Economic liberalization as a driving force of globalization: experiences of countries in North and Central
Asia
United Nations Conference on Trade and DevelopmentUnited Nations Conference on Trade and Development
Victor Ognivtsev
Trade Analysis Branch, DITC
UNCTAD
Moscow
29 September, 2005
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Structure of this Presentation:
General trends of the unfolding globalization process
The role of economic liberalization, particularly of trade liberalization, in the reform transition process
Specific experiences of countries in North and Central Asia and results achieved
Lessons learned
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Introduction
Countries in the Northern and Central Asian region have been undergoing 15 years of profound, often historically unprecedented reforms in the process of transition to a market economy from a previously centrally-planned system, in which economic liberalization, particularly trade liberalization and integration in the world economy were major elements of the reform strategy.
The economic and social transition of these countries was carried out against the background of the unfolding globalization process. This made their situation even more challenging.
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Economic liberalization and globalization: Brief description of terms
Economic liberalization may be described as the freedom to engage in economic activity at home and/or abroad, a freedom subject to institutional and policy constraints needed to guarantee public interests at large.
Globalization may be seen as a major driving force of global economic integration and has the following main features: (1) internationalization of production with very fast changes in the structure of production; (2) liberalization and expansion of world trade in goods and services; and (3) unprecedented expansion of international financial flows supported by the latest technological advances.
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Role of Trade
International trade is widely recognized as an important engine of the world economic growth and the evolving process of globalization. It had also a major contribution to make in the process of transition of formerly centrally-planned economies.
In the transition process, normally, the first measures were trade-related and consisted of phasing out the state foreign trade monopoly, allowing enterprises to carry out foreign trade transactions directly and freeing their access to foreign currency for trade purposes.
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Trade Liberalization
Trade liberalization has been the central part of mainstream policy advice for at least 20 years, and has been actively picked up by most developing countries and economies in transition in the design of their development strategies.
However, the intensive international discussion over the benefits of trade liberalization and its welfare effects on developing countries and their societies is far from over. The search for consensus continues, while some simpler postulates like a freer trade alone brings more economic growth, which, in turn, have beneficial effects on social life and leads to better living standards, including reduced poverty – have produced mixed results, thus raising a general concern of whether open trade can contribute substantially and directly to the process of development.
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“Washington Consensus” – «One Size Fits All»
John Williamson originally coined the phrase in 1990 “to refer to the lowest common denominator of policy advice being addressed by the Washington-based international financial institutions to Latin American countries”:
Fiscal discipline Tax reform (to lower marginal rates and broaden the tax base) Interest rate liberalization A competitive exchange rate Trade liberalization Liberalization of inflows of foreign direct investment Privatization and deregulation Secure property rights
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“Washington Consensus”: Evolution
Over the time, some additional elements were added:
Corporate governance Anti-corruption measuresFlexible labour markets WTO agreements Financial codes and standards “Prudential” regulations over financial flows Effective and stable exchange rate regimes Independent central banks/inflation targeting Social safety nets Targeted poverty reduction
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Trade liberalization (cont.)
The approaches to trade liberalization are becoming more complex and realistic in that liberal trade policy are no more entirely “delinked” from other policy issues (e.g. financial, monetary, environmental protection, adjustment costs, supply constraints and capacity building in developing countries, etc.)
It is now widely recognized that the scope and form of government interventions, vis-à-vis markets and the private sector, have to be based on a rational determination of the basic economic state functions, and not on biased ideological approaches.
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Transition Reforms in the Region: Gradualism or Radicalism?
Many of the countries in the Northern and Central Asian Region decided to embark on a radical way of transformation. Apart from positive impacts of such approach, such strategy, however, also resulted in a number of cases in drastic decrease of GDP, and consequently substantial lowering in the standard of living of their citizens. By the year 2004, many of these countries still have not reached the GDP level from the year 1989.
The “shock therapy” approach was based on a naive, ideological – indeed, almost religious belief that there is no need for development policy and that the market alone would balance the economy and generate wealth.
In fact, the aim of any economic policy is development, while everything else is the means to achieve this aim. Unfortunately, quite often in policy-making the aim is confused with instruments to achieve that objective. For example, stable exchange rates are sometimes taken for the target of economic policy. The lowest possible inflation, whatever the cost, is sometimes assumed to be the ultimate policy aim. The same goes for accession to certain international organizations like the WTO.
