Economic research and trade policy analysis
Foreword by the WTO Director-General
The mission of the World Trade Organization, as set out in the preamble to its founding Marrakesh Agreement, is to use trade as a means to raise living standards, create jobs and promote sustainable development. As we mark the WTO’s 30th anniversary, it is clear that members have used the open and predictable global economy anchored in WTO rules and norms to accelerate growth and development, with enormous positive impacts for human well-being. At the same time, many people and places have not shared adequately in these gains.
Inclusive trade and international cooperation
This chapter discusses how the multilateral trading system has helped some economies to take advantage of trade to further their development, but has not succeeded in helping others to harness trade for growth and considers what could be done to ensure that the WTO leaves no economy behind. It also examines the effect of the WTO on how the benefits of trade are shared out within economies, and discusses how the WTO and trade can be made more inclusive for people and firms. Finally, the chapter outlines the areas in which work at the WTO could be coordinated with work at other international organizations to help make trade more inclusive, such as by enhancing infrastructure and digital connectivity to bridge the digital gap or by ensuring coherence between trade and environmental policies.
Introduction
Global trade is often accused of creating a more unequal world, but in fact the opposite is happening. Billions of people in developing economies are catching up to the more advanced economies, as millions of people in the advanced economies continue to move ahead. This global economic convergence is only possible because the world has become more open and integrated – expanding access to new markets, new technologies and new models for achieving rapid, sustained and inclusive growth.
Trade and inclusiveness within economies
Trade has raised aggregate welfare and reduced poverty without necessarily raising inequality in many economies, but the impact of trade is more complex for individuals. People may benefit from cheaper prices, larger variety and export opportunities, but they may also face increased competition and may, therefore, either gain or lose from trade. This chapter reviews why, although most people gain from trade, some suffer losses. These losses can be aggravated by distortions and barriers, such as mobility costs or monopolies, that tend to impact more vulnerable groups disproportionately, and may prevent them from adjusting to import competition and accessing export opportunities. The chapter also examines why using restrictive trade policy to redistribute gains from trade is often unsuccessful and can have unintended consequences, such as retaliation by trade partners. In contrast, domestic policies, such as education and social protection, are more effective in addressing inequality. Their importance is likely to grow as the digital revolution, climate change and geopolitics continue to shape the distributional impacts of trade.
Trade and income convergence
The past quarter of a century has witnessed an unprecedented level of income convergence, accompanied by the integration of many developing economies into global markets. Despite this, some economies have been left behind. This chapter discusses how the participation of developing economies in global trade and investment flows can accelerate structural transformation and enhance productivity growth, thereby helping lowand middle-income economies to achieve the economic growth that ensures convergence with high-income economies. The chapter also examines why some economies have taken little advantage of globalization, and focuses on barriers to maximizing the gains from trade participation, such as trade costs and commodity dependence. Finally, the chapter discusses how recent trends in the global economy are shaping future opportunities and challenges for developing economies to leverage trade and foreign direct investment for economic growth, and which policies can help to achieve convergence in the upcoming decade.
Executive summary
Never before have the living conditions and prospects of so many people changed so dramatically in the space of a few decades.
Conclusions
Over the past 30 years, the world has witnessed a period of unprecedented income convergence, accompanied by a steep reduction in poverty, but inequality remains high.
Introduction
Global trade is often accused of creating a more unequal world, but in fact the opposite is happening. Billions of people in developing economies are catching up to the more advanced economies, as millions of people in the advanced economies continue to move ahead. This global economic convergence is only possible because the world has become more open and integrated – expanding access to new markets, new technologies and new models for achieving rapid, sustained and inclusive growth.
Executive Summary
Data flows are the lifeblood of our modern social and economic interactions. However, concerns related to privacy and data protection, national security, cybersecurity, digital protectionism and regulatory reach, among others, have led to a surge in regulation conditioning (or prohibiting) its flow or mandating that data be stored or processed domestically.
Data flows and the evolving regulatory environment
Global traffic from data centres is estimated to have increased fourfold since 2015 – from 5 zettabytes in 2015 to around 20 in 2021. To put that into perspective, a zettabyte is 1 000 000 000 000 000 000 000 bytes (21 zeros), that is, a thousand exabytes, a billion terabytes, or a trillion gigabytes. There are 20 times more bytes of traffic from data centres than there are stars in the expanding universe.
Economic Implications of Data Regulation
Balancing Openness and Trust
Cross‑border data flows are the lifeblood of today’s social and economic interactions, but they also raise a range of new challenges, including for privacy and data protection, national security, cybersecurity, digital protectionism and regulatory reach. This has led to a surge in regulation conditioning (or prohibiting) its flow or mandating that data be stored or processed domestically (data localisation). However, the economic implications of these measures are not well understood. This report provides estimates on what is at stake, highlighting that full fragmentation could reduce global GDP by 4.5%. It also underscores the benefits associated with open regimes with safeguards which could see global GDP increase by 1.7%. In a world where digital fragmentation is growing, global discussions on these issues can help harness the benefits of an open and safeguarded internet.
Foreword
Today, our social and economic activities are underpinned by the movement of data across international borders. They help us connect with family and friends; they support research addressing global challenges; they enable the co-ordination of production along supply chains; and allow firms, notably smaller ones, and people to access global markets. In sum, cross-border data flows have become the lifeblood of modern day social and economic activities.
D.2. Impact on trade patterns from changes in data localisation policies
Figure A D.2 displays the projected change in real exports between regions with different data localisation regimes (upper panel) and in different geopolitical blocs (lower panel) for Scenarios A-C since Scenario D is almost identical to Scenario 4 and thus already discussed in Annex C. In Scenario A No data localisation the largest projected increase in exports is projected for trade between regions with regimes 1 and 2 and other regions, for example between 0 and 1 and between 1 and 2. The reason is that data management costs are projected to fall most for these regions. In regions with regime 0 there are no projected changes in costs. This is also the case for most regions with regime 3, because they tend to have both prohibitive data localisation and data flow policies.
Acknowledgements
This report was approved by Marion Jansen (Director, Trade and Agriculture Directorate, OECD) and Ralph Ossa (Director, Economic Research and Statistics Division, WTO). The authors of the report are Andrea Andrenelli (OECD), Eddy Bekkers (WTO), Javier López González (OECD), Gabrielle Marceau (WTO) and Roger So (WTO). We are grateful for the useful comments received from Julia Nielson, Susan Stone, Clarisse Girot, and Frank Van Tongeren from the OECD, Johanna Hill, Bright Okogu, Ralph Ossa, Marc Bacchetta and Antonia Carzaniga from the WTO, as well as Anabel Gonzalez (IADB) and Robert Teh. We also acknowledge the useful discussions at the: G7 Scientific Roundtable on Digital Policy and Data Governance in the age of AI held in June 2024, and the comments received during the BIICL 2023 Annual WTO Conference on Trade and Technology: Challenges and Opportunities and the 27th GTAP Conference in Bordeaux in 2023.
C.1. Introducing the data flow shocks one by one
The channels of transmission across the different shocks can be gleaned by introducing the shocks one by one, cumulatively, starting from the change in trade costs, followed by the change in willingness to pay (Figure A C.1).
Introduction
Cross-border data flows underpin today’s economic and social interactions. They help people connect with family and friends located in different geographical locations; they support research addressing global challenges (as was the case during the COVID-19 pandemic); they enable the co-ordination of production along global supply chains; and they allow firms, notably smaller ones, and people to access global markets. In sum, cross-border data flows have become the lifeblood of modern day social and economic activities.