牛津经济研究院-WTO解散对发展经济的影响（英）

Theimpact

ondeveloping

economiesof

WTOdissolution

CC1(

April2024

Tableofcontents

Tableofcontents 2

ExecutiveSummary 3

1.Introduction 6

2.Modellingassumptions 8

2.1Scenariodefinition 8

2.2Modellingapproach 10

3.Economicimpactresults 11

3.1Impactontradeflows 11

3.2Impactonforeigndirectinvestment 12

3.3Impactonproductivitylevels 12

3.4ImpactonGDP 13

AppendixI:Methodology 15

AppendixII:Bibliography 19

April2024|TheimpactondevelopingeconomiesofWTOdissolution|2

ExecutiveSummary

OxfordEconomicshavebeencommissionedbytheInternationalChamberofCommerce(ICC)toprovideanindependentassessmentofthepotentialimpactofWTOdissolutionondevelopingeconomies(middle-incomeandlow-incomecountries).Thisreportdetailsour

findingsandtheassumptionsunderpinningouranalysis.

Scenariodefinition

Anumberofscenarioscouldbeenvisagedthatwouldresultintheabandonmentofthe

rules-basedmultilateraltradingsystemandWTOdissolution.Allwouldentailnegative

repercussionsforglobaltrade,butthelevelofseverityvariesconsiderablydependingonthespecificassumptionsemployed.Forexample,aseverebutplausiblescenariocouldinvolveaglobaltradewarresultinginpolicy-drivengeoeconomicfragmentation;attheoppositeendofthespectrum,alessextremescenarioforWTOdissolutioncouldinvolveamoregradual

erosionoftrusteventuallyresultinginabreakdownofmembers’commitmentstotherules-

basedsystem.Wehavetakenaconservativeapproachtodemonstrateourhypothesis

thatevena“bestcase”scenarioforWTOdissolutionwouldhavesubstantialnegative

repercussionsfordevelopingeconomiesthatrelyontradeasacriticalenablerofgrowth.

Inourscenario,thedemiseoftherules-basedmultilateraltradingsystemresultsingreater

uncertaintyandhigherinformationcostsforallcountries.Increasedlevelsofprotectionism

mayalsobeanticipatedbetweencountrypairswithoutpre-existingfreetradeagreements

(FTAs)inplace.ButthisdoesnotimplythatallthebenefitsassociatedwiththeWTOwould

bedestroyed–theworldisnowsocloselyintegratedthroughglobalvaluechains(GVCs)thatincentivestoadoptprotectionistpoliciesarepermanentlyreduced.Rather,weanticipate

levelsofprotectionistpolicybetweencountrypairswithoutFTAswoulddependonlevelsofGVCintegration.

ThedirecttradeimpactsofWTOdissolutioninthisscenarioarelimitedtonon-fuelgoods.Weassumemostcountriesthatarereliantonfuelimportswouldnotwishtoraisetradebarriers

affectingtheseinflows1;meanwhile,policycommitmentsundertheWTOtoreducebarriers

totradeinservicesareverylimited–moststudiesfindtheWTOhasnosignificantimpactonservicestradeflowsoutsidethetelecommunicationssector(forwhichthebenefitsassociatedwiththeWTOareunlikelytoberolledbackfollowingdissolutionasdevelopingcountrieswouldcontinuetopushtheirdigitalisationagendatoensurecompetitiveness)2.

Thefocusofouranalysisisonthepotentiallong-termstructuralimpactsofWTOdissolutionondevelopingeconomies.Thisisreflectedinthepresentationoftheresults,withmetrics

reportedintermsofhowtheycomparetoourbaseline(“statusquo”withtheWTO)forecastsfor2030.OurexpectationisthattheimpactsofWTOdissolutionwouldgraduallyintensify

overtime,withthefullimpactpeakingby2030andremainingpermanent.

1Somegovernmentshaveimposedexportorimportrestrictionsontheseproducts,oftenforgeoeconomicreasons,butweassumethisoutcomeislesslikelyunderthe“conservative”assumptionsofourscenario.

