While the world is understandably focused on COP 26 in Glasgow later this year, another critical conference took place in Barbados. UNCTAD’s 15th quadrennial conference was held virtually between October 3rd - 7th. The theme of the conference was from inequality and vulnerability to prosperity for all. This is a lofty and admirable aim, but the challenges developing countries face are increasing. Global trade and foreign direct investment enables integration into the global economy that is a crucial engine of growth and development.They are under threat from multiple forces in the coming decade:
geopolitics - global power dynamics, most obviously seen in the US-China trade war, have become a major force on the global economy. This trend is likely to worsen as national security concerns become a stronger determinant of a country’s trade and development policies. This is a major concern for developing countries as it becomes a major deterrent on the investment and supply chain decisions of multinational companies (MNCs). They may be forced to choose who they trade with or even be locked out of certain markets, further harming their trading opportunities.
climate change - the economic consequences of climate change - impacting growth through extreme weather events, trade disruptions and public expenditures - will be most severely felt by developing countries. Economic modelling by the EIU showed that some developing countries could see climate change reduce the size of their economies between 3-6% each year in the coming decades. This is an incredible amount of lost economic output that will negatively affect incomes and jobs in many countries, and the impacts will fall heavily on the most vulnerable groups.
technology - the so-called fourth industrial revolution could be transformative for economic development. However, it could also be harmful to developing economies if it results in more onshoring of production by advanced economies. It will take a major effort from global policymakers to ensure that advanced technologies are beneficial for emerging countries.
Individually, these trends present a challenge for development. Collectively, these challenges may be insurmountable.
As the global economy slowly recovers from covid-19 it is far from clear if trade and FDI flows will return to pre-covid levels. FDI trends had already begun to look worrying before the crisis, highlighting an issue that policymakers need to address immediately. This uncertainty will also lead to shifting supply chains as companies and governments look to increase resilience. For prosperity to be felt by all global citizens, policymakers will need to play a monumental role to ensure that developing countries are not left behind. Urgent action is needed, and meaningful change must emerge from the conferences in Barbados and Glasgow.
We will be building upon the themes discussed in Barbados in an upcoming Economist Impact webinar: making trade work in an era of new globalisation.