How Trade Can Help Speed Asia’s Economic Recovery

A Report on How Trade Can Help Speed Asia’s Economic Recovery

A renewed push to liberalize trade can invigorate durable growth and minimize post-pandemic scarring.

Introduction

Trade has historically been a powerful driver of economic growth and poverty alleviation in Asia, though the momentum of lowering trade barriers has slowed in recent years.

The Impact of Nontariff Barriers

While tariff barriers to trade in Asia are low overall, a new measure of nontariff barriers suggests those remain high in many Asian emerging markets and developing economies. Unlike tariffs, these barriers include policies that introduce frictions such as licensing requirements or restrictions on trade, payments, or exchanging foreign currencies.

The Potential of Easing Nontariff Barriers

According to recent research, easing nontariff barriers can boost gross domestic product by about 1.6 percent, potentially healing about a quarter of expected pandemic scarring. The findings take on added significance given that IMF forecasts suggest GDP in 2024 will be 6 percent below the pre-crisis trend in Asian emerging and developing economies, equal to losses of about $1 trillion annually.

Trade Barriers in Asia

Strong GDP growth in Asia was accompanied for decades by a steady rise in measures of trade openness, such as the share of goods and services trade in GDP, and greater participation in global value chains. However, this openness has stalled in recent years, suggesting that Asia’s traditional growth engine was slowing even before the pandemic.

To overcome this constraint, a forthcoming IMF working paper compiles a comprehensive measure of trade restrictions for 159 economies as far back as 1949. This index uses detailed trade-barrier data in the IMF’s Annual Report on Exchange Arrangements and Exchange Restrictions. This captures various obstacles such as licensing requirements or documentation hurdles for releasing foreign currency.

The Benefits of Open Trade

These scores tend to be particularly high for low-income countries such as Nepal, Bangladesh, and Myanmar, though large emerging economies such as China and India also have scope for reforms. Empirical analysis suggests lowering nontariff barriers offers potentially large economic gains.

Lowering International Trade Costs

Lowering goods barriers: Many Asian economies require import and export licenses, request extensive documentation for releasing foreign currency, or restrict the use of foreign exchange. Removing such obstacles can ease administrative delays and reduce costs for international transactions.

Reducing services restrictions: There is significant scope to ease restrictions on transactions beyond physical goods in areas such as travel, shipping, and consulting, and on international transfers, as Australia did in the 1980s. Reforms like these will likely offer greater benefit in coming years as services trade grows more rapidly.

While reducing trade barriers can help boost output in the medium term, it can also come with potentially adverse distributional consequences. Therefore, it’s essential to accompany trade reforms with policies to mitigate impacts on inequality, including financial support for the hardest hit and retraining programs to help workers find new jobs.

Conclusion

As economies confront years of lingering effects from the pandemic, a renewed embrace of trade openness is a promising avenue to explore. Healing the pandemic’s scars is a priority, and research shows that reducing trade barriers can reignite Asia’s growth engine.

The trade restrictions index is included in the forthcoming working paper “A Contribution to the Measurement of Aggregate Trade Restrictions and Their Economic Effects” by Julia Estefania-Flores, Davide Furceri, Swarnali A. Hannan, Jonathan D. Ostry, and Andrew K. Rose.

Related links:

• Brave New World: Tracking Trade from Space
• How Countries Can Diversify Their Exports
• After a Strong Crisis Response, Asia Can Build a Fairer and Greener Future
• Divergent Recoveries in Asia: History is not Destiny

SDGs, Targets, and Indicators Analysis:

1. Which SDGs are addressed or connected to the issues highlighted in the article?

• SDG 8: Decent Work and Economic Growth
• SDG 9: Industry, Innovation, and Infrastructure
• SDG 10: Reduced Inequalities
• SDG 17: Partnerships for the Goals

The article discusses the importance of reducing trade barriers to invigorate economic growth and minimize the scarring effects of the pandemic. This aligns with SDG 8, which aims to promote sustained, inclusive, and sustainable economic growth, full and productive employment, and decent work for all. It also relates to SDG 9, which focuses on building resilient infrastructure, promoting inclusive and sustainable industrialization, and fostering innovation. Additionally, the article mentions the need to mitigate impacts on inequality, which is a target of SDG 10. Lastly, SDG 17 emphasizes the importance of partnerships and international cooperation to achieve the goals, which is relevant to the discussion on trade barriers.

2. What specific targets under those SDGs can be identified based on the article’s content?

• Target 8.1: Sustain per capita economic growth in accordance with national circumstances and, in particular, at least 7 percent gross domestic product growth per annum in the least developed countries.
• Target 9.3: Increase the access of small-scale industrial and other enterprises, particularly in developing countries, to financial services, including affordable credit, and their integration into value chains and markets.
• Target 10.4: Adopt policies, especially fiscal, wage, and social protection policies, and progressively achieve greater equality.
• Target 17.11: Significantly increase the exports of developing countries, in particular with a view to doubling the least developed countries’ share of global exports by 2020.

The article highlights the potential economic gains from reducing trade barriers, which can contribute to sustained economic growth (Target 8.1). It also emphasizes the need to integrate small-scale enterprises into value chains and markets, particularly in developing countries (Target 9.3). The discussion on mitigating impacts on inequality relates to the target of adopting policies to achieve greater equality (Target 10.4). Lastly, the article emphasizes the importance of increasing exports, especially for developing countries (Target 17.11).

3. Are there any indicators mentioned or implied in the article that can be used to measure progress towards the identified targets?

• Gross Domestic Product (GDP) growth rate
• Access to financial services for small-scale enterprises
• Equality indicators (e.g., Gini coefficient)
• Export share of developing countries

The article mentions that reducing trade barriers can boost GDP by about 1.6 percent, which can be used as an indicator of progress towards Target 8.1. The access of small-scale enterprises to financial services and their integration into value chains and markets can be measured to track progress towards Target 9.3. Equality indicators such as the Gini coefficient can be used to assess progress towards Target 10.4. Lastly, the export share of developing countries can be measured to monitor progress towards Target 17.11.

Table: SDGs, Targets, and Indicators

Behold! This splendid article springs forth from the wellspring of knowledge, shaped by a wondrous proprietary AI technology that delved into a vast ocean of data, illuminating the path towards the Sustainable Development Goals. Remember that all rights are reserved by SDG Investors LLC, empowering us to champion progress together.

Source: imf.org

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