2AlthoughsomerecentstudieshaveindicatedapositivesignificantimpactofWTOcommitmentsonservicestrade,ourfocusondevelopingeconomiesalsomakesitlessrelevantinthecontextofthisstudy.

April2024|TheimpactondevelopingeconomiesofWTOdissolution|3

Tradeimpactondevelopingcountries

WeestimatethatWTOdissolutionwouldlowerexportsof

developingcountriesbyaroundathird,comparingtoa

baselinewherethe“statusquo”oftherules-basedmultilateraltradingsystemremainsintact.Withinthisgroup,low-incomecountrieswouldbeworstaffected,withexportsreducedby

around43%by2030(alsocomparedtothisbaseline),whileexportsofmiddle-incomecountrieswouldbeloweredby

around32%by2030.

Thisreductionintradevolumesstemsfrommorerestrictivegovernmentpoliciesaswellasanincreaseintradebarrierslinkedtohigherinformationcostsanduncertainty.

Thesubstantialhittoexportsofdevelopingcountriesalsoreflectsthreekeyfactors:

Modellingapproach

Inthelong-term,theimpactofWTOdissolutionontheeconomywillbedeterminedbythe

extenttowhichitaffectssupply-sidecapacity.Thisisafunctionofthesupplyoflabour,the

sizeofthecapitalstockandeconomy-wideproductivitylevels.Keychannelsofimpact(tradeandFDI)directlyaffectdifferentcomponentsofdemand,determiningshort-runchangesin

GDP,anddifferentcomponentsofsupply,whichdeterminethelong-runlevelofGDPthatwepresentinourresults.

Weusedtheoreticalandempiricalevidencefromacademicliteraturetocalibrate‘input’

assumptionsassociatedwithWTOdissolutionthatcouldbeusedwiththeOxfordEconomicsGlobalEconomicModeltodeterminetheultimateimpactonlong-termoutput.

-33%

Reductionindevelopingcountries’non-fueltraderelativetobaseline

in2030

1.Fordevelopingcountries,theWTOcurrentlyprovidesaccesstonewmarketswithlargerandmoredevelopedeconomies,openingupsignificantopportunitiesforexportgrowthanddiversification.ManyofthesebenefitswouldbelostfollowingWTOdissolution.

2.LeastDevelopedCountries(LDCs)alsocurrentlybenefitfrompreferentialtreatment

(includingduty-freeandquote-freeaccesstomarketsinsomedevelopedcountries)

andadditionalsupportfromtheWTO,suchastechnicaladvisoryandcapacity-buildinginterventions.

3.Exportersindevelopingcountriesoftenstandtobenefitmorefromthepublicgoods

providedbytheWTO(suchassettingnorms,harmonisationoftradeproceduresandstatistics,andproducingknowledgeproducts)astheyaretypicallyrelativelysmallandthelumpyofcostofacquiringinformationiscomparativelylarge.

April2024|TheimpactondevelopingeconomiesofWTOdissolution|4

GDPimpactondevelopingcountries

Inthelongrun,theimpactofreducedtradeintensity

onGDPoperatesbyloweringinvestmentandproductiveefficiency.Thescaleofthisfeed-throughwilldepend

onthecurrentopenness(shareoftradeinGDP)

ofeacheconomy.

OurestimatessuggestthatWTOdissolutionwouldlowerGDPfordevelopingcountriesasagroupby5.1%by2030,relativetothe“statusquo”baseline.

-5.1%

PotentialGDPlosstodevelopingcountries

in2030

Astheworldfragments,thiswouldslowtheprocessoftrade-ledconvergencethathas

alreadyenabledmanydevelopingeconomiestonarrowtheincomegapwithdeveloped

nations.Thisalsohasnegativeimplicationsforproducersindevelopedcountriesasitlowersaccesstosuppliersandsoreducesglobalsupplychainresilience–thiscouldinturnexposedevelopedcountriestoincreasedvolatilityduringcrisisperiods.Andwhilewedonotexplicitlymodeltheimpactoninternationalmigration,theaddedeconomichardshipinducedbyWTO

dissolutionhasthepotentialtofurtherfueleconomic-drivenemigration,especiallyinlow-incomecountries.