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Reform Experiences of Other Countries in the Region and Elsewhere
The experiences of now developed countries, as well as of some countries in the Region would also suggest that a more empirical analysis of approaches to reforms, particularly to trade liberalization is required. The effects of freer trade, as suggested by such experiences, can be quite beneficial after a country has achieved a certain level of economic and institutional development, as well as after its economy has reached a degree of international competitiveness and has effective access to world markets for its exported products and services.Thus, a certain “Triad” could be formulated for a successful trade liberalization strategy – Supply Capacity, International Competitiveness and Market Access.Such empirical approach also reveals that trade liberalization requires the existence and smooth functioning of a number of interrelated institutions, which facilitate the implementation of liberalization measures at the lowest possible social and political costs. To mention just a few of the institutions required: a social safety net for those who become unemployed; retraining for the labour force which is becoming redundant; assistance for business entities in introducing the necessary structural adjustments; and labour mobility to facilitate the movement of labour among different regions of the country.
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Experiences of Countries in North and Central Asia– several considerations
The accumulated experience of transition economies in the Regionwarrants some inconclusive considerations:
The importance of legal and regulatory issues The need for coherence and coordination of all components of economic
strategy and policiesFull account of national cultures and other specificities Trade policy reform, in particular, should include not only the removal of
tariffs and traditional trade barriers, but also the development of appropriate regulations and institutionsTrade liberalization should be assessed not only in terms of its effects on
trade flows, but also by its contribution to stimulating economic growth, increasing overall economic efficiency, improving economic regulations and institutions
Reform sustainability and public support depend on the capacity of the governments to deal with inevitable adjustment costs that emerge in the initial stages of the reform process
A favourable business and economic environment should be created
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Role of Regional Integration
Regional integration should play an important supportive and positive role both in the context of economic reforms and globalization process. It has a very strong potential manifested by the empirical evidence in other Regions and ongoing efforts in the North and Central Asian Region.
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Results of Reforms in the Region: Selected Development Indicators
To illustrate the reforms achieved so far, let us explore some selected development indicators on a country-by-country basis. The sources of data are from UNCTAD and the World Bank.
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Population growth (annual %)
Countries
Armenia Azerbaijan China Georgia India Kazakhstan Korea, Rep. Kyrgyz Republic Mongolia Russian Federation Tajikistan Turkmenistan Ukraine Uzbekistan
2000
-1 1 1 -1 2 -1 1 1 1
-1 1 2 -1 1
2001
-1 1 1 -1 2 -1 1 1 1
-1 1 2 -1 1
2002
-1 1 1 -1 2 -0 1 1 1
-0 1 2 -1 1
2003
-0 1 1 -1 1 0 1 1 1
-0 1 1 -1 1
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GNI (current US dollars)
Countries
Armenia Azerbaijan China Georgia India Kazakhstan Korea, Rep. Kyrgyz Republic Mongolia Russian Federation Tajikistan Turkmenistan Ukraine Uzbekistan
2000
2,026,622,336 4,912,775,680
1,063,813,120,000 3,111,522,048
455,611,187,200 18,864,269,312
460,375,031,808
1,373,377,664 941,419,264
250,308,493,312 1,112,984,576 2,885,190,912
34,353,143,808 15,431,982,080
2001
2,172,214,528 5,341,731,328
1,138,632,818,688 3,064,528,128
477,931,077,632 20,108,328,960
501,103,591,424
1,382,703,872 957,899,328
259,626,418,176 1,065,393,600 3,338,782,976
35,354,198,016
13,868,641,280
2002
2,441,106,432 5,857,832,448
1,237,896,658,944 3,285,784,832
493,996,867,584 22,618,537,984
537,129,254,912
1,453,215,488 1,037,427,328
305,521,033,216 1,135,435,776 4,064,029,184
38,213,963,776
11,488,569,344
2003
2,888,358,144 6,714,029,056
1,416,683,454,464 3,846,015,744
571,260,731,392 26,911,703,040
577,223,065,600
1,725,416,704 1,198,585,600
373,874,327,552 1,344,935,936 5,289,255,936
46,928,003,072
10,832,100,352
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GNI per capita (current US dollars) Countries
Armenia Azerbaijan China Georgia India Kazakhstan Korea, Rep. Kyrgyz Republic Mongolia Russian Federation Tajikistan Turkmenistan Ukraine Uzbekistan
2000
650 610 840 660 450
1,250 9,790 280 390
1,720 180 620 690 630
2001
700 660 900 660 460
1,350 10,580
280 400
1,790 170 710 720 560
2002
800 720 970 710 470
1,520 11,270
290 420
2,120 180 850 780 450
2003
950 820
1,100 840 540
1,810 12,050
340 480
2,610 210
1,090 970 420
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GDP growth (% annual)Countries
Armenia Azerbaijan China Georgia India Kazakhstan Korea, Rep. Kyrgyz Republic Mongolia Russian Federation Tajikistan Turkmenistan Ukraine Uzbekistan
2000
6 11 8 2 4
10 8 5 1
10 8
19 6 4
2001
10 10 8 5 5
14 4 5 1
5 10 20 9 4
2002
13 11 8 5 4
10 7 -0 4
5 9
20 5 4
2003
14 11 9
11 9 9 3 7 6
7 10 17 9 4
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Agriculture value-added (% of GDP)
Countries
Armenia Azerbaijan China Georgia India Kazakhstan Korea, Rep. Kyrgyz Republic Mongolia Russian Federation Tajikistan Turkmenistan Ukraine Uzbekistan
2000
26 17 16 22 25 9 4
37 33
6 29 25 17 34
2001
28 16 16 22 25 9 4
37 30
7 29 25 16 34
2002
26 15 15 21 23 9 4
38 30
6 29 ..
