| Global Economic Prospects 2003: Investing
to Unlock Global Opportunities |
Complete
Report: (1,751
KB)
Productivity increases and efficient investment are essential conditions for rapid growth and
poverty reduction. The key to accelerating technological improvement and increasing investment
is improving the “investment climate.” In the broadest sense, this term encompasses
the policy and institutional environment that fosters entrepreneurship, learning, and productive
investment.
In this report, we argue that the investment climate for developing countries has both a global
dimension and a national dimension. The global investment climate, although less amenable to
policy initiatives of developing countries, nonetheless presents opportunities, risks, and at times
obstacles for developing countries. In this report, we focus on two aspects of the global investment
climate: the current state of the world economy as it affects developing countries’ financial
outlook, exports, and growth prospects (chapter 1) and the organization of global business,
notably the proliferation of multinational companies and associated production networks (chapter
2). In previous reports we have studied other aspects of the global investment climate, including
the world trading system (Global Economic Prospects 2002) and aspects of the global
financial system (Global Development Finance 2002).
The national dimension of the investment climate for developing countries is discussed in
chapter 3. This dimension is composed of the policy and institutional environment that fosters
entrepreneurship—and that strongly influences the pace of productivity growth and the rate of
investment. Differences in national policies help explain why some countries grow rapidly and
others do not, even though all operate within the same international investment climate. In short,
policymakers have considerable scope for choosing policies that influence the amount and productivity
of investment.
Summary and full
matter: Including copyright information,
Contents, Abbreviations,
Acronyms and Data Notes (192
KB)
Summary:
English
version (64 KB)
Chinese
version (248
KB)
Spanish
version (52
KB)
Chapter
1: (357 KB) The
International Economy and Prospects for Developing
Countries
Developments in early 2002 showed a
cyclical rebound—
Macroeconomic stimulus, a rebound from a
record trough in the high-tech sectors and
a bottoming-out of inventory cycles, brought
large parts of the global economy onto a recovery
path at the end of 2001. Lower interest
rates helped keep consumers’ demand for
durable goods strong. Together with fiscal easing,
that demand provided support for the
rebound in the United States and, to a lesser
extent, in some East Asian and European
countries. High-tech markets—in which technologies
quickly become obsolete—returned
to strong growth by creating replacements for
old products. Inventory selloffs ceased, thereby
contributing to an acceleration of gross domestic
product (GDP) growth in early 2002.
The driving forces behind the initial phase
of the recovery were strong, but short-lived, as
business confidence remained weak. Inventory
and high-tech cycles typically are short, and
both appear to have peaked toward the middle
of 2002. The effects of fiscal stimulus and
monetary easing can also, under current circumstances,
dissipate quickly.
—but uncertainty in financial markets has
sapped momentum
In the second phase of a typical recovery, the
upturn spreads to other sectors and other
regions, and the driving force shifts from inventory
dynamics to accumulation of fixed
investment. In the current upswing, however,
the second phase is in jeopardy because of tensions
in financial markets, which reflect accumulated
financial imbalances and significant
uncertainties. These pressures have made the
recovery in 2002 less uniform, and they are
likely to moderate growth in 2003.
Chapter
2: (273 KB) Changes in
Global Business Organization
The organization of global business is
rapidly changing in ways that affect
the competitive opportunities open to
developing countries. A principal feature of
business organization is the steady expansion
of multinational corporations and their related
trade and investment activities. Multinational
companies, including many based in other
developing countries, are altering the competitive
landscape by providing for developing
countries a new source of entry into markets.
Moreover, by taking advantage of falling communication
and transport costs, multinationals
have learned to manage different stages
of production in multiple, distant locations,
thereby creating opportunities for developing
countries to produce during those stages of
production—often labor-intensive stages—
that correspond to their comparative advantage.
But tapping into this potential source
of competition is not automatic, and not all
countries have benefited. Moreover, some
observers have openly worried that the recent
surge in global mergers among leading
multinationals might be dampening competition
and creating obstacles for developing
countries.
This chapter reviews four recent trends in
the organization of global business that affect
developing countries’ ability to harness foreign
investment for greater competition:
changes in global business concentration, the
rise in service sector foreign direct investment
(FDI), the growth of global production
networks, and the growing importance of
strong investment climates for the allocation
of foreign investment.
Chapter
3: (313 KB)
Domestic Policies to Unlock Global
Opportunities
Expanding global service and production networks
can accelerate growth in developing
countries that successfully harness competition
to encourage efficient investment. Efficient investment
does not simply mean more investment.
In fact, recent research demonstrates
surprisingly little short-run correlation between
investment levels and growth (Easterly
1999). Instead, investment and its productivity
are inextricably linked to domestic policies
that, taken together, broadly make up the local
investment climate.
Sound enabling policies—including good
governance, institutions, and property rights—
can help attract more private investment, both
domestic and foreign. Policies that promote
competition and entrepreneurship increase the
efficiency of that investment. Complementary
public investment, meanwhile, further contributes
to overall productivity growth. Taken
together, sound policies in these three areas
contribute to a positive investment climate,
which is essential to accelerating growth and
reducing poverty (Stern 2001).
Chapter
4: (257 KB) International
Agreements to Improve Investment and Competition for
Development
Ministers of the World Trade Organization
(WTO) set an agenda for investment and competition
when they met in Doha, Qatar, in
November 2001, and decided to launch negotiations
on a multilateral framework that covers
investment and competition. These negotiations
are subject to a decision to be made
by explicit consensus on modalities at the
Cancún Ministerial Conference, to be held in
2003. The purpose of the new framework is
“to secure transparent, stable, and predictable
conditions for long-term cross-border investment”
that will expand trade and “enhance
the contribution of competition policy to international
trade and development.”1
The international community, and developing
countries in particular, therefore faces two
questions: What types of new multilateral initiatives
on investment and competition policy
can promote more—and more productive—
investment, and hence more rapid development?
And, which issues are best tackled
through voluntary initiatives and multilateral
cooperation, and which are best handled
through binding commitments, such as those in
the WTO and regional arrangements? The answers
to these questions require a separate discussion
of investment and competition policy.
Appendix
1: (192 KB) Regional Economic
Prospects
Appendix
2: (228
KB) Global Commodity Price
Prospects
Appendix
3:
(171 KB) Global
Economic
Indicators
Classification of
Economies:
(59
KB)
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