April2024|TheimpactondevelopingeconomiesofWTOdissolution|5

1.Introduction

TheWTOcontinuestounderpinglobaltradeflows

TheWorldTradeOrganization(WTO)isthecornerstoneoftheglobaltradingsystem.Asstatedonitswebsite3,“theoverallobjectiveoftheWTOistohelpitsmembersusetradeasameans

toraiselivingstandards,createjobsandimprovepeople’slives.”Thisobjectiveistobeachievedthroughtheuseofbinding,non-discriminatoryrulesthatremovetradebarriersbetweenits

164memberstates.Itisestimated4thatover75%ofglobalnon-fuelgoodstradeoccursontheWTO’smost-favoured-nation(MFN)terms,highlightingthecontinuedrelevanceofitsmembers’commitments.Forbusiness,astheultimateend-userofthetradingsystem,thereisno

alternativetothemultilateraltradingsystem,anditcontinuestoattachgreatimportancetotheWTO’seffectivefunctioning.

TheWTOisespeciallyimportantfordevelopingeconomies,asithelpsbuildtheirtradecapacity.

Stronggrowthindevelopingcountriesisneededtoreducepoverty,andtradeisacriticalenablerofgrowth.

Buttheorganisationisfacingsignificantchallenges

Butashiftinginternationaleconomicandgeopoliticalenvironmenthasraisedanumberof

challengesfortheorganisationinrecentyears.Ithasalsofacedinternalchallenges,includingthebreakdownoftheWTO’sdisputesettlementsystem.TheWTO’srulebookalsoneedsto

beupdatedtodealmoreeffectivelywithtoday’stradingenvironment.InorderfortheWTOtoremainrelevantinthefuture,newrulesarerequiredfordealingwithdigitaltradeand

e-commerce,anditisarguedthattheWTOshouldplayalargerroleinaddressingotherglobalissuesrelatedtotrade,suchasfoodsecurityandclimatechange.

Memberstatesarestrugglingtoreachconsensus

DespitetheclearneedforreformandactivediscussionsunderwayattheWTO,memberstateshaveyettoreachmultilateralconsensusoncomprehensivereformofallthreevitalfunctions

oftheorganisation–negotiation,disputesettlement,andmonitoringanddeliberation.Atthe

WTO’s13thministerialconferenceinFebruary2023,ministersrecommittedtohavingafullandwell-functioningdisputesettlementsystemforallMembersby2024.Alackofprogresscould

furthererodetrustinmembers’commitmentstotherules-basedsystem,whichhasbeenpivotalinenablingandprotectingtradeflows.WiththefutureoftheWTOnowunderdiscussion,itis

importantthatitsmembersunderstandwhatisatstake.

ThisstudyquantifiesthepotentialimpactofWTOdissolution

Thereisclearlyapressingneedforacomprehensive,independentassessmentofthepotentialconsequencesofabandoningtherules-basedmultilateraltradingsystem.OxfordEconomicshavethereforebeencommissionedbytheInternationalChamberofCommerce(ICC)to

providesuchananalysis,focussingondevelopingeconomieswhicharemostatrisk.

ThestudyquantifiesandshedslightonhowaworldwithouttheWTOwouldbedetrimentalforlong-termdevelopmentprospectsfortheworld’spoorestcountries.

3

4

/english/thewto_e/whatis_e/who_we_are_e.htm

AsnotedbyDirectorGeneralOkonjo-Iweala:

/english/news_e/spno_e/spno10_e.htm

April2024|TheimpactondevelopingeconomiesofWTOdissolution|6

Thisreportdetailsourfindingsandtheassumptionsunderpinningouranalysis.Itisstructuredasfollows:

•Section2presentsanoverviewofthekeymodellingassumptions,includingscenariodesignandmodellingapproach.

•Section3discussestheresultsofouranalysis,includingkeytransmissionchannels.

•MoredetailedmethodologicalnotesarecontainedinAppendixI,withAppendixIIprovidingabibliography.

