Global Economic Prospects 2003 Investing to Unlock Global Opportunities

Uri Dadush and Richard Newfarmer World Bank

15

Global prospects Global recovery shows signs of faltering… Industrial production, 3-month / 3-month percent, saar Developing countries

10 5 0 -5 -10 Jan-99 Jul-99 Jan-00

High-income countries

Jul-00 Jan-01 Jul-01 Jan-02 Jul-02

Source:

National sources through Datastream and World Bank staff estimates

.

Global prospects But several factors suggest growth may resume…

15

Industrial production, 3-month / 3-month percent, saar Developing countries Forecast

10 5 0 -5

High-income countries

-10 Jan-99 Jul-99 Jan-00 Jul-00 Jan-01 Jul-01 Jan-02 Jul-02

Source:

National sources through Datastream and World Bank staff estimates

.

Jan-03 Jul-03

4 3

Global prospects Medium-term outlook is subdued...

6

GDP growth, percent change over previous year

5

5.2

2

3.4

1

2.1

1.4

0.8

0 -1 2000

High-income OECD

2001 2002 2003

2.6

2004

2.9

2.8

3.9

4.7

2000

Developing countries

2001 2002 2003 2004

Source:

DECPG staff estimates, World Bank.

3 4

Global prospects ...but it could be worse

6

GDP growth, percent change over previous year

5

Low case

2

3.4

1

1.4

1.5

0.8

0 -1 2000

High-income OECD

2001 2002 2003

2.1

2004

5.2

2.9

2.8

3.0

4.7

2000

Developing countries

2001 2002 2003 2004

Source:

DECPG staff estimates, World Bank.

Global prospects East Asia is likely to lead other regions… Developing regions’ real per capita GDP growth in the base case, 2001-2004

Percent

2001 6

5.4

5.2

5.3

2003

4.5

4.2

3.6

3.5

3.3

3.5

3

2.7

2.7

2.2

2.3

1.5

1.7

1.3

0.1

0.6

2002 2004

0.5

0.1

0.9

1.5

0

-1.2

-3

East Asia South Asia

Source:

DECPG projections, World Bank.

East. Eur. & Central Asia -2.6

Latin America Middle East & North Africa Sub-Saharan Africa

Global prospects Long term outlook remains promising…

Percent

7

6.4

Real per capita GDP growth, 1990-2015 5.4

5

4.0

3.3

3.4

3

2.6

1.6

1

1990s 2005-2015 1.0

1.3

1.6

-1

-0.4

-1.9

-3

East Asia South Asia

Source

: DECPG projections, World Bank

East. Eur. & Central Asia Latin America Middle East & North Africa Sub-Saharan Africa

40 30 20 10 0

Global prospects Poverty goals are likely to be reached in most regions, but Africa lags…

60

Percent of pop. living below $1/day 1999

50 East Asia

Source

: World Bank staff.

South Asia Eastern Europe & Central Asia Sub-Saharan Africa Latin America & Caribbean 1999 Middle East & North Africa

40 30 20 10 0

Global prospects Poverty goals are likely to be reached in most regions, but Africa lags…

60

Percent of pop. living below $1/day 1999

50

Millennium Development Goals

East Asia

Source

: World Bank staff.

South Asia Eastern Europe & Central Asia Sub-Saharan Africa Latin America & Caribbean 1999 MDG 2015 Middle East & North Africa

Global prospects Poverty goals are likely to be reached in most regions, but Africa lags…

60

Percent of pop. living below $1/day 1999

50

Forecast 2015

40 30 20

Millennium Development Goals

10 0 East Asia

Source

: World Bank staff.

South Asia Eastern Europe & Central Asia Sub-Saharan Africa Latin America & Caribbean 1999 Forecast 2015 MDG 2015 Middle East & North Africa

Three questions....



How are changes in the global economy affecting opportunities for developing countries?



What can developing countries do to improve their investment climates?



How can international cooperation help?

Changes in global economy Foreign investment flows have weakened… US billions 200 80 60 40 20 180 160 140 120 100 0 1990 1991 1992 1993 1994 1995 …infrastructure down 1996 FDI to developing countries 1997 1998 1999 2000 2002 …shift to services… …and greater investor sensitivity to investment climate.

Improving domestic policies How can developing countries improve the level and productivity of investment (domestic investment as well as FDI)?



Lowering policy barriers that restrict competition can increase productivity



Improving investment in public goods can raise productivity

Improving domestic policies Import competition can drive productivity

25 20 15 10 5 0 percent 40 35 30 India China Philippines Thailand Malaysia Korea Average tariff rate Average productivity

Source

: World Bank Staff, based on survey of more than 5,000 firms

16 14 12 10 0 2 4 6 8

Improving domestic policies Removing regulatory barriers to competition can drive growth and productivity Growth of main line connections… …and of productivity

Fixed line telephones, 1990s Percent Percent

7.3

13.8

5 0

13.8

31

Privatized Privatized with competition 35 30 25 20 15 10 Privatized Privatized with competition Source: Fink, Mattoo, and Rathindran, 2002

Doha: Investment and competition policy How can international cooperation enhance investment and competition?

WTO ministers to consider taking up two new issues…

–

International investment

–

Competition rules

Where is the largest development payoff?

Doha: Investment and competition policy An international investment agreement could have two dimensions…



Liberalizing market access for foreign investors



Creating new protections for foreign investors

Doha: Investment and competition policy Cooperation on competition could take up two topics of importance for development…



International cartels



Exemptions from antitrust laws…

– –

National export cartels Maritime transport

Doha: Investment and competition policy The big investment and competition problems of developing countries are… …barriers to their exports Tariffs facing exporters based in rich and poor countries

 

Trade barriers discourage investment developing countries’ in export industries …and trade barriers prevent competition from developing countries in protected markets 7 6 5 4 3 2 1 0 Rich countries Developing countries

Conclusions....



Global environment is precarious... underscoring concerns for most vulnerable economies



Developing countries should not wait for a Doha Agreement to improve their domestic investment climate



Moving forward with Doha Development Agenda is crucial...but the emphasis must be on the big development issues