Recherche économique et analyse des politiques commerciales
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Introduction
That the global economy has gone through a period both of enormous dynamism and of enormous disruption over the past quarter-century is hardly surprising – the two are inextricably linked. The world economy only grows when productivity rises; and productivity only rises when the world economy generates more and better output more efficiently. Current concerns about globalization in many countries are traceable at least in part to the economic adjustment challenge posed by a global economy becoming ever more productive. The World Trade Report 2017 looks at two of the most powerful drivers of global economic advance today technology and trade and examines how they are affecting labour markets. It analyses how the challenges of adjusting to this new labour market are changing and how economies are adapting. In particular it examines the similarities and differences in the way that technology on the one hand and trade on the other influence labour market outcomes.
Acknowledgements and Disclaimer
The World Trade Report 2017 was prepared under the general responsibility of Xiaozhun Yi WTO Deputy Director-General and Robert Koopman Director of the Economic Research and Statistics Division. This year the report was coordinated by Marc Bacchetta and José-Antonio Monteiro. The authors of the report are Marc Bacchetta Cosimo Beverelli John Hancock Mark Koulen Viktor Kummritz José-Antonio Monteiro Roberta Piermartini Stela Rubinova and Robert Teh (Economic Research and Statistics Division).
Impact of trade on labour market outcomes
This section looks at the empirical evidence on the effect of trade on wages and employment and addresses the following key questions: what is the evidence of the impact of import competition and offshoring on the level of wages and employment? What is the impact of increased market access for exports and the availability of cheaper imported inputs on employment? How can varied empirical evidence across countries be reconciled? How does the functioning of the labour market affect outcomes? How large are trade-induced adjustment costs? This section focuses particularly on wages and employment because research on other dimensions of labour markets such as employment stability and security is much less developed due to lack of cross-country data and thus does not allow for a comparison of how trade and technology play out on these other variables.
Executive summary
Unprecedented economic growth over the last quarter of a century has necessarily been accompanied by unprecedented economic change.
Foreword by the WTO Director-General
The story of economic progress is a story of economic change. It is a story in which whole industries can rise and fall replaced by new ideas and innovations which demand new skills. This relentless process of transformation has built the global economy of today bringing growing prosperity for billions of people around the world – and it has made the ability to adjust and adapt an essential element of economic success. Now as before individuals firms and societies are striving to respond to rapidly evolving economic conditions in order to share in the benefits. The difference today is the remarkable speed at which these changes are occurring.
World Trade Report 2017
The 2017 World Trade Report examines how technology and trade affect employment and wages. It analyses the challenges for workers and firms in adjusting to changes in labour markets and how governments can facilitate such adjustment to ensure that trade and technology are inclusive.
Impact of technology on labour market outcomes
This section considers the effects of technology on the level and composition of employment and wages. Technological progress by increasing the productivity of factors of production expands an economy’s production possibility frontier so that the same amount of output can be produced with fewer resources or more output can be produced with the same amount of resources.
Labour market outcomes: Trends and analytical framework
This section aims to put the discussion of the labour market effects of trade and technology into perspective. A narrow focus on these effects may give the misleading impression that trade and/or technology are the main determinants of employment or wages. As explained in this section however levels of employment or unemployment and of wages are largely determined by how the labour market works. In other words the effects of technology or trade on labour market outcomes depend to a large extent on institutional conditions in the labour market concomitant economic changes and the diversification of employment opportunities when shocks occur.
The Contribution of Services Trade Policies to Connectivity in the Context of Aid for Trade
This paper examines how services trade and policies contribute to connectivity. It highlights the economic relevance of services and identifies some key channels through which trade in services contributes to physical and digital connectivity. The paper examines the impact of services trade policies on connectivity in view of recent research showing their impact on sectoral performance economic welfare and development. Finally it discusses the positive contribution that aid for trade can make in support of services policies.
The Application of Competition Policy Vis-À-Vis Intellectual Property Rights
This paper examines the evolution of national competition (antitrust) policies and enforcement approaches vis-à-vis intellectual property rights (IPRs) and associated anti-competitive practices in major jurisdictions over the past several decades. It focuses especially on the underlying process of economic learning that has the authors suggest driven relevant policy changes.
Provisions on Electronic Commerce in Regional Trade Agreements
This paper reviews the different types of provisions explicitly addressing electronic commerce (e-commerce) in regional trade agreements (RTAs). The analysis covers the 275 RTAs currently in force and notified to the WTO as of May 2017.
Georgia's Post-Accession Structural Reform Challenges
The process leading to WTO accession is complex requires solid domestic coordination mechanisms in the acceding country a rethinking of its economic and trade policies and significant domestic structural reforms. It often implies the creation of new institutions designed to coordinate and implement the policies at the national level as was the case in Georgia.
Understanding Supply Chain 4.0 and its potential impact on global value chains
The reorganization of supply chains using advanced technologies such as the Internet of Things (IoT) big data analytics and autonomous robotics is transforming the model of supply chain management from a linear one in which instructions flow from supplier to producer to distributor to consumer and back to a more integrated model in which information flows in an omnidirectional manner to the supply chain. While e-commerce is uniquely suited to many of these techniques they also hold the promise of improving efficiency in brick-and-mortar stores. These technologies are generating enormous benefits through reducing costs making production more responsive to consumer demand boosting employment (employment in supply chain sectors where such technologies are most likely to be applied has grown much more rapidly than in other supply chain sectors and in the economy as a whole) and saving consumers’ time. The impact of these technologies on the length of supply chains is uncertain: they may reduce the length of supply chains by encouraging the reshoring of manufacturing production to high-income economies thus reducing opportunities for developing countries to participate in GVCs or they may strengthen GVCs by reducing coordination and matching costs.