15 35
2003
24 14 15 20 22 8 3
39 28
5 23 ..
14 35
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Industry value-added (% of GDP)
Countries
Armenia Azerbaijan China Georgia India Kazakhstan Korea, Rep. Kyrgyz Republic Mongolia Russian Federation Tajikistan Turkmenistan Ukraine Uzbekistan
2000
35 45 50 22 27 40 36 29 19
38 26 45 36 23
2001
33 47 50 22 26 39 35 29 17
36 25 44 35 23
2002
35 50 51 24 27 39 34 23 16
34 25 ..
38 22
2003
39 55 52 25 27 38 35 23 15
34 20 ..
40 22
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Services value-added (% of GDP)
Countries
Armenia Azerbaijan China Georgia India Kazakhstan Korea, Rep. Kyrgyz Republic Mongolia Russian Federation Tajikistan Turkmenistan Ukraine Uzbekistan
2000
39 38 33 56 49 51 59 34 48
56 45 30 47 43
2001
38 37 34 56 49 52 61 34 53
58 45 30 49 43
2002
39 35 34 55 51 53 63 39 54
60 46 ..
47 44
2003
37 31 33 54 51 54 62 38 57 61 56 ..
46 43
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Export of goods and services (% of GDP) Countries
Armenia Azerbaijan China Georgia India Kazakhstan Korea, Rep. Kyrgyz Republic Mongolia Russian Federation Tajikistan Turkmenistan Ukraine Uzbekistan
2000
23 39 26 23 14 57 41 42 65
44 81 54 62 25
2001
25 41 25 25 13 46 38 37 64
37 63 41 55 28
2002
29 43 29 29 15 47 35 40 67
35 64 ..
55 31
2003
32 43 34 32 14 50 38 38 68
32 60 ..
53 37
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High-technology exports (% of manufactures exports)
Countries
Armenia Azerbaijan China Georgia India Kazakhstan Korea, Rep. Kyrgyz Republic Mongolia Russian Federation Tajikistan Turkmenistan Ukraine Uzbekistan
2000
5 4
19 13 5
11 35 .. 0
14 ..5 5 ..
2001
.. 9
21 38
5 10 30
.. 0
14 .. .. 5 ..
2002
2 8
23 .. 5 ..
31 6 0
13 .. .. 5 ..
2003
1 5
27 24 5 9
32 2 0
19 .. .. .. ..
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Internet users (per 1,000 people)Countries
Armenia Azerbaijan China Georgia India Kazakhstan Korea, Rep. Kyrgyz Republic Mongolia Russian Federation Tajikistan Turkmenistan Ukraine Uzbekistan
2000
11 2
17 5 5 6
414 11 13
20 0 1 7 5
2001
13 3
26 9 7 9 .. ..
17
.. 1 2
12 6
2002
16 37 46 15 16 16 .. ..
21
.. 1 ..
19 11
2003
37 ..
63 31 17 ..
610 38 58
.. 1 .. ..
19
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COUNTRY (out of 155 studied countries)
New ZealandSingaporeUnited StatesCanadaJapanMalaysiaKoreaArmeniaMongoliaBangladeshRussian FederationKyrgyz RepublicKazakhstanChinaTurkeyAzerbaijanGeorgiaIndiaUkraineUzbekistan
EASE OF DOING BUSINESS
1234
102127466165798486919398
100116124138
STARTING A BUSINESS
4531
815797414952312733
12646965590
11067
DEALING WITH LICENSES
27
17215
10125552253
14365
11213613713912712498..
REGISTERING PROPERTY
11412273653649
2115135546824495117
101127149
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LESSONS LEARNED
(1) Effective Social Protection:
The development of a reasonably effective social protection system oriented to renewed progress in terms of human development is essential and requires growth in real terms of social expenditure.
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LESSONS LEARNED (Cont.)(2) Professional public administration:
The vital role of a professional public administration cannot be overestimated. Enforcing laws and regulations on enterprises, affluent people and local bodies cannot be achieved by demoralized, ill-informed, and poorly paid officials. In other words, the administrative functioning of the state must be considerably strengthened. Beyond being reasonably well-paid, so as to provide motivation and to lower the probability of civil service corruption, officials in public administration must be well-trained in technical and cultural terms, know foreign languages.
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THANK YOU!THANK YOU!