NEW UNCTAD PUBLICATION QUANTIFIES TRADE AND DEVELOPMENT PERFORMANCE

• Denmark tops index, followed by United States and United Kingdom

• Singapore is the only developing country among the top 20, followed by Republic of Korea, Malaysia and Uruguay

It has long been understood that by expanding their foreign trade, countries can create jobs and raise the living standards of their citizens. The new UNCTAD annual report, Developing Countries in International Trade 2005 (PDF), released today, measures in innovative ways the connections among factors affecting a country´s foreign trade and its human development.

In a first for the UN system, the United Nations Conference on Trade and Development (UNCTAD) has developed a Trade and Development Index (TDI) capable of monitoring, benchmarking and ranking the trade and development performances of all countries.

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. At number 15, 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. China, despite its impressive export performance in recent years, is ranked 51st. India, also in the spotlight for recent export-led growth, comes in at number 90. 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 41th and 47th, respectively.

Key features of TDI

This report presents and explains the Trade and Development Index and its ranking of 110 countries, both developed and developing (see attached list). The chief innovation of the TDI is that it quantifies the complex interplay of factors that determine both trade progress and human development.

The TDI is intended as a quantitative indication of the state in which a country finds itself at a given time as a result of interactions among factors affecting trade and development. It provides fresh insights into how international and national policy makers can use world trade to deliver solid development benefits, especially to the poor. The index will also help governments diagnose trade performance problems and will provide tools for improving trade policy.

The constituent elements of the TDI are grouped under three broad "dimensions," with each dimension composed of a varying number of "components" and each component made up of scores from a number of "indicators." The methodology of the index is explained in detail in the report.

The three dimensions are:

• Structural and institutional factors (including such components as human capital, physical infrastructure and the quality of public administration
• Trade policies and processes (including openness to trade and effective access to foreign markets)
• Level of development (including economic development, social development, and gender development)

In total, 29 indicators - on everything from gender standards and corruption levels to environmental conditions and the presence or absence of trade barriers - are used.

The index also enables developing countries to chart their progress against a pair of benchmarks. The first benchmark, intended for medium- to long-term periods, is the trade and development performance of the 10 Central and Eastern European countries accepted into the European Union in 2004.

The second benchmark, intended as a long-term goal, is the performance of the industrialized countries belonging to the Organisation for Economic Co-operation and Development (OECD). The benchmarks are intended to help policy makers to assess the catching up needed by low performers.

The intricate statistical modelling and trade policy analyses were done entirely by UNCTAD´s staff, advised, among others, by Lawrence R. Klein, Benjamin Franklin Professor Emeritus of the University of Pennsylvania and winner of the 1980 Nobel Prize for economics.

Main findings

Other countries in the list of top 10 performers include Sweden, Norway, Japan, Switzerland, Germany, Austria and Canada. France is in 11th place, followed closely by Belgium and Australia.

Among developing countries, the top 10 include newly industrializing economies of East and South-East Asia and some Latin American and Caribbean countries. The middle 20 developing countries include 10 from Latin America and the Caribbean, eight from Africa and one each from East and Central Asia.

The top-ranking Latin American and Caribbean countries are Uruguay (33rd), the Bahamas (34th) and Costa Rica (35th). Among Arab countries, Kuwait leads in 39th place, followed by Jordan, Saudi Arabia, and Egypt. The bottom 20 are African nations or least developed countries (LDCs), except for Pakistan and Papua New Guinea, and the entire bottom 10 are Africa countries, including nine LDCs.

The overall analysis indicates that the top 10 developing-country performers have come significantly closer to developed countries in some areas, such as environment, economic structure, openness to trade, and social development. In other areas, they are not far behind, which suggests they have a good chance of catching up with the EU-10 in the medium term.

However, there is a large gap between the developed countries and the top 10 developing countries in such areas as human capital, physical infrastructure, institutional quality, market access and economic development. Huge differences in performance remain between the developed countries and other developing countries. The catching-up challenge is formidable for LDCs.

The report´s analysis reveals several other interesting findings. The "openness to trade" component makes the largest contribution to the TDI score, accounting for almost 15 per cent for the whole sample of 110 countries, and reflecting their trade liberalization efforts. Contributions of other components vary from 3.9 per cent to 13 per cent.

Trade liberalization seems to play a much larger role in explaining the TDI scores of developing countries as a whole, and especially the LDCs, than the scores of developed countries.

Statistics indicate that the importance of the "openness to trade" component tends to be higher for countries with lower overall TDI scores, and vice versa. For example, its contribution to the TDI is around 17 per cent for developing countries as a group, compared with 12 per cent for the EU-10 and less than 10 per cent for developed countries.

Another finding is that the "access to markets" component contributes similarly to all country groups, although it plays a much smaller role than openness to trade in developing countries compared with developed countries. The lower score of developing countries on market access is caused by high tariffs on some of their key exports, by persistent trade barriers among developing countries, and by supply capacity constraints.

Policy implications

The report draws attention to a general rule that says, "The higher the TDI score, the lower the variability in the contribution of its components, and vice versa". The highest-scoring countries tend to score uniformly high in different components, while low-scoring countries have component scores that are unevenly distributed. This suggests that policy makers, especially in developing countries, should try to advance all trade and development components at the same time.

Thus poorer nations with increased market access and development partnerships need to invest more in education, health services, road building, banking and accounting standards, and in improved institutions of governance. Another implication is that overemphasizing a limited number of objectives, such as trade liberalization, without giving simultaneous attention to factors that make liberalization work, will yield marginal gains.

Progress is needed on a wider range of fronts so that a virtuous circle of progress and reinforcing benefits comes into play. This confirms the need for greater coherence among policies guiding the international trading system, national development strategies and development cooperation.

By showing significant variations in the relative roles of different components among countries, the index also points to the importance of country-specific approaches to trade and development.

In addition to providing and explaining the new index, Developing Countries in International Trade 2005 analyses the main factors determining export performance and reviews the often-stressful effects of the economic reforms poorer nations frequently must carry out to comply with international trade agreements. Future annual editions of the report will focus on other issues affecting the use of trade to spur development.

UNCTAD Secretary-General Supachai Panitchpakdi calls the report and index a "tool to help stimulate and promote national and international policies and actions for development and poverty reduction".

ANNEX

Tables and figures

The Trade and Development Index (TDI): Country ranking

Source: UNCTAD, Developing Countries in International Trade 2005