UNCTAD´s report on Developing Countries in International Trade 2005 [PDF], released today, contains a Trade and Development Index ranking 110 countries on the basis of how well they manage the complex interplay of factors that determine both trade progress and human development (see press release UNCTAD/PRESS/PR/2005/050 for further information and the full list of country rankings).
The 2005 index, or TDI, ranks Denmark as the world´s most successful trade-and-development nation. Ranking second and third are the United States and the United Kingdom.
Ranked in 15th place, Singapore is the only developing country among the top 20. It is followed by the Republic of Korea at 25, Malaysia at 28 and Uruguay at 33. The 10 lowest-ranked nations are from Africa and include nine least developed countries, or LDCs. South Africa and Mauritius are the only African countries in the top 50, ranked at 41 and 47, respectively.
Khalil Rahman, Chief of UNCTAD´s Trade Analysis Branch, recently talked about the index and its findings:
Q: What was the motivation to behind the TDI?
A: That trade should promote development has almost become a cliché. We wanted to go beyond this. We asked ourselves: is there a way to express in numbers how trade and development are interrelated in countries at different stages of development? We wanted to find a quantitative indication of this relationship. We thought it might help us better understand the way trade contributes to human development.
Q: What is the conceptual approach behind the TDI? What does it aim to show?
A: The TDI is a tool that monitors the trade and development performance of countries. We wanted to construct an index that could be used to monitor trade and development performance. We also wanted to make it a diagnostic device and a policy tool.
Q: Exactly how can it be used by developing countries?
A: The TDI can be employed by developing countries in several ways. Obviously, tracking their own trade and development performance is one. Breaking down the different elements that are included in the TDI will help them identify areas where their performance is weak. This could also help them figure out how to balance the different aspects of their trade and development policies. Another use of the TDI could be to assess how their performance compares with that of other countries.
Q: What is the relevance of the TDI to the wider work of UNCTAD?
A: As our Secretary-General Dr. Supachai has said in his preface to the new report, the TDI will help UNCTAD concentrate more on national trade and development policies, and provide a broad frame of reference for the overall activities of the secretariat.
Q: One of the findings of the TDI is that openness is the most prominent driving factor. Does that mean that trade liberalization is good for development? Given the prominence of the debate on trade liberalization, could the TDI say something about how and under what conditions trade openness is positively related to development?
A: If you look at all 110 countries in the sample taken together, openness to trade is the most prominent factor behind the TDI scores. We even have a number for it: openness to trade accounts for almost 15% of TDI scores for the entire sample.
This number does not carry with it any judgment about openness. It indicates nothing more than how much of the TDI score is explained by openness. It is quite possible that it simply reflects the efforts made by all countries in recent years to liberalize trade.
Q: Another interesting finding concerns variability. The higher the TDI, the less variation there is between the different dimensions. In other words, if a country scores well on trade policies it will also score high on structural and institutional factors. Does this mean that to get one dimension right, a country needs to get them all right?
A: This is the key finding. The TDI findings show quite clearly that the higher TDI-scoring countries exhibit lower variability in the contribution of individual components, while lower- scoring countries have higher variability. As a general rule, this suggests that the steadiness of policies is more important than doing well in any particular area.
An important policy implication of this rule is that reducing the variability in the contribution of different components of the TDI should be an important objective of trade and development policies and strategies. In other words, to be successful, a country should pursue multiple goals at the same time within a coherent trade and development strategy.
As the case of the LDCs and other low-scoring countries indicates, a disproportionate emphasis on a limited number of objectives, such as trade liberalization, without also focusing on other factors will produce only small development gains. By demonstrating significant variations, the analysis points to the importance of country-specific approaches to trade, development and poverty reduction strategies.
Q: The TDI also analyses groups of countries: developed countries, developing countries, but also categories that fall somewhere inbetween the two, such as the ´EU10´. This analysis suggests that the contribution of trade to development is significantly improved through institutional discipline, financial and technical support and market access. What lessons would you draw from this, particularly with regard to other regional arrangements?
A: Within our three different categories -- developing countries, OECD/developed countries and EU-acceding countries -- the OECD average score is taken as the long-term trade and development benchmark for developing countries. The EU10 average is the medium- to longer-term benchmark for developing countries. Progress in trade and development performance will be assessed against these benchmarks. A comparison between the disaggregated results of the EU10 and those of developing countries, especially middle- and low-ranking ones, indicates what works: a broad-based development agenda in a well-defined time frame under strict institutional discipline, and facilitated by adequate financial and technical support and market access.
We believe the European integration process and the experiences of more successful developing countries could provide important insights into the formulation of trade and development strategies, regional integration, and development partnership paradigms aimed at fast-improving TDI performance.