Thank you to FERDI [la Fondation pour les Etudes et Recherches sur le Développement International], the International Trade Centre and the World Bank for the invitation to address you today. I trust that you have had an interesting series of discussions this morning on assessing the effectiveness of Aid for Trade and looking at the role of services trade and I note that this afternoon you will be addressing the impact of trade facilitation and the future for trade assistance — two particularly critical and relevant topics.
The workshop is well-timed; it comes eight months before the 4th Global Review and in many ways it is the perfect occasion to take stock of what we have learnt both on, and from, Aid for Trade. It is clearly an opportune moment to consider the path ahead.
The theme for the next Global Review is “Connecting to Value Chains”. These patterns of trade which occur at the national, regional and global levels provide an opportunity for developing countries and firms within these countries to benefit from insertion into production and distribution processes at a relatively low entry cost. Aid for Trade has an important role in helping developing countries, particularly least-developed countries, to use integration into these chains as levers to facilitate trade-led growth and development. To shed further light on this, the WTO and its partner organization the OECD has launched a monitoring exercise to survey how, in reality, Aid for Trade is supporting the integration of developing countries into the global, regional and national value chains.
We are also for the first time directly targeting the private sector in the monitoring exercise. The Aid for Trade discourse has always recognized the pivotal role of the private sector — both as a user and as a provider of trade-related assistance — but we are taking this one step further by surveying the private sector in five areas of particular economic importance to developing countries — namely, agri-food, information and communication technology, textiles, tourism, and transport and logistics.
In addition, the WTO and the OECD are collaborating with a number of partners in a sectoral monitoring exercise for the 4th Global Review. The five partner organizations include the International Chamber of Commerce, the International Trade Centre, the International Telecommunications Union, the UN World Tourism Organization and the World Economic Forum team working on the African Union and the NEPAD [New Partnership for Africa’s Development] “Grow Africa” initiative. On the basis of the survey results, we will jointly undertake an analysis of findings for the 4th Global Review.
Allow me to address three main issues:
- evidence and impact of Aid for Trade;
- value chains and their implications for development;
- some questions on what next in terms of Aid for Trade priorities.
In 1965, Intel co-founder Gordon E. Moore made a prediction. He forecast that the number of components in integrated circuits would continue to double over the next ten years. This prediction was based on his observation that since the invention of the integrated circuit, the number of components had routinely doubled every year. His prediction was uncannily accurate. Moore’s law is now more generally cited in the context of the acceleration of technological capability but I cite Moore’s law in the context of Aid for Trade for two reasons. Firstly, the acceleration of technological capability is giving us data in copious quantities; and secondly, Moore’s acceleration in technological capability needs economic systems to deliver it in useable forms.
As for data, we are not just simply getting more, but we are accessing more on absolutely every topic imaginable — from genomes to geographic information systems. And we are only really starting to scratch the surface of the possibilities. This is true also of the state of our knowledge about the impact of Aid for Trade. The 276 case stories we received for the 3rd Global Review have undoubtedly added to our understanding. They highlighted Aid for Trade in action and the ways it makes a difference on the ground.
But these case stories are just the start. At its core, the Duflo and Bannarjee attack on poor economics is one about data — and the scientific method. It’s a debate that predates the emergence of economics as a discipline. What’s exciting about the debate they have stirred up is not a contrived schism, but a focus on outcomes and a willingness to experiment.
Outcomes matter. It matters where we are in achieving the Millennium Development Goals. It matters in the impact of an economic project on social development and vice versa. It matters that we can use evidence to base our choices on where to allocate scarce Aid for Trade resources. With budgets around the world tightening, the allocation of resources based on objective and comparative impact will increasingly drive policy decisions. To ensure that these decisions can be accurate and effective, evidence — both quantitatively robust and qualitatively rich — must serve as the central arbitrator.
This speaks to the heart of our Aid for Trade monitoring exercise and the heart of our monitoring dilemma. Focusing on just the outcomes of Aid for Trade is perhaps too limiting a focus. This is fundamentally because the Aid for Trade initiative is first and foremost about coherence. It is about winning the argument on mainstreaming trade in national development strategies. It is about helping countries and the decision makers and policy makers (and policy takers) in these countries see the wisdom of integrating the different strands of the economy. Why? Because funds flow from political priorities which are often informed by economic realities.
Trade is not a sector. It cuts across all sectors of the economy. If the linkages between trade and sectoral policies are not adequately captured, the priorities are hard to get right. We can see this in the failure to integrate baseline data on trade indicators in Aid for Trade projects. The linkage is not always clear or understood.
More serious in my opinion is any failure to integrate trade into the national and regional development policy. Understanding the trade and development interface is a first step to coherence. The next is grasping how to set appropriate and measurable targets. And here is where the real value of experimentation lies.
In short, political priorities need to have a strong evidence base. Data availability is transforming our ability to model and predict. And the experimental debate is testing our assumptions. But my advice to any policy maker would still be to seek out a “two-handed economist”. We have some way to go yet before we are likely to really master the complexity of these systems.
Now, coming to my second point on value chains. You are all familiar with the WTO’s Made in the World initiative and how production networks have splintered into trade in tasks. Looking at value chains from an Aid for Trade perspective is not an attempt at a “paradigm shift”. Rather, it is to relate the Aid for Trade agenda back to this observational and data revolution. Examining Aid for Trade in a value chain context means asking experimental questions — questions like:
- What does adding value mean in a world where production has splintered into a system of trade in tasks?
- Should we focus resources at the first step of value addition or elsewhere along the chain?
- Where does a particular country or region have comparative advantage along a value chain or between value chains?
- How can Aid for Trade help reveal or leverage that advantage?
- Where should we focus our resources: on getting the enabling environment right or picking winners or both?
- Where do societal values concerning the environment and corporate responsibility fit in this picture?
Many of these are uncomfortable questions for development practitioners. But my hope is that the 4th Global Review will provide some answers to these questions and also highlight the main constraints which firms in developing countries face in connecting to value chains and the support that is being provided to address the constraints.
Which leads to my final point: what next in terms of priorities? In 2011, aid to developing countries fell by nearly 3%, breaking a long trend of annual increases. But did it really? What is reported to the OECD is not the whole aid picture. These are the figures reported by the OECD members only and do not include the assistance provided by some of the bigger developing countries to other developing countries. At the 3rd Global Review of Aid for Trade in July last year, China, India, Brazil, Argentina, Indonesia and Mexico all reported an increase in their trade-related co-operation since 2008. Least-developed countries received 30% of total Aid for Trade in 2010 and other low-income countries (OLICs) 16%. Is that enough? In absolute numbers, the burden of absolute poverty now falls more heavily in middle-income countries because of the large populations in these countries living below the poverty line; and here, I am talking of the sheer numbers. Should we devote more Aid for Trade funds here? And what instruments should we use: grants, concessional loans, non-concessional loans etc? Probably a combination of all of these.
Let me conclude with two remarks: we need to promote evidence-based decision-making As far as allocation of resources to Aid for Trade is concerned, but at the same time we need to be realistic about the shortcomings of our data. In a sense, therefore, we should look at our data and the causal linkage that it provides in a macro, rather than micro, perspective.
Finally, all of us must continue to experiment, innovate, criticize and suggest! But all of us must also remember the broader picture. What we are seeking is coherence and the right priorities — random experiments should not lead to random thoughts; instead, these thoughts should lead to a more structured and evidence-based decision making. Our collective aim must remain to arrive at evidence-based, measurable priorities. A necessary condition to ensure accountability — one of the basic principles of the Aid for Trade initiative when it was launched in 2005.