Trade and development in an age of crisis: Mind the fundamentals

As 2022 begins, the world is facing some daunting challenges. A still raging pandemic, looming climate crises, and precarious macroeconomic trends threaten lives and livelihoods, while deepening geopolitical discord and doubts about globalization make international cooperation more complicated.

A disproportionate share of these challenges – indeed, these burdens – will continue to be borne by people in poorer countries, where financial resources are scarce, social safety nets and public infrastructure are weak, and less diversified economies are not as resilient to shocks. Although it is imperative to meet these pressing challenges, the burdens of doing so are no excuse for governments to backslide into trade protectionism.

In this paper, Daniel Ikenson of ndp | analytics demonstrates that economies that are more open to trade and investment tend to grow faster and attain higher levels of social development than economies that are relatively closed. Amid the challenges of the present, Ikenson reminds us that economic diversification enabled by trade liberalization allows countries to absorb and rebound from shocks, and generates higher living standards.