Trade

Trade is an engine of growth that creates jobs, reduces poverty and increases economic opportunity. The World Bank Group helps its client countries improve their access to developed country markets and enhance their participation in the world economy.

Overview

The World Bank (WB) helps developing countries improve their access to world markets and enhance their participation in the global trading system. Trade is an engine of growth that creates better jobs, reduces poverty, and increases economic opportunity. Recent research shows that trade liberalization increases economic growth by an average of 1.0 to 1.5 percentage points, resulting in 10 to 20 percent higher income after a decade. Since 1990, trade has increased incomes by 24 percent globally and by 50 percent for the poorest 40 percent of the population. Economic growth underpinned by better trade practices has lifted more than 1 billion people out of poverty since 1990.

Trade is also linked to higher female participation in the formal labor market, where wages are higher. Exporters in developing countries employ more women than non-exporters, and women comprise up to 90 percent of the workforce in export-processing zones. Fostering cooperation through trade and business is also pivotal in helping countries escape conflict.

In developing countries, access to global markets is often hindered by anti-competitive business practices, regulation that is unfavorable to business growth and investment, and inadequate ports, roads and other infrastructure. Even a country with liberal and transparent trade policy suffers if its markets are not connected. Many of the world’s poorest people live in places that are landlocked, remote, or otherwise ill-served by international trade links. The WB helps its client countries overcome these obstacles and more fully reap the benefits of global markets.

Still, we must recognize that not everyone is experiencing the benefits of globalization. Most global poverty reduction has been concentrated in Asian countries, principally in China, while other regions continue to experience high inequality and poverty. Powerful protectionist forces have begun to challenge the global community’s commitment to open trade; many in advanced economies blame trade for job losses as manufacturing and some services shift to lower-cost destinations. Disruptions to global supply chains and rising shipping costs caused by the COVID-19 pandemic have also put the economic recovery at risk, adding to calls for reshoring production of vital goods, especially medical products and semiconductors. Disruptions to global food and fertilizer markets caused by the war in Ukraine and sanctions on Russia jeopardized food security in developing countries.

Digitalization, and the related shift to services, promises to reshape trade and presents important opportunities for developing countries. Digital commerce allows firms of all sizes, anywhere in the world, to gain access to new markets. But many developing countries lack the necessary technical, regulatory, financial, and educational infrastructure and are at risk of being left behind. Advanced and developing countries alike will need help to smooth the transition from manufacturing to services with programs to promote skills development, labor mobility, and gender equality. Clear international rules for digital commerce will also be needed; negotiating them will require coordination and expertise from policymakers and a strong domestic digital sector that can identify challenges and potential solutions.

Promoting international trade and advancing sustainable economic development are not mutually exclusive and can be mutually reinforcing. The damage wrought by climate change highlights the urgent need for adjustments in trade: The extraction and processing of natural resources account for more than 90 percent of biodiversity loss and water stress and half of greenhouse-gas emissions. Yet with the right policies, trade can play a central part in efforts to adapt to climate change and mitigate its impact: It can foster the spread of Environmental Goods and Services such as solar panels and recycling to help reduce emissions and improve biodiversity, and it can facilitate the transfer of climate-friendly technologies. As countries adopt policies to meet their global carbon commitments, their trading partners can develop areas of “carbon competitiveness” through reduced carbon intensity of production and seize new opportunities in green growth. This will lead to more sustainable supply chains and diversification away from carbon-intensive sectors. Nevertheless, a challenge will be to combine sustainability standards with more and open trade. Developing country participation will be needed to ensure that new rules are feasible for them.

As the largest multilateral provider of Aid for Trade, the WB is advancing policies that help developing countries—and disadvantaged groups within them—benefit from the opportunities that come with trade and technological change and to ensure that trade-driven growth is green, resilient, and inclusive.

In this context, there is a need to strengthen the global trading system to help developing countries address trade-related constraints to growth. The foundations of the rules-based global trade regime, critical for ensuring the predictability of trade, remain firm but have been shaken, so reforms are needed. While there have been notable successes, such as the landmark WTO Trade Facilitation Agreement (TFA), delays in completing the Doha Round of trade talks after 20 years have diminished the role of the WTO as the global rule-maker and arbiter of trade disputes. Growing tensions have been dramatized by the trade war between the United States, traditionally a champion of free trade, and China, one of its biggest beneficiaries since joining the WTO in 2001. These tensions should not prevent all countries from exploring the untapped benefits that further trade reform can bring to the global economy.

