Think tank: Don't rely on export-driven growth

23 September 2013 00:00  [Source: ICB]

Developing nations can’t revert to pre-crisis growth strategies in a changed economic and global financial environment, the UN trade and development arm, UNCTAD, warned.

Slower global growth means that emerging economies would be better advised to attempt to stimulate domestic demand through a broader-based domestic consumer-driven growth model.

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Policies to fuel domestic consumption may become more prevalent

The failure of policymaking in the developed world to tackle the consequences of the 2008-2009 financial crisis continues to have widespread implications.

The agency’s latest annual trade and development report speaks of a structural shift in the world economy and the need for fundamental changes in prevailing growth policies. Particularly those countries that have relied on export-led growth need to think again and adopt a more balanced model that stimulates domestic and regional demand, it said.

“Distinct from export-led growth, demand-led strategies can be pursued by all countries simultaneously without ‘beggar thy neighbour’ effects,” it noted.

It warned that growth strategies that rely on exports must sooner or later reach their limits. Many countries pursuing similar strategies based on low labour costs and taxes lead to a “race to the bottom with few development gains but potentially disastrous social consequences”.

“Five years after the onset of the global financial crisis the world economy remains in a state of disarray, with global output growing at around 2% and global trade growth virtually grounding to a halt,” UNCTAD said.

Its message for developed economies is to address the fundamental causes of the crisis – “rising income equality, the diminishing economic role of the state, the predominant role of a poorly regulated financial sector and an international system prone to global imbalances”.

It is not a question of abandoning export-driven growth, but rather tuning the domestic economy so that domestic consumption and private and public investment can work to stimulate output.

The consequences of a greater focus on domestic demand can be seen in some national policies in chemicals and the filling out of product supply chains. Greater domestic investment in chemicals might be expected as countries try to maintain economic growth against the generally weaker global output.

Chemical companies would do well to target product output and development to markets which directly address the needs of this significant proportion of the world’s fast-growing population.

By: Nigel Davis
+44 20 8652 3214

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