April2024|TheimpactondevelopingeconomiesofWTOdissolution|7

2.Modellingassumptions

WTOdissolutioncouldfeatureinavarietyofscenarios

Anumberofscenarioscouldbeenvisagedthatwouldresultintheabandonmentoftherules-basedmultilateraltradingsystemandWTOdissolution.Allwouldentailnegative

repercussionsforglobaltrade,butthelevelofseverityvariesconsiderablydependingonthespecificassumptionsemployed.

Forexample,aseverebutplausiblescenarioinvolvingWTOdissolutionwouldbeaglobaltradewarthatresultsinpolicy-drivengeoeconomicfragmentation.Suchascenariocouldunfold

fromtradedisputesbetweenChinaandtheUnitedStates/EuropeanUnion,withothercountriesthendrawnintothedisputesandforcedtochoosesides.Initially,theseconflictswouldlikely

benarrowlyfocussedontech-relatedtradebutcouldthenbroadentoencompassallgoods

andservicesasthedisputesintensify.EventuallythiscouldresultinafragmentedinternationaleconomicsystemcharacterisedbytheworldsplitintoaChina-ledblocandaUS-ledbloc.The

potentialeconomicramificationsofapolicy-drivenreversalofglobaleconomicintegrationhavebeenstudiesinanumberofrecentpapers,assummarisedinIMF(2003).

Ratherthanaddtothisexistingliterature,weconsideralessextremescenarioforWTO

dissolutioninvolvingamoregradualerosionoftrustthateventuallyresultsinabreakdownofmembers’commitmentstotherules-basedsystem.Wehavetakenthisconservativeapproachtodemonstrateourhypothesisthatevena“bestcase”scenarioforWTOdissolutionwould

havesubstantialnegativerepercussionsfordevelopingeconomies.

AworldwithouttheWTOwouldbefarlesspredictablefortrade

Inourscenario,thepredictabilityofthetradingenvironmentwouldstillbeundermined.Thislackofcertaintyoverthefuturedirectionoftradepolicieswouldbethesingle

largestchallengeforbusinesses.Thisappliesnotonlytotariffs,butalsotootherlimitsto

legislativeandregulatoryoptionscurrentlyimposedbytheWTOtopreventmembersfromdiscriminatingagainstforeigncompetitorproducts.Withanescalationofprotectionist

measureslikelyacrosstheworld,nationsthatarecurrentlypartofestablishedtradepactswouldbebetterplacedtoweatherthestormthanthoseoutsideoftheseagreements.

Inthisenvironment,powerpoliticsintraderelationshipscouldemergetothedetrimentof

smaller,lesspowerfulnations.Buteventhelargestplayerswouldfindthetradeenvironment–outsideoftheirregionaltradeblocs–farlesscertainasdisputesbecomemorecommonplace.

2.1Scenariodefinition

WTOdissolutiondoesnotimplythatallWTO-relatedbenefitsaredestroyed

TheinfluenceoftheWTOoninformationcostsanduncertaintyisconsistentwithfindingsthattheWTOplaysanimportantroleinsettingnormsandprecedentsforglobaltrade,aswellas

increasingpolicytransparency,suchthatbothmemberandnon-membersreceivebenefits.Forexample,theWTOpublishestradepolicyreviewreportsandonlinedatabasesforallitsmembers,providingaccesstothisinformationonanon-discriminatorybasis–theresultingbenefitsthereforeduenotaccrueonlytomembers,makingtheWTOapublicgood.

April2024|TheimpactondevelopingeconomiesofWTOdissolution|8

Increasedlevelsofprotectionismmayalsobeanticipated,atleastforcountrypairswithout

pre-existingtradeagreementsinplace.Thatsaid,thisscenariodoesnotimplythatallthe

benefitsassociatedwiththeWTOwouldbedestroyed–theworldisnowsocloselyintegratedthroughglobalvaluechains(GVCs)thatincentivestoadoptprotectionistpolicieshavebeenreduced.Hence,theimpactofWTOdissolutionshouldnotbeviewedasmerelythemirror-

imageofthepositivebenefitsofWTOmembership.

