Academic Paper: “Commerce and Certain Policies Benefit the Development and Growth of Developing Countries”

| Theories and Policies of International Trade |
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DATE: May 23rd 2013
TO: Veronica Querejazu
FROM: Ignacio Orihuela Navarro
SUBJECT: Academic Paper: “Commerce and Certain Policies Benefit the Development and Growth of Developing Countries”

Introduction:
The main goal of this Academic Paper is to identify possible trade policies that allow countries like Bolivia to take advantage of the economic and social potential they have. To show how certain policies have been successfully implemented in different economies across the years and how they have shown to have positive impacts is a vital part of the paper. Another objective is to show with some examples how commerce with “the hand” of some policies is able to transform different economies and give us solutions and hope for a brighter future. There is a historic and geographic and demographic background that surrounds some cases in which certain policies were seen as positive. Finally as a conclusion, some recommendations that were found to be potentially very important. Better living standards, human indicators and more economic development are always main goals which can be achievable if some recommendations are transformed into actions.
Theoretical Framework/Development of Ideas
If we compare in a general view the economic and social development between the Developed and Developing economies, the gap is huge. However, as time goes by, the gap is becoming more and more little. Developing nations are gaining more power, weight and influence in the international context. Most of developing countries have a really high potential of growing in the economic and social aspect. There are some like Malaysia or Thailand who have already started to diminish “the gap” with developed economies. These countries have been developing other types of regular trade and have been facilitating trade platforms which makes them able to take advantage of the potential they have. One example is Thailand; “E-COMMERCE is starting to find a place in some of the world's emerging economies; Governments and businesses in a growing number of developing nations have begun building the infrastructure needed for online commerce, Thailand, for example, is starting to see results from a government strategy that began in 1996 and was updated in 2002.” By the other hand, there are some countries like Bolivia or Angola, which have great potential but they need to observe what other developing nations are doing , pay attention on different recommendations they receive and learn from past mistakes. If countries like us try to apply the same policies or trends used in Europe, probably results will turn out to be negative. One example is fiscal austerity. We all know Europe´s recession. Attempts to overcome crisis are dominated by fiscal austerity joined by “flexibilization” of the labor markets. The UNCTAD reports posses that these policies in practice “means wage restraint and in some cases massive wage reductions. However, these policies are more likely to further weaken growth dynamics and increase unemployment instead of stimulating investment and job creation. At the same time, as has been demonstrated with similar structural reform policies in the developing world over the past 30 years, they will also serve to reinforce the trend towards greater inequality.” If countries like Bolivia try to apply the same policies as Europe, probably they will have negative impacts in the economy because we have different geographic locations, economic development and we face different conditions. Instead of trying to analyze everything that developed nations do, we should try to analyze how more advanced developing countries than us perform. Advanced developing countries face the International Context with certain conditions which are similar to our conditions. Low wages, dependency on international prices or unequal income distribution. The relationship we have with countries like Brazil, Indonesia, Malaysia, Mexico or Egypt will gain more and more importance in the long term. Trade policies they implement could be very helpful to analyze study and probably implement inside our economy, because of the semblance we share in many aspects. Developed economies are protecting their markets, and new potential markets gain relevance. Many people agree on one issue; the balance of power between advanced and developing countries is shifting. Some important politicians like Kamal Nath, India’s former minister of commerce and industry support the idea. In an interview he expressed himself; “This new economic architecture is going to have new windows and new doors. It can’t be wished away.” India and Brazil are refusing to open their markets further to goods from Western countries without a substantial reduction in subsidies provided to Western producers in inefficient sectors”.One of the main reasons why Doha Round never fully worked, is because each country went on different directions. Countries like United States or France keep protecting some sectors, one good example is the agricultural sector.How they expect to liberalize trade if they don´t do it?. In this part I think some Rodrick´s ideas are really correct and describe very well the current situation.” Import restrictions and subsidies in industrial countries limit the growth of developing countries exports by supporting less efficient production in industrial countries”. One of the main objectives of Doha Round was “trade liberalization”. Obviously it didn´t happen as planned. “Frustrated by the moribund Doha round of trade liberalization, which has been stuck in a cul-de-sac since 2008, the world’s rich economies have gone their own way. America and the European Union will soon get busy on an alluring Trans-Atlantic Trade and Investment Partnership (TTIP): axeing non-tariff barriers between the two could boost output by perhaps 3%”. New blocks are forming, “Emerging markets came into their own early in the Doha round, rejecting unappealing rich-world offers.” We might predict that many alliances are forming in a promising way (NAFTA, Mercosur or Pacific Alliance.) Countries like Bolivia have to be part of new alliances in order to receive possible benefits. We have to make a deep analysis of the situation also, if our products enter new markets, the possibility of entrance of other products to our territory will also be a reality. Still we may gain a lot; one good example is Mexico and United States.” Mexico, which sends almost 80% of its exports to the United States, shares America’s desire for more open goods markets and, as a member of the TPP club, is likely to consider the rules expected to come out of those negotiations to be a model for any multilateral trading system.” Both are really different in terms of efficiency, productivity, or market demand and tastes (just like Bolivia and Brazil). But still high benefits can be archived. As a block, we could reach markets we never dreamt of reaching.

Conclusions and Recommendations

Countries like Thailand are an example of how mixed strategies between the private sector and the government can be efficient to improve trade conditions in the country. The exponential growth of E- Commerce in the last decade has been impressive. They have built the appropriate platform and structure to boost E- Commerce. The government has provided Internet to almost 12 million people, and has started to promote along with the private sector, low price PC´s. They are giving their people the opportunity and the tools to promote E-Commerce. Countries like Bolivia should try to build and provide infrastructure and tools to promote commerce with government and private intervention. “Bolivia has the lowest Internet penetration in the region, and access to Internet is the most expensive if we compare with other countries.” We have to be able to change this .We have to give our country the opportunity to be more competitive. The fastest growing developing nations represent giant markets for countries like us, we should try to establish long term and excellent relationships with them. These nations (China, Brazil, India, Singapore, Mexico, etc.) have a huge weight in the International Context. If countries like United States or Japan lose money protecting their producers with inefficient subsidies or import quotas, provoking other developing nations who see how big markets are being closed; we should be there to take advantage of the situation. Opening our market, tearing down tariffs over certain goods and exporting more to them, they represent huge markets. This is why it is so important for a country like to Bolivia to enter to an important integration block. One which represents the opportunity of reaching big emerging markets. Taking out our products through Peru or Brazil would mean a lot for Bolivia. They belong to important economic integration blocks-, we should be part of the same progress they are having in terms of trade. Geographically we are neighbors of Brazil the 5th economic potency in the world. Lowering tariffs in some strategic sectors, stop subsidizing inefficient sectors and improve our volumes of exportation are some key points to make our economy grow. Burocracy makes other countries to lose interest in investing in Bolivia, the FDI flow to Bolivia is practically nothing compared to other developing nations, we have to be able to provide foreign investors of a fast and solid platform to make business and investments in our country. Try to analyze faster growing developing nations who have developed their economies in the past years (Taiwan, Singapore, Panama, Colombia, etc), not the ones we always analyze (Japan, USA, Germany) our conditions are more alike the faster developing nations, we differ from the Developed countries in so much many aspects (culture or human indexes of development). Try to save money(recommendation from the FMI) to invest it later on long term projects. Transforming this recommendations into actions could make grow and develop of economy

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