GLOBAL LINKS

Europe &
Central
Asia

Trade takes off

836

Trade in goods and services

Growth in trade and growth in out-

1999 $ billions

374
1990
1999

put tend to go hand in hand.

Between 1990 and 1998 the 12
fastest growing developing countries saw their expor ts of goods
and ser vices grow by 14 percent
and their output by 8 percent. The

East
Asia and
Pacific

Highincome
countries

faster pace for expor ts implies a

growing ratio of trade to GDP, one

1,231
10,589

of the key indicators of

globalization.

7,419

Latin
America
and the
Caribbean
772
294

South
Asia
SubSaharan
Africa
175 187

Middle
East and
N. Africa

505

173
78

256 331

Source: OECD and World Bank staff estimates.

Evidence of globalization

At the opening of the 21st century the worlds economies appear to be becoming more integrated:
trade is expanding, capital markets have sprung up in developing and transition economies, tourism
and, in some places, migrationare rising, and new technologies have linked the farthest corners of the
world. All these activities are evidence of a process that has come to be called globalization. By opening
new markets, sharing knowledge, and increasing the efficiency of resources, globalization can expand
opportunities for people and reduce poverty. But there are also risks. Globalization can increase vulnerability to external shocks. Increased competition creates losers as well as winners. And the rise of large,
multinational corporations may contribute to a sense of helplessness and loss of control.
This is not the first time the world has experienced globalization. At the end of the 19th century
massive migrations took place from Europe and Asia to Australia and North and South America.
Between 1891 and 1900 more than 3.5 million immigrants landed in the United States, and 8.8 million
more followed in the next decade. The 19th century also witnessed an enormous expansion in trade.
In 1820 British trade stood at 3 percent of GDP. By 1870 it had reached 12 percent (Maddison 1995).
The new technologies of steam power and telegraphs and telephones brought goods and people closer
together. But globalization is not an inevitable process. In the 20th century wars, economic depression,
protectionism, and restrictions on the movements of people interrupted the trend toward greater integration until the last two decades.

The growing importance of trade . . .

(PPP) terms now stands at more than

25 percent.

Trade growth strongest for upper-middle-income

economies
Trade in goods as a share of PPP GDP (%)
40

A few low-income economies have

also participated in the expansion of

Trade in goodsprimary commodi-

High income

35

world trade. Vietnam more than

ties and manufactured articleshas

been the traditional basis of trade.

Upper middle
income

30

goods between 1990 and 1999. But

too many of the poorest countries

Although service trade has grown

quickly in the past two decades,

tripled its share of world trade in

25

have been left out. The share of the

poorest 48 economies has

goods still account for 80 percent of

the value of world trade.

20

Growth in trade has been strongest

15

remained nearly constant at about 4

percent, and their ratio of trade to

Lower middle
income

PPP GDP remains below 10 percent.

among upper-middle-income
economies, whose share of world
trade in goods (measured as the sum
of imports and exports) grew from 8

10

Comparing trade with GDP measured

Low income

5
1990

size of domestic economies.

1993

1996

to 11 percent between 1990 and

1998. Their ratio of trade to GDP

in PPP terms adjusts for the relative

Source: World Bank staff estimates.

1999

Nontraded goods and services produced in developing countries are

often undervalued relative to those in

measured in purchasing power parity

high-income economies.

Trade

. . . and the high cost

of trade barriers

they obtain the best price. The result

The welfare costs of tariffs in 1995

is higher output and greater welfare.

The costs of tariffs can be measured

Border barrierstariffs and quotas

High income to high income

$96.6 billion

Developing to high income

$49.6 billion

by the forgone gains from the trade

that is lost. Tariffs imposed by highincome economies on trade with

have begun to come down, but there

is still a long way to go. With the com-

developing economies cost an esti-

pletion of the Uruguay Round of trade

mated $43.1 billion in 1995three-

negotiations in 1993, average import-

fourths as much as the OECD

countries provided in official develop-

weighted tariffs in high-income countries fell to around 2.6 percent and in

ment assistance in 1998. When

developing countries to 13.3 percent.

antidumping measures, protectionist

Nontariff barriers have been reduced

product standards, and barriers to

or converted to tariffs, and foreign

exchange distortions reduced.

High income to developing

$43.1 billion

work more efficiently: inputs cost

less, and outputs can be sold where

service trade are included, the

losses at least double.
Developing country tariff barriers

Lowering barriers reduces the cost

of trade and allows producers to

Developing to developing
$65.1 billion

impose losses on high-income

Source: World Bank staff estimates.

economiesalmost $50 billion. But

they cause even greater losses for other
developing countries$65.1 billion.

316

2001 World Development Indicators

Investment flows
increase . . .

Foreign direct investment may have

Developing economies see a surge in investment flows . . .
Net long-term private capital flows to low- and
200 middle-income economies ($ billions)

dynamic effects on growth. Portfolio investment is more volatile than

150

Foreign direct investment,

net inflows in reporting country

foreign direct investment and

requires careful management, but

inflows to developing countries.

Portfolio
Portfolio
investment, investment,
bonds
equity

World flows of foreign direct investment increased fourfold between

100

50

fits of private capital flows will be

greatest in countries with a well-

income and developing countries.

educated workforce, good

infrastructure, properly regulated

investment began to slow after the

Bank and traderelated lending

financial crisis in 1997. In that year

developing countries received 38

50
1990

percent of world flows. By 1999

their share had fallen to 21

deepening the domestic capital

ing countries. In general, the bene-

to $884 billion, and its ratio to GDP

But the surge in foreign direct

it can play an important role in

markets of more advanced develop-

1990 and 1999, from $200 billion

is generally rising in both high-

panied by transfers of skills and

new technologies that increase its

Foreign direct investment is now

the largest form of private capital

indirect benefits. It is often accom-

1992

1994

1996

capital markets, and a good business climate.

