Trade_ Inclusive Growth and Inclusive Policy Making

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					Trade, Inclusive Growth and
  Inclusive Policy Making
      Ponciano Intal, Jr.
• Inclusive growth : broad-based, pro-poor
  growth, growth with equity
• International trade promotive of inclusive
  growth entails complementary measures in
  both policy and institution building
• Promoted by inclusive policy making
• Benefit from expansion and deepening of
  community based monitoring systems.
    Benefits of International Trade
• International trade welfare enhancing overall.
• Globalizers grew faster, higher trade, higher
  share of manufacturing to total employment and
  output, and higher wage rates than non-
  globalizers (WB; Rama)
• Trade key element of East Asian Miracle
• Trade: reference against global competitors,
  impetus for greater efficiency, product quality,
  supply reliability, creativity, organizational
       Trade and Inclusive Growth:
• However, international trade not automatically
  growth inclusive except with homogenous
  factors and factor mobility between sectors
• Critical factors toward inclusive growth: (a)
  Investment climate and investment rate; (b)
  capability, infrastructure and access to skill
  development; ( c ) agriculture volatility and
  natural resources concentration; (d) quality of
  institutions, regulatory climate and governance
          Trade and Inclusive
          Growth: Experiences
• Increasing inequality in high growth East
  Asia (e.g., China)
• Sharp trade expansion with rise in poverty
  incidence in some African countries; e.g.,
  Madagascar, Burundi, Central Af Repblic
• Sharp rise and diversification in
  manufactured exports but declining share
  of manufacturing in total output and
  employment (Philippines)
        Trade and inclusive growth
• Any happy resolution bet. the globalization
  demands of economic efficiency and the
  imperative of social equity of inclusive growth?
• Rests on:
  –   quality of the investment response,
  –   workings of the labor market and industrial relations,
  –   overall macroeconomic environment, and
  –   quality of government institutions and related policies,
      among others.
     Investment and Adjustment
• Effective restructuring and successful
  adjustment involves investments.
• Investment rates(2006): RP-17%;
  Thailand-23%; Vietnam-34%; China-43%.
• Wrenching adjustment in RP
  manufacturing in tandem with low and
  declining investment rate
• Improving investment climate and
  performance key policy concern for RP
            Investment Climate:
            Determinants of FDI
• Regressed FDI to GDP ratio on selected
  indicators in World Competitiveness Survey
  2002-2006 for selected Asian countries
• Ratio increases if: GDP rises, school system
  meets demands of competitive economy, lower
  investment risk, more facilitative customs, lower
  unit labor cost, currency depreciates, lower
  bribery and corruption, better quality of the govt
  bureaucracy, improved infrastructure
• Ratio decreases if: higher real domestic
  interest rate
    Determinants of FDI (cont’d)
• FDI influenced by quality of economic
  governance, quality of institutions,
  structural factors like quality of
  infrastructure and educational system.

• Determinants of FDI above also echoed by
  domestic investors
       Improving Agri Productivity and
            Transportation Links
• Robust agri productivity growth key factor plus rising labor intensive
  manufactures for fast rate of poverty reduction in countries like
  China, Vietnam, Indonesia (1980s) among recent success stories.
• Stagnant agri productivity, high population growth, poor rural roads
  led to farmers as net food consumers and malnutrition in some
  African countries.
• RP turned agri net importer, hurt poverty reduction
• Agri development central to pro-poor growth esp. in Africa. Good
  roads important for farmers in hinterlands get access to main
  domestic markets under open trade
• Good seeds, fertilizer, irrigation, R & D and farmer training important
  for robust agri productivity & growth
        Human capital, Safety net
• Improved human capital, labor –management
  relations and basic social safety net in health
  and education increase labor productivity and
  mobility intersectorally and across skills, result to
  smoother adjustment and support inclusive
• Rural education key factor for fast reduction in
  poverty in China in 1980s
• Social cost of labor displacement high;
  globalization raises firm “churning” and labor
  displacement: hence, basic limited duration
  basic safety net needed
           Inclusive Policy Making
• Trade lib and inclusive growth not automatic. Needed:
  pro-poor complementary measures that contribute to
  competitiveness & productivity
• Inclusive policy making (IPM) facilitates effective pro-
  poor complementary measures
• IPM: explicit regard of impact of policies on
  poor/marginalized groups, and enhance citizen
  participation in governance
• Benefits: improved targeting and effective programs,
  better citizen appreciation of trade offs, higher probability
  of consensus and “win-win” solutions; better policies;
  supports dynamic local leaders & cooperation with
  various local stakeholders (Bulacan, Cebu as examples)
 Community Based Monitoring System
• CBMS supports IPM thru on the ground
  information useful for policy formulation, design
  of programs and monitoring/evaluation of
  impacts and effectiveness of policies and
• Directly supportive of local governance
• Well designed system of designated CBMS
  areas as “observation posts” allow monitoring of
  impacts of national policies as well as structured
  feedback on household responses to shocks
  and national policies and programs.
                 CBMS (cont’d)
• Drive for inclusive growth in an open economy can come
  from better targeted programs and more pro-poor
  programs at the local level.
• CBMS contributes to improved resource allocation at the
  local level.
• Example: Sta. Elena, Camarines Sur case: CBMS
  digitized maps and data used as decision tools by local
  officials (e.g., selection of scholars), raise budget of
  social development fund, helped identify priority
  barangays for water system and rural roads project
  feasibility study proposals with funding from national
• If similar cases multiply, then government expenditures
  more effective and pro-poor (or growth inclusive).
            Concluding Remarks
• Basic question raised: how can trade liberalization and
  expansion be growth inclusive?

• Paper highlights importance of investment climate,
  investing in people (with a bias for the poor and the
  hitherto unskilled) and institutions, robust agricultural
  productivity and good domestic transport links, basic and
  limited-duration social safety nets in education and
  health for inclusive growth in an open economy

• Inclusive policy making and CBMS contribute to effective
  and pro-poor policies and [programs needed to make
  trade expansion growth inclusive.