Reflectingtheseconsiderations,weconstructedascenariowiththefollowingkeyassumptions:

.Forallcountrypairs,weapplyadditionaltradecostsassociatedwithhigheruncertaintyandinformationfrictions.

.Government-imposedtraderestrictions(bothtariffsandnon-tariffbarrierstotrade)

betweencountriesthatdonothaveanexistingtradeagreementinplacearesetatlevelsthatstrikeabalancebetweenprotectingdomestic-orientedindustriesandensuringthecompetitivenessofexportindustries(linkedtotheextentoftheirintegrationthrough

cross-bordervaluechains).

.WeassumethatdirecttradeimpactsofWTOdissolutionarelimitedtonon-fuelgoods,i.e.tradeinfuelsandservicesarenotdirectlyaffectedinthisscenario.Forfossilfuels,appliedtariffsaregenerallyverylowandweassumemostcountriesthatthatarereliantonfuel

importswouldwishtomaintainthisstatusquosoasnottoobstructinflows;meanwhile,

policycommitmentsundertheWTOtoreducebarrierstotradeinservicesareverylimitedandmostempiricalstudiesfindnoimpactofWTOmembershiponservicestradeflows

outsidethetelecommunicationssector(forwhichthebenefitsassociatedwiththeWTOareunlikelytoberolledbackfollowingdissolutionasdevelopingcountrieswouldcontinuetopushtheirdigitalisationagendatoensurecompetitiveness)5.

.ThefulleconomicimpactsofWTOdissolutionplayoutoverseveralyears,asgovernmentsandmultinationalsgraduallyadapttothenewtradingenvironment.Assuch,ourestimatesoftheeconomicimpactofWTOdissolutiondonotrepresenta“cliffedge”effect,withthefullnegativeimpactoccurringthedaytheWTOisdissolved.Rather,wewouldseetheseimpactsgraduallyintensifying,withthefullimpactpeakingafteraroundfiveyearsand

remainingpermanent.

Thefocusofouranalysisisonthepotentiallong-termstructuralimpactsofWTOdissolutionondevelopingcountries.Thisisreflectedinthepresentationoftheresults,withmetricsreported

intermsofhowtheycomparetoourbaseline(“statusquo”withtheWTO)forecastsfor2030.

Althoughweonlyreportresultsfordevelopingeconomies(middle-incomeandlow-income

countries),thescenariowasconstructedwithinaglobalframeworkwithconsistentassumptionsappliedacrossalleconomies,includinghigh-incomecountries.Outcomesarethereforefully

reflectiveofthefullrangeofglobalinteractions.

5Forexample,Hoekman(2009)findsthattheGeneralAgreementonTradeinServices(GATS)hasledtoaminimalimpacton

servicestradeflows.AlthoughsomemorerecentstudieshaveindicatedapositivesignificantimpactofWTOcommitmentsonservicestrade,ourfocusondevelopingeconomiesalsomakesitlessrelevantinthecontextofthisstudy.

April2024|TheimpactondevelopingeconomiesofWTOdissolution|9

2.2Modellingapproach

Wefocusonthelong-run,structuralimpactsofWTOdissolution

WehavemodelledtheimpactofWTOdissolutionacrossasampleofcloseto200individual

countries.Resultswerethenaggregatedbyregionandincomelevelforpresentationinthisreport.

ThestartingpointforouranalysisisthecurrentestimatedpositiveinfluenceoftheWTO

ontradevolumesatthecountrypairlevel6.Wedecomposedthesegainstounderstandthe

contributionsofthreetransmissionchannelswherecostsavingsareinfluencedbytheWTO–tradepolicy(bothtariffsandnon-tariffbarrierstotrade),informationcostsanduncertainty.

TheincreaseinoveralltradecostsassociatedwithWTOdissolutionwasthencalibratedfor

eachcountrybasedonthescenarioassumptionsrelatingtothesetransmissionmechanismssetoutinSection2.1.

Overthelongrun,theimpactofWTOdissolutiononindividualeconomieswillthenbe

determinedbytheextenttowhichitaffectstheirsupply-sidecapacity–thisisafunction

ofthesupplyoflabour7,thesizeofthecapitalstockandeconomy-wideproductivitylevels.

