A Strategy for Economic Growth
5. The International Environment for Growth in Developing Countries Has Never Been Better
The principles laid out in this strategy remain valid regardless of fluctuations in the global economy. Nevertheless, it is important to recognize that the international factors affecting the growth prospects of poor countries are quite different from a generation ago, and are as favorable as at any time in history:
- Policymakers around the world have gained a broad understanding of the conditions needed to promote economic growth. While there is much “art” to improving economic policy at the country level – mostly relating to the politics of reform – the broad outlines of a growth-enhancing economic policy environment are more widely understood than ever before.
- Business climates have improved, and many governments are now actively working to improve their treatment of business enterprises.The business climate ratings published in the World Bank’s Doing Business series complement similar ratings by Transparency International, the Fraser Institute, the Heritage Foundation, and the World Economic Forum. These ratings help policymakers in poor countries compare their own regulatory environment with that of other countries – providing the basis for a “race to the top.”
- The expansion of the world trading system offers unprecedented opportunities for poor countries. Despite some protectionism by most countries, especially in agriculture and services, the current world trading system provides the greatest opportunity for global integration and poverty reduction the world has ever seen.
- Private international financial flows have grown enormously, and now dwarf official development aid in both magnitude and diversity. In all but some very poor countries, private international financial flows vastly exceed donor assistance. In many countries, private finance mainly takes the form of portfolio investment or short-term loans. Both are risky because of the potential for rapid reversals at the most inconvenient times. Direct foreign investment is more stable, because it is dependent on long-term results in the recipient country. Private remittances to many countries have grown dramatically, sometimes reaching 15-20% of GDP.
- The international flow of information and knowledge is faster, cheaper, and easier than ever. Along with large-scale migration from poor countries to rich ones, information transmitted through the internet means that people in poor countries are rapidly becoming better connected to the world’s fast-growing knowledge base. Broader access to information on economic performance in other countries provides an important tool to help citizens press their governments for greater transparency and hold them accountable for better performance in economic affairs.
- It is increasingly easy to identify and adopt “best practice” standards from experience elsewhere. There has been an enormous growth of “international public goods” provided by organizations that establish standards for a wide range of economic, political, social, health, gender, and environmental issues. Governments and civil society groups in poor countries – from professional associations of accountants or customs directors to stock-market regulators and private firms – can easily find information on best international practice, dramatically simplifying the challenge of developing appropriate national regulations.
Today, one negative factor for late-developing countries is that garment exports no longer provide poor countries the easy first step toward exporting manufactures that they did in the past, when the Multifiber Agreement (MFA) sheltered textile and garment exports through quotas. The end of the MFA is producing a consolidation of global production, leading to a loss of exports and jobs in less competitive countries.
A second negative factor has recently been suggested, which also applies to countries that have not yet emerged from economic stagnation and political fragility. According to this argument, the economic success of so many other developing countries in Asia and elsewhere has made it harder for late-developing countries to get moving, by making them appear even more unattractive to potential investors or trading partners – especially those countries that are landlocked or otherwise geographically disadvantaged.32 This is a serious argument. Nevertheless, almost all such countries can grow faster than they have in the past by reducing or eliminating self-imposed barriers to growth.
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