Last Updated: Apr 04, 2022

The WB supports an open, rules-based, and predictable multilateral trading system, and it helps developing countries participate in and enjoy its benefits. To help reach these goals, the WB supports regional and multilateral trade agreements; emphasizes that trade and competitiveness are at the core of national development strategies; and promotes trade-related reforms through effective Aid for Trade.

The WB helps developing countries deepen their integration into regional and global economies, increase trade performance, and facilitate trade through improved border management and logistics. We produce cutting-edge, applied global knowledge, and we also support countries directly.

GLOBAL ANALYSIS AND DATA:

Global Studies: WB assesses developments in trade policy. These include services for competitiveness; trade and climate change; deep trade agreements; the distributional impacts of trade; digital trade; Global Value Chains (GVCs) and reshoring; and the impact of direct and indirect government subsidies on global trade.

Global Databases: The Trade unit provides data for global trade analysis, such as the Logistics Performance Index; Exporter Dynamics Database; Services Trade Policy Database; World Integrated Trade Solution; Database on Antidumping, Countervailing Measures and Safeguards; Frequency panel database of estimates of tourism flows and spending; and the Deep Trade Agreements Database.

In parallel, the Trade unit supports data collection at the country level. For instance, it supported the creation of the Mauritius Trade Data Tool to better understand the anatomy of the COVID-19 trade shock, and a dataset of firm transactions in Rwanda to assess the impact of lowering import tariffs on tax revenues.

REGIONAL OR COUNTRY DIAGNOSTICS AND TECHNICAL ASSISTANCE:

Regional Trade Integration Analysis: Assesses the potential effects of trade reforms on GDP, sectoral output, wages, and employment, as well as on sectoral reallocation and adjustment costs, poverty, and income distribution. These effects can be analyzed at an aggregate level and for local labor markets and target groups, notably women. Trade reforms studied include unilateral tariff changes, bilateral and regional Preferential Trade Agreements, and other major initiatives in regional integration, such as the African Continental Free Trade Area (AfCFTA).

Trade Diversification, Competitiveness Diagnostics, and Integration into GVCs: Identifies limits and opportunities to increase and diversify merchandise exports, and to promote export sophistication, upgrading, and survival.

Services Trade Competitiveness and Regulatory Diagnostic: Identifies potential to expand services trade across all sectors and for specific sectors (e.g. digital/ICT; tourism; professional services; transport/logistics; health and education services).

Logistics Services and Connectivity Diagnostic: These diagnostics and advisory services identify measures to reduce logistics costs and improve connectivity with domestic and international markets, helping countries improve how goods can move efficiently through the network of services (transportation, warehousing, brokerage, etc.) to their final destinations.

Trade Facilitation & Border Management Diagnostic and Technical Assistance: Helps countries adopt modern border management and procedures, streamline procedures and reduce time and costs for the private sector, and implement the WTO Trade Facilitation Agreement (TFA).

To fund much of this work, the WB has two main, trade-related trust funds: the Umbrella Facility for Trade, the Trade Facilitation Support Program (TFSP).

The WB provides rigorous analysis of key issues in global trade as well as country-focused engagements in more than 130 countries. It helps countries identify reforms to promote competition, exports, and private-sector development and to lower trade costs through better trade facilitation, logistics, and border management.

The WB provides timely data on and analysis of the latest issues in global trade including:

• Trade and COVID-19: Since the onset of the pandemic, the WB has advised governments on best practices to keep trade flowing, particularly for goods necessary to address urgent health needs. The WB provides analysis on emerging trends in trade of services and goods, including food and vaccines, that have been affected by the pandemic. It launched a monthly (now quarterly) COVID-19 Trade Watch, which provides up-to-date data on trade in goods and services and shipping from an array of sources, along with analysis of recent trends. Recent reports include, “Reshaping Global Value Chains in Light of COVID-19,” which showed the essential role that value chains played in driving a recovery from the pandemic-induced trade collapse, and “Trade Therapy: Deepening Cooperation to Strengthen Pandemic Defenses.”

