Trade has an important role to play in boosting both growth and security, even more so when complemented by policies to ensure that its benefits are widely shared.
For low-income countries, open global markets are essential sources of demand and know-how for achieving rapid catch-up growth.
For countries at the technological frontier, recent studies predicting diminishing productivity returns from innovation make it all the more important to maximise the growth obtainable through trade policy. New WTO-OECD research on measuring trade in value added has confirmed that export performance and business competitiveness have become increasingly dependent on countries’ openness to imports and participation in value chains. Services add considerable value to manufacturing exports. We need to internalise a paradigm shift: today, one of the best ways of encouraging exports is to facilitate goods and services imports!
Turning now to trade and security. The recognition that trade promotes peace, by binding nations together in ties of mutual interest and dependence, dates back at least to the Enlightenment. It is an insight no less relevant today than it was during the 18th century.
Conflicts are about much more than economics, of course. Nevertheless, it is clear that India-Pakistan relations will be quite different when a vibrant trading relationship creates constituencies for peace on either side of the border. Indian and Pakistani policymakers have recognised this, and have set targets for opening and expanding trade. Their leadership deserves praise.
A similar case could be made for the Israelis and the Palestinians, for whom two decades of increasing economic separation have helped to make peace an even more distant prospect than it was twenty years ago.
To put it bluntly: it is important for people to have a stake in something other than wanting to kill each other.
Perhaps nowhere is the imperative for growth more visible than in the Middle East and the Maghreb, where, in the absence of job creation and realistic hopes for a better future, the Arab Spring is all too likely to wither into a long and arduous winter.
While trade and growth can contribute to easing geopolitical tensions, we should also remember that geopolitical tensions can impact trade and growth. We saw this last year with the tensions between China and Japan in the China Sea. It is also true for the relationship between Morocco and Algeria, or even between the US and Cuba.
Even civil conflicts in seemingly isolated places can have global consequences, as we are seeing with the on-going events in the Sahel and, in particular, Mali. But such conflicts are also rooted in a lack of economic development and the neglect of regional and social disparities. Academic research on civil conflict serves to underscore the importance of growth: The lower a country’s starting income levels, the higher the risk of civil war. Growth reduces the risk of civil war, but a decline in GDP increases it. Diversification matters, especially for commodity rich countries — countries heavily dependent on exports of primary commodities are at vastly higher risk of civil conflict.