1998

2000

Source: World Bank staff estimates.

percent.

Capital flows

. . . but the
distribution
remains uneven

The capital markets of developing

countries still are not globally inte-

. . . but not all developing regions benefit equally

grated. The ratio of gross (two-way)

Net long-term private capital flows to low- and
middle-income economies ($ billions)

capital flows to GDP measured in

purchasing power parity terms has

300

increased by about 250 percent

250

since 1989 in developing as well

Private capital flows tend to go to

countries with strong investment climates. Fifteen emerging market
economies, mainly in East Asia, Latin
America, and Europe, accounted for
83 percent of all net long-term private
capital flows to developing countries
in 1997. Most of these economies
are middle income, so the increased
capital flows in the past decade may
have contributed to widening income
differences across countries. SubSaharan Africa received only 5 per-

as high-income economies. But the

200

average for developing countries,

150

4.1 percent, is less than a ninth

100

that for the highly integrated European Monetary Union (see

50

table 6.1).

0
1990
Middle East and
North Africa
Europe and
Central Asia

1993
South
Asia
East Asia
and Pacific

1996

1999

Sub-Saharan
Africa
Latin America
and the Caribbean

Source: World Bank staf f estimates.

cent of the total.

2001 World Development Indicators

317

Foreign workers
fill many jobs in
high-income
economies

from conditions in their home

countr y, while others relocate
A big share of the labor force is foreign in some countries

permanently.

%
30

Migration allows people to of fer

Australia (foreign-born)

25

their skills where they are in

shor t supply, which benefits both
workers and the receiving economy. It may also benefit the

Migration is perhaps the most

tightly regulated form of interna-

20

workers home countr y. Over the

Switzerland

tional exchange. Migration policies dif fer widely, reflecting a

ers remittances in developing

15

United States
(foreign-born)

complex mix of economic and

political considerations. They are
strongly influenced by the histori-

past five years receipts of work-

10

countries have averaged at least

$50 billion a year.

Austria

cal experience of the receiving

countr y and its relationship with

Germany
5

the supplying countries. Motiva-

1990

1993

1996

1999

tions for migration also dif fer.

Some migrants seek only tempo-

Source: OECD and World Bank staff estimates.

rar y oppor tunities or escape

Movement of people

Tourism is an
important
industryit also
brings people
together

For many countries tourism has

Tourism is lowestbut growing fastestin low-income
economies
Inbound visitors (millions)
450
High income

been an attractive way to increase

export earnings and to employ
large numbers of relatively
unskilled people. But successful
tourism requires investment in
hotels, transport facilities, and cultural attractions. And like all indus-

300

tries, tourism does best in a

stable, secure environment.

In 1999 world receipts from

tourists were $455 billion. Developing economies received $132 bil-

150

Upper middle income

lion, accounting for 7.7 percent of

their exports of goods and

Lower middle income

services. Low-income economies

receive the fewest international visitors, but are experiencing the
fastest growth in tourisman average of 10 percent a year.

318

2001 World Development Indicators

Low income

0
1990

1993

1996

Source: World Tourism Organization and World Bank staff

estimates.

1999

Development
assistance
important but
declining

such as the Netherlands and the

United Kingdom, have decided to

Receipts of net official development assistance falling

as a share of gross national income

maintain higher levels of

assistance.

% of GNI
8
Sub-Saharan Africa

Foreign direct investment now

exceeds official development assistance, but many of the poorest

economies do not have access to

Over much of the past decade aid

international capital markets. Nor

flows from the members of the

OECD Development Assistance

can they raise enough money out of

Middle East and North Africa

East Asia and Pacific

Committee have declined. They

now represent less than 3 percent
of gross national income for low-

domestic savings to finance their

development programs. For coun-

South Asia

tries capable of using aid

Latin America and the Caribbean

Europe and Central Asia

income economies and less than

effectively, aid can raise growth

rates, improve the climate for

0.5 percent for middle-income

economies. In 1997 aid flows rose
when a few countries increased
their assistance to economies
caught in the Asian financial crisis.

investment, and create the condi0

tions that allow all people, includ1990

1993

1996

1999

ing the poor, to benefit from the

global economy.

Source: OECD and World Bank staff estimates.

More encouraging, some countries,

Official development assistance

Slowing at the
source

Development Assistance Committee members falling short of their aid goals

70

Net flows of of ficial development

assistance ($ billions)

ODA as % of GNI
ODA as share of GNI
in DAC member countries
(right axis)

Many members of the Development

Assistance Committee (DAC) have

60

pledged to provide 0.7 percent of

50

0.4

0.3

their gross national income (GNI)

as aid, but only Denmark, the

40

Netherlands, Norway, and Sweden

30

0.2

have met this target. Some countries have curtailed their aid flows
because of budget constraints. Oth-

20

0.1

10

ers face skepticism from voters

about the effectiveness of aid. But
growing evidence of greater aid
effectiveness strengthens the case
for increasing the flow of official
development assistance (ODA).

0
1990

1991

1992

1993

1994

United
Germany
France
Kingdom
Source: OECD and World Bank staff estimates.

1995
United
States

1996

1997
Japan

1998

1999

Others

2001 World Development Indicators

319