trade as an engine for growth-developing economies

8/3/2019 Trade as an Engine for Growth-Developing Economies

1/57

TRADE AS AN ENGINE OFGROWTH:CASE OF

DEVELOPING ECONOMY

By:

Ankit Kumar

Amit Behal

Shruti Munshi

Ashish Soin

Sonam Gupta


2/57

What is TRADE?

Trade is the transfer of ownership of goods and services from one

person to another.


3/57

INTERNATIONAL TRADE

International trade is the exchange of goods and servicesacross international borders.

The value of a country's total exports minus the value of its totalimports.


4/57

Importance of International Trade Without international trade, nations would be limited to the

goods and services produced within their own borders.

International trade is the backbone of our modern,

commercial world, as producers in various nations try toprofit from an expanded market, rather than be limited toselling within their own borders. There are many reasonsthat trade across national borders occurs, including lowerproduction costs in one region versus another, specializedindustries, lack or surplus of natural resources andconsumer tastes.


5/57

International Trade and the WorldEconomy Integration of the world economy has raised living standards

around the world specially in developing countries

Developing countries have become much more important inworld tradethey now account for one-third of world trade, up

from about a quarter in the early 1970s


6/57

Progress has been very impressive for a number of developingcountries in Asia and, to a lesser extent, in Latin America.

These countries have become successful because they choseto participate in global trade.


7/57

Trade=>Attraction Of FDI.

This is true of China and India since they embraced tradeliberalization and other market-oriented reforms.


8/57

INDIA : DEVELOPING NATION

Trade is one important factor for their rapid industrialisation.

Before 1991, India was a closed economy.

The government was close to default and its foreign exchange

reserves had reduced to the point that India could barely financethree weeks worth of imports.

The Government of India headed by Chandra Shekhar decidedto usher in several reforms that are collectively termed asliberalisation.

The reforms brought changes in three broad areas, collectivelyknown as liberalization, privatization and globalization.


9/57

Opening up of the Indian Economy

Before 1991 closed economy and import of certain goods wasrestricted.

After 1991 competition increased tremendously after theliberalisation.

Competitors from all over the world enter the Indian market


10/57

Trade with other countries resulted in

> increase in foreign exchange reserve In India.

>foreign capital-many multinational companies entered the country.

>new technologies came to the country.

All this resulted in increase in employment opportunities , infrastructuredevelopment , etc. which in turn resulted in overall economicdevelopment


11/57

About 24% of the countries GDP come from its foreign trade. It isinvolved in both import and export of commodities. The mostcommonly imported commodities are crude oil, gold, electronics etc.Indias major export commodities are textiles and garments,

pharmaceutical products, iron ore, jewellery etc.


12/57

Indian Foreign Exchange Reserves: a steady rise after

liberalization

2.2 17.054.1 75.4

118.3

294.01

0

50

100150

200

250

300

350

1990-91 1995-96 2001-02 2002-03 2003-04 2009-10

Foreign exchange reserves (US$ billion)


13/57

0

2

4

6

8

10

12

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

Gross domestic product, constant prices

Gross domesticproduct, constantprices


14/57

Suggestion

How many think for long rungoal, global trade are veryimportant than only trade?


15/57

Economic development in south Asia :istrade ( Globalisation ) the right answer


16/57


17/57

In South Asia we are taking :

Sri lanka.

India.

Pakistan.

Bangladesh.

Globalization along with trade is followed byincreased economic growth. Howeveropponents of Globalisation argues that it alsoincrease inequality and poverty.


18/57

There are few measures we can take tocompare the growth of nation becauseof trade due to Globalisation

Policy reform in the area of trade and foreign direct investment.

Growth in trade relative to GDP.

Growth in FDI relative to GDP.

Progress in the ICT sector.


19/57

The world trade organization secretariat considers thatINDIA is among the most liberal investment regimeWTO 2002 the rules and regulation vary acrossindustries but are frequently changed in the direction of

further deregulation.


20/57

There is a empirical studyconducted by FRANKEL andROMER in 1999 suggest that anincrease in the ratio of trade toGDP by 1% raises the level of

income by between 0.5% and 2%.


21/57


22/57

Thus it is very important to consider FDI into South Asia as an important factor whenanalyzing the potential gains to be made

from international growth because ofglobalizing experience. Performance of anation in attracting FDI can be assessed in

terms of the shares of FDI to GDP.


23/57

ICT


24/57

Information , Communication & technology

In this hitech era progress in the information,communication and technology sector is one ofthe prerequisites for the growth of nation.


