Trade, Inclusive Development, and the Global Order

Abstract

AbstractEconomic globalization has increasingly affected countries across the world, through participation in global value chains (GVCs) and helping to lift over one billion human beings out of extreme poverty since 1990. However, there are still too many people living in poverty, even in rich countries, and so concerns over exclusion of certain groups from the gains of economic globalization are rising internationally. Using the concept of inclusiveness based on Amartya Sen’s capability approach, we find that G20 countries perform better than non-G20 countries. We then review how economic theory contributes to understanding the causes of (missing) inclusiveness by reviewing the literature pertaining to five drivers: growth, technology, structural change, trade, and political economy. Overall, domestic policies tailored to specific national circumstances are the main instruments for promoting inclusiveness. The danger is that in pursuing these domestic policies, states may undermine international arrangements constituting the liberal economic order. We argue that the liberal economic order generates insufficient global governance because there is always a fraction of countries opposing global policy coordination as they believe it harms them, and that this group of countries is increasing propelled by the surge of populism. This dynamic implies that global governance focus will increasingly shift to “coalitions of the willing”, rendering multilateralism an increasingly challenging, and a la carte, proposition.