Least-Developed Countries' Trade During the 'Super-Cycle' and the Great Trade Collapse: Patterns and Stylized Fact

Abstract

LDCs' trade patterns changed in the past decade, thanks to the rebalancing of global demand towards large emerging countries and the resulting cycle of high international commodity prices. This process led to a wider geographical diversification of LDCs' exports but contributed also to a greater reliance on those highly priced commodities. Notwithstanding some progress in market and product diversification — including services — LDCs remain particularly vulnerable to external shocks. With the exception of 2006-2008, the LDCs as a group have systematically recorded a trade deficit. The 2008-2009 global crisis and the bumpy recovery which followed illustrate the volatility of the recent trends. In such a perspective, renewed efforts towards extensive product diversification are called for. Fostering diversification has been supported for many years by preferential market access to developed countries; more recently, emerging countries have also been granting such preferences to LDCs products. Preferential market access remains relevant, but is not sufficient to improve the supply-side capabilities. The new business model related to global value chains (GVC) offers new opportunities to LDCs for export diversification. But GVC participation cannot materialize without a proper trade environment. Some of the main obstacles for joining GVCs are the high transaction costs in importing the necessary inputs and exporting the processed goods. Active trade facilitation programmes, such as those identified during the Fourth Global Review of Aid for Trade in July 2013 offer new options to LDCs for joining GVCs. For those LDCs that have already been able to join these global production network, up-grading towards higher "value-added" activities requires more encompassing horizontal policies.