25/57

Telephonemainlinesper(1000)

MobilephonesPer(1000)

Televisionsetsper(1000)

Personalcomputersper(1000)

InternetUsers

INDIA

1995 13 0 61 1.3 250,000

2001 38 6 83 5.8 7,000,000

PAKISTAN

1995 17 0 51 3.5 200

2001 23 6 148 4.1 500,000


26/57

Telephonemainlinesper(1000)

MobilephonesPer(1000)

Televisionsetsper(1000)

Personalcomputersper(1000)

InternetUsers

Sri Lanka

1995 11 3 78 1.1 1,000

2001 44 36 117 9.3 150,000


27/57

Global Trade and Economic Growth in SouthAsia


28/57

Average rate of GDP growth before and afterGlobal Trade

Bangladesh India Pakistan Sri Lanka

1980-1989 3.3

1990-2002 4.6

1980-1990 5.6

1991-2002 5.9

1980-1987 7.0

1988-2002 4.1

1977-2002 4.6

Source : World Bank(2003a)


29/57

BRICsBRIC (typically rendered as "the BRICs" or "the BRIC

countries" or known as the "Big Four") is a grouping acronym

that refers to the countries of Brazil, Russia, India, and China

that are deemed to be at a similar stage of newly advanced

economic development.

The acronym has come into widespread use as a symbol of the

shift in global economic power away from the developed G7economies toward the developing world.


30/57

Dreaming with BRICs:

The Path to 2050

o China's economy will surpass Germany in the next few years,

Japan by 2015, and the United States by 2041.

o India's growth rate will be the highest and it will overtake Japan

by 2032.

o BRICs currencies could appreciate by 300% over the next 50

years, providing a big tailwind for investors in BRIC assets.

o Taken together, the BRICs could be larger than the United

States and the developed economies of Europe within 40years.

o By 2025, BRICs will bring another 200 million people with

incomes above $15,000 into the world's economy.


31/57

The five largest economies in the world in 2050, measured in GDPnominal (millions of USD), according to Goldman Sachs.


32/57


33/57

Follow-up report

It highlights India's great inefficiency in energyuse and

mentions the dramatic under-representation of these

economies in the global capital markets.

The report also emphasizes the enormous populations that

exist within the BRIC nations, which makes it relatively easy

for their aggregate wealth to eclipse the G6, while per-capita

income levels remain far low. This phenomenon, too, will

affect world markets as multinational corporations will

attempt to take advantage of the enormous potential

markets in the BRICs by producing, for example, far cheaperautomobiles and other manufactured goods affordable to the

consumers within the BRICs in lieu of the luxury models that

currently bring the most income to automobile

manufacturers.


34/57

Second Follow-up report

"India has 10 of the 30 fastest-growing urban areas in the world

and, based on current trends, we estimate a massive 700 million

people will move to cities by 2050. This will have significantimplications for demand for urban infrastructure, real estate,

and services."

