Crucial role of trade in narrowing income gap among nations: WTO

From 1996 to 2021, a high trade share in gross domestic product (GDP) is significantly correlated to faster growth in low- and middle-income economies, converging to the level of GDP per capita in high-income economies, it says.

“Perhaps the biggest takeaway from the report is its reaffirmation of trade's transformative role in reducing poverty and creating shared prosperity—contrary to the currently fashionable notion that trade, and institutions like the WTO, have not been good for poverty or for poor countries, and are creating a more unequal world,” WTO director general Ngozi Okonjo-Iweala says in her foreword to the report.

“But the second biggest takeaway is that there is much more we can do to make trade and the WTO work better for economies and people left behind during the past 30 years of globalisation,” Okonjo-Iweala says.

Moreover, membership in the WTO and its predecessor the General Agreement on Tariffs and Trade (GATT) has boosted trade among members by an average of 140 per cent, while economies that undergo rigorous WTO accession negotiations are shown to grow 1.5 percentage points faster during their accession period, it notes.

Analysis further suggests that trade cost reductions between 1995 and 2020 led to a 20-35 per cent faster income convergence of low- and middle-income economies with high-income economies, a release from WTO said.

Contrary to common belief, the report found weak correlation between trade openness and within-country income inequality, based on a comparison of the 2021 Gini inequality index and trade openness index of 157 economies. While income inequality remains high it is not systematically linked to trade and import competition.

The report also highlights challenges, noting that many economies with weak trade participation and high commodity dependence have been left behind.

Between 1996 and 2021, low- and middle-income economies that grew slower than the average high-income economy in income-per-capita terms represented 13 per cent of the global population and were mainly in Africa, Latin America and the Middle East.

Low- and middle-income economies that have lagged behind generally tend to engage less in international trade, receive less foreign direct investment, rely more on commodities, export less complex products and trade with fewer partners.

“Less trade will not promote inclusiveness, nor will trade alone,” WTO chief economist Ralph Ossa says. “True inclusiveness demands a comprehensive strategy—one that integrates open trade with supportive domestic policies and robust international cooperation.”

The report emphasizes the need for a comprehensive strategy that integrates open trade with supportive domestic policies to make trade more inclusive such as vocational training, unemployment benefits, education for a more skilled and mobile workforce, competition policy to ensure consumers benefit from lower prices, reliable infrastructure, and well-functioning financial markets.

Reducing trade costs, bridging the digital divide, and updating the WTO rulebook to reflect the growing importance of trade in services, digital, and green sectors are essential, it adds.

Fibre2Fashion News Desk (DS)