Thediagrambelowdepictsthisinasimplifiedmanner,showinghowthekeychannelsof

impact(tradeandFDI)directlyaffectdifferentcomponentsofdemand,determiningshort-runchangesinGDP,anddifferentcomponentsofsupply,whichdeterminethelong-runlevelof

GDPthatwepresentinourresults.

Fig.1.HowimpactchannelsaffectGDPintheshortandlongrun

Weusedtheoreticalandempiricalevidencefromacademicliteraturetocalibrateafullrange

of‘input’assumptionsassociatedwithWTOdissolutionthatcouldbeusedwiththeOxford

EconomicsGlobalEconomicModeltodeterminetheultimateimpactonlong-runpotentialoutput.ThisprovideduswithaholisticpictureofthepotentialimpactofWTOdissolutionaroundthe

world(adetailedoverviewofourmethodologicalapproachiscontainedintheAppendix).

6AsnotedintheAppendix,wedrawupontheworkofYotovetal(2019),whoestimatethegainstotradefromtheWTOacrossbothmembersandnon-members.

7Theroleoftradeopennessininfluencinglabourmarketoutcomesiscontroversial,withnobroadconsensusonthescaleor

evendirectionoftheeffects.Incommonwithmoststudiesintothewelfareeffectsofinternationaltrade,wethereforeassumefullemploymentinthelongrun,withreallocationofafixeddomesticlabourforcetosectorswithcomparativeadvantage.

April2024|TheimpactondevelopingeconomiesofWTOdissolution|10

3.Economicimpactresults

3.1Impactontradeflows

Exportsoflow-incomecountriesarehithardest

Aggregatingacrossourcountrysample,wefindthatWTOdissolutionwouldlowerexportsofdevelopingcountriesbyaroundathird,comparingtoabaselinewherethe“statusquo”oftherules-basedmultilateraltradingsystemremainsintact.Withinthisgroup,low-incomecountrieswouldbeworstaffected,withexportsreducedbyaround43%by2030,alsocomparedto

thisbaseline;exportsofmiddle-incomecountrieswouldbeloweredbyaround32%by2030

(Figure2).Thisreductionintradevolumesstemsfromanincreaseintradecostslinkedtohigherinformationcostsanduncertainty,aswellasmorerestrictivegovernmentpolicies.

Fig.2.Long-termtradeimpactsofWTOdissolutionondevelopingcountries(relativetobaseline)

Exportsofnon-fuelgoods,impactbycountryincomelevel

0% -5%-10%-15%-20%-25%-30%-35%-40%-45%

-50%

UppermiddleincomeLowermiddleincomeLowincome

Exportsofnon-fuelgoods,impactondevelopingeconomiesbyregion

0% -5%-10%-15%-20%-25%-30%-35%-40%

-45%

SouthAsia

CentralAsia

Sub-SaharanAfrica

EastAsiaandPacific

MiddleEast

andNorth

Africa

Europe

LatinAmerica

and

Caribbean

Thesubstantialhittoexportsofdevelopingcountriesalsoreflectsthreekeyfactors:

1.Fordevelopingcountries,theWTOcurrentlyprovidesaccesstonewmarketswithlarger

andmoredevelopedeconomies,openingupsignificantopportunitiesforexportgrowthanddiversification.ManyofthesebenefitswouldbelostfollowingWTOdissolution.

2.LeastDevelopedCountries(LDCs)alsocurrentlybenefitfrompreferentialtreatment(includingduty-freeandquote-freeaccesstomarketsinsomedevelopedcountries)andadditionalsupportfromtheWTO,suchastechnicaladvisoryandcapacity-buildinginterventions.

3.ExportersindevelopingcountriesoftenstandtobenefitmorefromthepublicgoodsprovidedbytheWTO(suchassettingnorms,harmonisationoftradeproceduresandstatistics,andproducingknowledgeproducts)astheyaretypicallyrelativelysmallandthelumpyofcostofacquiringinformationiscomparativelylarge.