• Distributional Impacts of Trade: Global trade is crucial in driving economic recovery after the COVID-19 pandemic, ensuring the flow of food, medical supplies, and vaccines, and contributing to economic growth and poverty reduction. But policies must be in place to ensure that gains from trade are spread across regions, industries, workers, and consumers in developing countries. The Distributional Impacts of Tradewebpage assembles recent empirical innovations, new analytical tools, and policy responses. From there, the Trade for All Toolkit offers a repository of tools and data and can be used to explore the distributional impacts of trade. A WB report launched in May 2021 gives policymakers tools to ensure that gains are shared more widely. The research paper “International Trade and Labor Markets: Evidence from the Arab Republic of Egypt” is an example of a country application.
• Trade and Gender: New trends in global trade—especially the rise of services, global value chains, and the digital economy—are opening important economic opportunities for women. The WB helps assess the potential impact of trade on women and develop policy responses based on the evidence. Building on new analysis and sex-disaggregated data, a recent WB report, “Women and Trade: The Role of Trade in Promoting Women’s Equality,” advances the understanding on the relationship between trade and gender equality and identifies new opportunities for women to gain from trade. The WB has also conducted a series of studies that look at the gender-specific challenges to trade facilitation, interviewing more than 6,500 traders and customs clearing agents (45 percent of whom were women) across eight countries.
• Trade and poverty: Analytical work on the distributional impacts of trade, with a focus on: (i) welfare effects of changes in tariffs and non-tariff measures; (ii) ways that trade can affect local poverty rates and labor-market dynamics; (iii) implications of the rise in automation on welfare and potential job destruction in developing countries and job reshoring to high-income economies.

Trade and Climate Change: Climate discussions often focus on trade as a contributor to global warming. But with the right policies to encourage cleaner production and trade in climate-friendly goods and services, trade can be part of the solution. This research explores how developing countries can expand the role of trade in adapting to and mitigating climate change.

• Deep Trade Agreements: The number of bilateral and regional agreements has increased as multilateral trade negotiations stagnated and tensions between major trading partners rose. There are over 300 agreements today, up from 50 in 1990. Many of these agreements extend well beyond tariffs and aim for deeper integration of policies such as those on investment and intellectual property protection. This research provides new analysis on the determinants of such deep trade agreements, how they affect trade and non-trade outcomes, and how they might shape trade relations in a post-COVID-19 world. An e-book launched in July 2021 on the Economics of Deep Trade Agreements builds on a novel database developed by the WB.

• Logistics and connectivity: The biennial Logistics Performance Index (LPI) measures the logistics “friendliness" of 160 countries based on a worldwide survey of freight forwarders and express carriers. The LPI has grown into a widely used and influential global index.

Policy and reform support:

Trade Policy and Performance: Analysis and policy advice to help countries compete globally. In Mauritius, the WB has advised on skills formation, labor-market policy, exchange-rate management, and state support, and it has analyzed a list of products that have favorable tariff treatment in China, India, and Africa. Mauritius uses this advice as a central element of its strategy to upgrade exports, and its Economic Development Board will use the products on the list as a basis for discussions with potential exporters and investors.

Trade Facilitation and Logistics: Strengthening trade corridors, supply chains, and trade logistics; modernizing border management; enhancing connectivity between firms, markets, and consumers; and Lending and Technical Assistance:

• Excessive bureaucracy and paperwork, cumbersome port and customs handling procedures, and transport bottlenecks are major barriers to trade in developing countries, especially sub-Saharan Africa. A one-day reduction in inland travel times brings a 7 percent increase in exports in Africa. A one-day reduction in delay at border increases trade by 1 percent. But improving trade facilitation requires cooperation and capacity, including improvements to trade-related infrastructure and technical assistance for customs. The WB is a major provider of trade facilitation assistance with a current portfolio over $7 billion across more than 70 countries.
• The World Bank helped the governments of Guatemala and Honduras, the Secretariat of Economic Integration in Central America (SIECA), and the private sector develop a comprehensive solution to address trade bottlenecks at the border between the two countries. As a result, the countries piloted a customs union that allowed them to integrate their trade procedures and remove duplicative processes. That cut transit times from 10 hours to just 15 minutes, increasing trade by an estimated 7 percent.

Regional integration: The WB supports global and regional integration, including negotiations on free trade agreement and World Trade Organization accession and participation.

• The WB is supporting the African Union in the creation of the AfCFTA, which has the potential to boost intra-regional trade and significantly reduce poverty. We are assessing the effects of tariff reductions on government revenues and quantifying the impact on trade, growth, and poverty, and on women and youth. During the “Colombia Internationalization Mission” the WB helped the country deepen its integration in global markets and better use trade as an engine of growth.