analysis below indicates the rupee weakness over the past 2 years. Thus we continue to believe that the overall trend of a stronger Dollar viz a viz the LKR would continue in 2019.

The Central Bank has made it position clear as they are going stick to an exchange rate policy of cautious intervention at times of excessive volatility in the forex market, Central Bank Governor Dr. Indrajit Coomaraswamy said on 4th January 2019 at the launching of the economic road map for 2019.

Recommendation by Econsult – Stay long Dollars and use opportunity of selling by the CBSL / Moral Suasion to buy Dollars on dips

Forward Market Quotes For USD/LKR- FWD prices must be used in pricing of Cost of sales

FWD price = Spot + Premium

Forward-Price
Source: Thomsonreuters

The Rise of the Indian Rupee 0 493

  • India’s economy will overtake the US by 2030. And will be the world’s youngest major economy.
  • In just 12 years, India will undergo a startling transformation…
  • By 2030, around 77% of Indians will be under the age of 44… and most of those will be under 25. The country will also have more than 1 billion internet users…
  • Every second, three or more Indians go online for the first time. And by 2030 India will be a middle-class Nation. Consumer spending will quadruple. Rising to nearly $5.7 trillion in 2030.
  • But the economy still faces major challenges. By 2022, more than half of Indian workers will need reskilling. And it still has some of the most polluted cities in the world.
  • India will need to ensure its fast-growing economy is inclusive.

Asian giants securely heading to overtake America

A new world economic order is in the making, with today’s emerging markets, including India, at the heart of it.

India is likely to become the world’s second-largest economy by 2030, next only to China and overtaking the US, according to Standard Charted Bank’s long-term forecast released on January 2008. The UK-based multinational bank also predicts that based on nominal GDP using purchasing power parity exchange rates, China will overtake the US by 2020.

Top 10 countries by nominal GDP in 2020.

Current emerging markets will likely make up the majority of the biggest economies by 2030.

Standard Chartered Bank had raised growth forecast for China and India from its projections in 2013. “India will likely be the main mover, with its trend growth accelerating to 7.8% by the 2020s partly due to ongoing reforms, including the introduction of a National Goods and Services Tax (GST) and the Indian bankruptcy code (IBC),” says the report.

Launched in 2017, the GST attempts to simplify India’s cumbersome tax regime, while the IBC, rolled out in 2016 would strengthen the country’s bankruptcy and insolvency laws.

“Our long-term growth forecasts are underpinned by one key principle: countries’ share of world GDP should eventually coverage with their share of the world’s population, driven by the convergence of per-capita GDP between advanced and emerging economies,” the report said.

Jobs, jobs, jobs

Aging populations are likely to weight on global growth, but India, home to the world’s largest group of young people, will remain unfazed, Standard Chartered Bank notes. Half of the country’s population is under the age of 25.

The bank expects “the rising aspirations of a young population to continue to support consumerism in India’s economy.”

But a young demographic also creates a demand for massive employment. About 100 million new jobs must be created in the manufacturing and services sector by 2030, according to the report. To achieve this, it says, the government needs to close a widening skills gap, raise the participation of women in the workforce, and ease labor laws.

“India needs to train circa 10 million people annually, but currently has the capacity to train just 4.5 million,” the report says.

It also calls for reform to boost spending on infrastructure and reduce growing economic inequality in the country.

Are you optimistic for India’s future?

By : Cameron Blake

Source:  Standard Chartered; Based on predicted nominal GDP