Statistics


35/57

Statistics

Categories Brazil Russia India China

Area 5th 1st 7th 3rd

Population 5th 9th 2nd 1st

Population growth rate 107th 221st 90th 156th

GDP (nominal) 8th 12th 11th 2nd

GDP (PPP) 9th 7th 4th 2nd

GDP (real) growth rate 113st 206th 6th 3rd

Human Development Index 75th 71st 134th 92nd

Exports 23rd 12th 18th 1st

Imports 24th 14th 15th 2nd

Current account balance 47th 5th 169th 1st

Received FDI 11th 12th 29th 5th

Foreign exchange reserves 7th 3rd 5th 1st
http://en.wikipedia.org/wiki/Brazilhttp://en.wikipedia.org/wiki/Russiahttp://en.wikipedia.org/wiki/Indiahttp://en.wikipedia.org/wiki/People's_Republic_of_Chinahttp://en.wikipedia.org/wiki/List_of_countries_and_outlying_territories_by_total_areahttp://en.wikipedia.org/wiki/List_of_countries_by_populationhttp://en.wikipedia.org/wiki/List_of_countries_by_population_growth_ratehttp://en.wikipedia.org/wiki/List_of_countries_by_GDP_(nominal)http://en.wikipedia.org/wiki/List_of_countries_by_GDP_(PPP)http://en.wikipedia.org/wiki/List_of_countries_by_real_GDP_growth_ratehttp://en.wikipedia.org/wiki/List_of_countries_by_Human_Development_Indexhttp://en.wikipedia.org/wiki/List_of_countries_by_exportshttp://en.wikipedia.org/wiki/List_of_countries_by_importshttp://en.wikipedia.org/wiki/List_of_countries_by_current_account_balancehttp://en.wikipedia.org/wiki/List_of_countries_by_received_FDIhttp://en.wikipedia.org/wiki/List_of_countries_by_foreign_exchange_reserveshttp://en.wikipedia.org/wiki/List_of_countries_by_foreign_exchange_reserveshttp://en.wikipedia.org/wiki/List_of_countries_by_received_FDIhttp://en.wikipedia.org/wiki/List_of_countries_by_current_account_balancehttp://en.wikipedia.org/wiki/List_of_countries_by_importshttp://en.wikipedia.org/wiki/List_of_countries_by_exportshttp://en.wikipedia.org/wiki/List_of_countries_by_Human_Development_Indexhttp://en.wikipedia.org/wiki/List_of_countries_by_real_GDP_growth_ratehttp://en.wikipedia.org/wiki/List_of_countries_by_GDP_(PPP)http://en.wikipedia.org/wiki/List_of_countries_by_GDP_(nominal)http://en.wikipedia.org/wiki/List_of_countries_by_population_growth_ratehttp://en.wikipedia.org/wiki/List_of_countries_by_populationhttp://en.wikipedia.org/wiki/List_of_countries_and_outlying_territories_by_total_areahttp://en.wikipedia.org/wiki/People's_Republic_of_Chinahttp://en.wikipedia.org/wiki/Indiahttp://en.wikipedia.org/wiki/Russiahttp://en.wikipedia.org/wiki/Brazil


36/57

The Scenario

It is estimated that China and India, respectively, will become the

dominant global suppliers of manufactured goods and services,

while Brazil and Russia will become similarly dominant as

suppliers of raw materials.

Brazil is the only nation that has the capacity to continue all

elements, meaning manufacturing, services, and resourcesupplying simultaneously.

Cooperation is thus considered to be a logical next step among

the BRICs because Brazil and Russia together form the logical

commodity suppliers to India and China. Brazil is dominant in soyand iron ore while Russia has enormous supplies of oil and natural

gas. Thus BRIC thesis documents how commodities, work,

technology, and companies have diffused outward from the

United States across the world.


37/57

Net Welfare Gain and Loss of FTA

Many developing countries still have been eagerly pursuing to

enter into trade blocs and other economic cooperationagreements, individually or collectively, with developed

countries..

Under the negotiation process: ASEAN-India FTA, ASEAN-USA

FTA, Japan-Thailand FTA (JTEPA), Thailand-USA FTA, Malaysia-USA FTA, Japan-Philippine FTA, Malaysia-Japan FTA, Korea-

USA FTA, and Thailand-Pakistan FTA, etc.


38/57

There is no definite answer as to why developing countries

insist on entering into such trade agreements, not withstanding

possible negative consequences.

It can be argued that developing countries affirmingly believe

in the laissez-fair economic philosophy that trade, eventually, is

welfare-enhancing

It is also believed that they wish to substitute the bi-lateral or

sub-regional FTAs for the seemingly unsatisfactory multilateral-

trade negotiations under the auspice of WTO in expectation

that they, individually, can gain better access to developedcountries markets through a better terms of trade.


39/57

o develop productive capabilities to take advantage of theopportunities for market access that have been opening up

since the 1990s, while also compensating for the loss of

preferential access to markets, and for other challenges

associated with trade reform and liberalization;

o gain access to technology, infrastructure investment and

human resource development; and

o establish an enabling domestic environment for private

investment and innovation and for supportive social safetynets.

Developing countries need to:


40/57

The BRIC thesis

The 2007-2009 financial crisis has been a major challenge for allof the world economy. The BRIC economies collectively appear to

have withstood the crisis better than many of their developed-

country counterparts. Indeed, their contribution to world

economic activity has increased even more through the crisis. Thisis likely to continue in the near, medium and long term. We now

think it is more likely, rather than less, that China will become as

big as the US by 2027. China, Brazil and India have all performed

particularly well, and although Russia has not done so recently, as

long as it recovers quickly, it deserves its position as a BRIC.


41/57

BRAZIL


42/57

Overview Of Brazil

Nationality: Brazilian.Population (2010 est.): 201million.

Annual growth rate: 1.17%.

Religion: Roman Catholic(74%).

Language: Portuguese.

Education: Literacy--88% ofadult population.

Work force (2009 est.): 101.7million.


