Lower trade costs and adopt new technologies for higher returns

Ahead of her participation at the World Economic Forum’s Summit on the Global Agenda, which opens in Abu Dhabi tomorrow, Anabel González, a senior director at the World Bank, explains what the key drivers of global competitiveness will be amid a slowing outlook for world growth.

How worried should we be about the decline in global productivity growth? Why is productivity stalling?

Global growth declined in the first half of this year both in advanced and in emerging economies. The slowdown in global productivity is a leading factor behind weaker output growth. There are multiple causes behind this slowdown, and they are poorly understood so far. In the short term, the decline in investment is a contributing factor. Other long-term issues include the way in which emerging economies are catching up to frontier technologies and the gradually declining positive effect of the Information and Communication Technology (ICT) revolution. At the World Bank Group, we are investigating whether another cause may be the slower pace of world trade growth, particularly the slower expansion in global value chains.

If you could implement one thing to lift global competitiveness, what would it be?

Reduce trade costs. Trade costs represent the “friction” on the international trade web, so lowering them would boost the competitiveness of all countries and particularly of the developing economies that are currently less connected to world markets. World Bank research shows that lower trade costs are associated with both higher GDP per capita and lower poverty rates, which are our twin goals. As trade growth implies deeper international specialisation and diffusion of technology, lowering trade costs would contribute to boost productivity growth.

Regarding the global economy, are you a bull or a bear?

I think we need to be bearish in our analysis and bullish in our actions. As I discussed above, the situation of the global economy is complex and only partly understood, we need to do more. We are investing a lot of resources to deepen our understanding of the current situation, particularly of the causes and effects of the global trade and investment slowdown.

At the same time, we need to act in areas where the available information suggests that actions would have positive payoffs. Trade costs is a primary example. If we move in this direction, there are reasons for optimism.

What innovation do you think has the most potential to lift global competitiveness?

A number of recent technological breakthroughs may bring down the costs of coordinating globally fragmented production further and, hence, improve global competitiveness. Let me give you some examples. The spread of smartphones, video and virtual-reality conferencing, and computer translation makes it easier to successfully operate complex global value chains (GVCs). Similarly, radio-frequency identification technology, as well as other developments in the Internet of Things space, make it cheap to track and monitor components as they move through the supply chain.

Cloud computing can change the landscape of information storage and exchange, and enable the scaling up of computing operations for global value chain participants with inexpensive hardware. The analysis of large, fast-moving and varied streams of “big data” can enable firms in GVCs to optimise complex distribution, logistics, and production networks.

If you could achieve one thing at the summit in Abu Dhabi, what would it be?

A shared vision among summit participants on the need to promote a reinvigorated trade and competitiveness agenda that would help us combat the global trade slowdown, spur growth, productivity and job creation.

* Courtesy WEF

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