Theresultingreconfigurationoftraderelationshipswouldimplyatrendtowardless

multilateralismandincreasedregionalfragmentation.Ataregionallevel,tradeflowsforthe

nationsofSub-SaharanAfricaandSouthAsiaaremostexposedtoWTOdissolution,reflectiveofthelargenumberofLDCswithinthesegroupings.Conversely,developingeconomiesin

EuropeandtheMiddleEastwouldbefarmoresheltered.Thisreflectsthehighershareof

middle-incomecountriesintheseregionsandtheirrelativelyhighpropensitytotradewithhighincomecountries,featuresthatsoftentheimpactofWTOdissolutionatacountrylevel.

April2024|TheimpactondevelopingeconomiesofWTOdissolution|11

3.2Impactonforeigndirectinvestment

Reducedtradewouldhaveknock-oneffectstoFDI

TherepercussionsofdismantlingtheWTOwouldnotbelimitedtotradeflowsandtheirknock-onimpacttodomesticinvestmentlevels.Manystudieshaveshowntheretobeacomplementary

relationshipbetweeninwardforeigndirectinvestment(FDI)andtradeopenness.Thecausallink

mayoperateinbothdirections–forexample,foreigncompaniestradingwithanewmarketlearnmoreaboutitseconomic,politicalandsocialconditions,givingthemtheconfidencetoestablish

subsidiariesintheforeignmarket,whichmaythemselveseventuallybegintoexport.TheWTOcanalsohaveadirectinfluenceonFDIthroughitsinfluenceonpolicyuncertainty,giventhatcross-

borderinvestmentdecisionsdependontransparencyandcertaintyoftheregulatoryenvironment.

Fig.3.Long-termFDIimpactsofWTOdissolutionondevelopingcountries(relativetobaseline)

InwardFDI,impactbycountryincomelevel

-4,3%-4,4%-4,5%-4,6%-4,7%-4,8%-4,9%-5,0%-5,1%-5,2%

-5,3%

UppermiddleincomeLowermiddleincomeLowincome

InwardFDI,impactondevelopingeconomiesbyregion

0,0%

-1,0%

-2,0%

-3,0%

-4,0%

-5,0%

-6,0%

SouthAsia

CentralAsia

Sub-SaharanAfrica

EastAsiaandPacific

Europe

MiddleEast

andNorth

Africa

LatinAmerica

and

Caribbean

OurestimatessuggestthattheabsenceofaWTOwouldreduceFDIflowstodeveloping

countriesbyaround5%inaggregate.However,Figure3againshowsthatthisheadlineglobalimpactmasksasignificantdifferenceinimpactoninwardFDIataregionallevel.Thisis

mainlyafunctionofthedistributionoftradeimpacts.

3.3Impactonproductivitylevels

TradeandinwardFDIalsoinfluencedomesticproductivitytrends

ThereisalsoalargebodyofempiricalevidenceindicatingthatanincreasedstockofFDI

leadstohigherproductivityofdomesticfirms.Thisreflectsknowledgetransferthrough

avarietyofchannels:imitationofFDIfirms’productionprocessesbylocalfirms;hiringof

workersbymultinationals,transferringnewknowledgeandadvancedmanagerialskillsto

thelocalworkforce;andincreasedcompetitionfrommultinationals,forcingdomesticfirmstouseexistingtechnologiesmoreefficiently.Also,theFDIfirmsthemselvestendtohavehighproductivity,makingasignificantcontributiontotheeconomy.

Similarly,thereisevidencethattradeopennessisalsopositivelyassociatedwithproductivity.Forexample,thismaybebecauseincreasedopennesstotraderaisesthecompetitivepressuresondomestic

firmstoadoptthemostproductivewaysofoperatingandfacilitatestheprocessofspecialisation.

April2024|TheimpactondevelopingeconomiesofWTOdissolution|12

Fig.4.Long-termproductivityimpactsofWTOdissolutionondevelopingcountries(relativetobaseline)

Productivity,impactbycountryincomelevel

0,0%

-0,5%

-1,0%

-1,5%

-2,0%

-2,5%

-3,0%

-3,5%

UppermiddleincomeLowermiddleincomeLowincome

Productivity,impactondevelopingc