43/57

OVERVIEW OF BRAZIL(CONT.)

Regional participation in GDP formation

57%

18%

7%

5%

13%

South EastSouth

Central West

North

North East


44/57

Brazil

Brazil is the fifth largest country in the world in area.

Growth potential and consumer market.

Broad industrial base and infrastructure, and adiversified economy.

Abundant agricultural, mineral and energy resourcesand potential.

Inflation under control in the last 10 years.

Increasing globalization and international trade, withGovernment policies favoring exports.

Foreign investors are eligible for most available fiscalincentives.

Economic Indicators


45/57

GDP: US$ 1.58 Trillion (IMF)

Growth Rate: 4.83 %

Inflation Rate: 4.60 % year

Foreign Direct Investment : US$ 35 Billion

Interest rates, SELIC at 8.75 % year

Foreign Exchange Rate: 1 USD = 1.75 Reais

Unemployment Rate: 7.42 %

190 Million Consumers with Increased Purchasing Power

Economic Indicators2010 Estimates

Source: Central Bank Brazil


46/57

Economic Environment

Brazil after posting growth rates of 5.7% in 2007and 5.1% in 2008, Brazils GDP dropped 0.2% in

2009.

Brazil emerged from the global financial crisis in2009 and economic growth is estimated to reach7.1% in 2010.

In recent years experienced sustained growth,strong exports, healthy external accounts,moderate inflation, decreasing unemployment, andreductions in the debt-to-GDP ratio.

Industrial Production


47/57

Industrial Production

During the Crisis

IBGE indicated growth of 0.7% in March

-14

-12

-10

-8

-6

-4

-2

0

2

4

Jan-08 Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan-09 Feb Mar

By category, in 1st trimester 2009 compared to same period of 2008, in % :

General industry: - 14.7 Consumer goods: -8.0

Capital goods: - 20.8 Durables: - 22.5

Intermediate goods: - 18.1 Semi and non-durable: -3.0


48/57

Trade in Brazil

President Lula has made economic growth and povertyalleviation top priorities.

To increase exports, the government is seeking access toforeign markets through trade negotiations and increasedexport promotion as well as government financing forexports.

Trilateral free trade negotiations with India and SouthAfrica, building on partial trade liberalization agreements.

Agriculture is a major sector of the Brazilian economy,and is key for economic growth and foreign exchange.

T E t f B il


49/57

Top Exports from Brazil

Orange

Soy

Corn

Sugar cane

Airplanes

Coffee

Oil

Iron ore

Ethanol

Meat

GDP growing projection for 2010


50/57

GDP growing projection for 2010

The world recovering

Source: Agencia Estado


51/57

CHINA

Chi 1949 1978


52/57

China 1949-1978

China followed a socialist heavy industry development

strategy.

Consumption was reduced while rapid industrialization was

given high priority.

Rigid policies and framework implemented for the Growth.

By 1956 67.5% enterprises were state owned and

remaining 32.5% jointly public-private owned. Heavy industries i.e. Iron, Steel, Coal, Mine etc were

pressurized for the inception of Development. 52

1978 1990


53/57

19781990

China began to make major reforms to its economy.

Political and social stability, economic productivity, and public and

consumer welfare were considered paramount and indivisible.

Reforms began in the agricultural, industrial, fiscal, financial, banking,

price setting, and labor systems

in 1978 to permit foreign direct investment in several small "special

economic zones.

53

1990 2006


54/57

19902006

In the 1990s, the Chinese economy continued to grow at arapid pace, at about 9.5%, accompanied by low inflation.

China's economy grew at an average rate of 10% per year

during the period 19902004, the highest growth rate in theworld. China's GDP grew 10.0% in 2003, 10.1%, in 2004,

and even faster 10.4% in 2005 despite attempts by the

government to cool the economy. China's total trade in 2006surpassed $1.76 trillion, making China the world's third-

largest trading nation after the U.S. and Germany. 54

Mil t d f t


55/57

Milestone and future

In mid-2010, China became the world's second largesteconomy, surpassing Japan's economy and second only to

the economy of the United States. In the second quarter of

2010, China's economy was valued at $1.33 trillion, ahead

of the $1.28 trillion that Japan's economy was worth.

Preliminary estimates China's 2010 total GDP to be worth

$5.7 trillion China could become the world's largest economy

(by nominal GDP) sometime as early as 2020.55

GROWING GDP


56/57

GROWING GDP

56


57/57

trade as an engine for growth-developing economies

Documents