April 27th, 2007 14:57 EST
All Countries Can Gain from Globalization Now
Washington -- Even the least developed countries can accelerate growth and poverty reduction by embracing trade and building strong institutions, a U.S. central bank governor says.
Opening domestic markets to foreign goods weakens the political power of entrenched business interests and frees financial resources for investment by reducing corruption, said Frederic Mishkin, a member of the Board of Governors of the Federal Reserve System. He spoke April 26 at the International Monetary Fund in Washington.
Mishkin said that sometimes developing countries prefer to maintain import barriers to protect their nascent industries. But even then, he said, they can generate incentives for institutional reform by removing obstacles to exports. Potential exporters will push for a well-functioning financial system because they need better access to capital to compete in the international arena, Mishkin said.
He said that all countries that have advanced economically in recent decades, such as Japan, South Korea and Chile, have relied on export-led growth.
Mishkin said he finds it surprising that many of the world’s poorest countries, particularly in Africa, maintain taxes, restrictions, a fixed official exchange rate and other policies that effectively discourage export-oriented production.
In addition to ending those taxes and policies, governments can encourage exports by providing the transportation infrastructure to makes it easier for businesses to ship their goods abroad, he said.
Mishkin said, however, that only when nations participate fully in the global trading system can they derive full benefits from it. Lowering barriers to imports forces domestic firms to increase productivity and make better products that in turn help promote exports, he said.
According to empirical evidence, trade liberalization is beneficial to both exporting and importing countries, Mishkin said. Advanced countries can help bring less developed nations into the global trading system by supporting the opening of their markets to goods and services from the developing world, he added.
Emerging-market countries can integrate better with that system by opening financial markets to increase access to capital and lower its costs, he said. In addition, foreign financial firms are likely to increase the pressure on the host government to institute financial system reforms, he added.
But Mishkin cautioned against premature financial market liberalization. Such liberalization must be preceded by a certain degree of institutional and financial market development as well as macroeconomic stability to achieve its goals, he said.
Mishkin said good institutions such as a strong property rights regime and an effective legal system are critical to economic growth.
Developing such institutions is not easy and takes time because they need to evolve and adapt to local circumstances, he said.
GLOBAL MAJORITY SUPPORTS TRADE
According to a survey made public April 26 by the nonpartisan Chicago Council on Global Affairs and WorldPublicOpinion.org and conducted in cooperation with polling organizations around the world, publics in 17 countries and the Palestinian Territories expressed support for globalization and even greater backing for trade as sources of economic, corporate and consumer benefits. Pro-trade sympathies were strongest in export-oriented nations such as China, South Korea and Israel and weakest in Mexico, Russia and the Philippines, according to the polls.
Many respondents, however, in both developed and emerging-market countries expressed concern about the impact of trade on the environment.
Trade’s impact on job creation was viewed as mostly negative in developed countries such as France and the United States and as mostly positive in all other countries. Respondents often were divided on trade’s effect on job security, with China as the only country with the majority supporting a view that trade helps job security.
The full text of Mishkin’s remarks can be viewed on the Federal Reserve Web site and a report on the trade survey can be accessed at WorldPublicOpinion.org.