Trade, value chains and labor markets in advanced economies
Trade is a major source of employment. Nevertheless trade has recently been caught in the crossfire in discussions around the decline of manufacturing employment and the polarization of labor markets in advanced economies. In this chapter we examine what the academic literature has to say on the relationship between trade and labor markets with a specific focus on studies with a value chain perspective. We find that trade has only modest effects on aggregate employment and is unlikely to have been a major contributor to the decline of manufacturing. However the effects vary considerably across regions and individuals with different skill levels. This implies that policy has a central role to play in making sure that the gains from trade are shared evenly. Our findings highlight that a value chain perspective is important for assessing the impact of trade on labor markets. The emergence of value chains has strengthened linkages between sectors magnified trade’s impact on skill demand and requires novel trade statistics. Ignoring this leads to a biased view of trade and overestimates its role in the decline of manufacturing employment.
Foreword
There are different ways to analyze the global economy. One is to view it through the lens of growth and structural change in individual economies developed and developing. A second is to use the lens of global value chains (GVCs) the complex network structure of flows of goods services capital and technology across national borders. Both are useful and they are complementary to one another.
Executive summary
More than two-thirds of world trade occurs through global value chains (GVCs) in which production crosses at least one border and typically many borders before final assembly. The phenomenal growth in GVC-related trade has translated into significant economic growth in many countries across the globe over the last two decades fueled by reductions in transportation and communication costs and declining trade barriers. But at the same time it has contributed to distributional effects that mean that the benefits of trade have not always accrued to all which has at least in part been a driver in the backlash against globalization and the rise of protectionism and threats to global and regional trade agreements. In addition new technological developments such as robotics big data and the Internet of Things (IoT) are beginning to reshape and further transform GVCs. This second GVC development report takes stock of the recent evolution of GVC trade in light of these developments.
Improving the accounting frameworks for analyses of global value chains
The use of global input-output tables and the creation of Trade in Value-Added (TiVA) statistics has greatly improved our understanding of the fragmentation of global production through value chains. However their application requires a number of assumptions that in practice typically understate the degree of interconnectedness. TiVA estimates implicitly assume identical production functions across firms within an industry when in reality production functions differ considerably. Typically larger (and foreign-owned) firms tend to be more trade oriented than smaller (and domestically-owned) firms. As a result TiVA statistics underestimate the import content of exports for the economy as a whole a key indicator characterizing global production. Moreover TiVA analyses are based on basic price concepts which provide an appropriate view of production through value chains but are less well equipped to analyse consumption particularly as they exclude significant distribution margins (in particular retail and wholesale activities often including marketing activities and brands) which add value at the end of the chain. This can distort analyses using “smile curves” which show the distance from final demand of different sectors within value chains and in turn understate the scale of jobs supported by trade.
Technological progress, diffusion, and opportunities for developing countries: lessons from China
The nature of technology used in products plays a major role in determining the governance structure of value chains and the benefits of participation for developing countries. Standardization through breaking production into modules with a high degree of functional autonomy (limited mutual interference between modules) can dramatically reduce the amount of research and development (R&D) learning by doing and the number of complementary skills needed to produce a good. This greatly increases opportunities for developing country firms to participate in formerly capital-intensive industries through reducing entry costs into global value chains. However widespread access to standardized products with little ability to modify technical features can lead to an excessive supply of homogeneous products in a local market resulting in intense price competition and limited technology transfer. By contrast technology that facilitates scope for product modification and greater interaction with technology owners can help boost technology transfer and product upgrading by developing country firms. The chapter illustrates this interaction between changes in technology and opportunities for developing countries through developments in the automotive and mobile phone handset industries with a particular reference to China’s growth experience. It also finds that automation is likely to have only a limited impact on developing countries’ opportunities to participate in value chains through the offshoring of production by high-income countries at least in the short term.
The digital economy, GVCs and SMEs
Although small and medium-sized enterprises (SMEs) represent the vast majority of firms worldwide their participation in international trade remains limited relative to their share of overall economic activity and employment as compared to large firms. The rise of the digital economy could however open a range of new opportunities for small firms to play a more active role in global value chains (GVCs). This chapter reviews evidence of SME participation in international trade and production networks and looks at how the digitalization of our economies is already affecting or could affect future SME contributions to GVCs. New research by Lanz et al. (2018) finds evidence that digitally-connected SMEs in developing countries tend to import a higher share of their inputs than non-digitally-connected firms. Additionally it is shown that this positive digital effect is greater for SMEs than it is for large firms. The chapter reviews the various opportunities that the digital economy opens for SMEs especially in terms of cost reductions and the emergence of new business models but also discusses policy measures that could be taken to promote SME participation in GVCs. Indeed significant challenges remain for SMEs to enter GVCs some of which are exacerbated by the new digital economy. A holistic approach that combines investment in ICT infrastructure and human capital with trade policy measures and measures to improve the business environment access to finance and logistics and promote innovation and R&D is necessary. Improving the availability of data would also help to better understand and integrate SMEs in GVCs.