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Trade and the SDGs

International trade growth can be an economic foundation for sustainable development. However the Addis Agenda, notes that trade growth must be inclusive and consistent with sustainable development.

Trade shares

Developing countries have continued to increase their share in international trade in the past 15 years. In world merchandise exports, their share has increased from 28.5 per cent in 2001 to 42 per cent in 2015, always maintaining an overall trade surplus vis-à-vis the rest of the world. However, their trade achieved little growth in the period of a global trade slow-down in recent years. The average annual growth rate of developing countries’ share in world merchandise export was 3 per cent between 2006 and 2010, and 1.9 per cent between 2010 and 2013. It was only 0.1 per cent in the years between 2013 and 2015.

As regards LDCs, the 2011-2020 Istanbul Plan of Action for LDCs and the SDG target 17.11, made a pledge to double LDCs’ share in global exports by 2020. However, between 2011 and 2015, LDCs’ share in world merchandise export in fact decreased from 1.1 per cent to 0.9 per cent. Much of this change may be explained by a recent fall in the commodity prices, as exports of many LDCs are concentrated in a number of primary commodities such as minerals, ores and fuels. As a result, LDCs’ trade deficit vis-à-vis the world has been increasing since 2011. 

Services trade

As regards world trade in services, developing countries’ exports (imports) accounted for 31 per cent (39 per cent) of around US$4.8 trillion of world services trade in 2015. Their share has been increasing constantly from 23 per cent of world exports (28 per cent of world imports) in 2005 to 31 per cent (39 per cent) in 2015. As regards LDCs, their share remains insignificant, at 1.7 per cent of world services import and less than 1 per cent of world services export.

Value addition

The Addis Agenda recognizes the need to increase value addition in developing countries’ exports, i.e. scaling up in the stages of production from raw commodity to manufactured/processed products. The degree of export concentration in products can be a proxy to measure the degree of value addition and we present the export concentration (Hirschmann-Herfindahl) Index of developing countries, LDCs, LLDCs, and SIDS. Exports of LDCs and LLDCs remain highly concentrated. Taking into account the majority of LDCs’ and LLDCs’ exports consist of primary commodities, the changes in the annual degree of export concentration is compared to the price indices of minerals/ores/metals and crude petroleum. LDCs’ and LLDCs’ export concentration in the years between 2003 and 2008 coincided with the rapid rise in commodity prices. There is a clear positive correlation between the commodity price changes and the degree of export concentration of LDCs and LLDCs especially in the period towards 2009.

Factor intensity of traded products

Another approach to monitor the changes in value addition is to check the level of factor intensity of exported products. Diversifying into a processed product (e.g. cocoa powder) generally requires greater level of physical capital and human capital than the production of a raw commodity (e.g. cocoa beans). On average, exports of LDCs, LLDCs and SIDS tend to be lower in factor intensity, both in terms of physical capital and human capital, than other developing countries. For LDCs, the average RFI in physical capital has been increasing in line with other developing countries, while that in human capital showed a slight dip in 2005. Note however that the changes in the average RFI of a country’s exports is more determined by changes in the contents of its export basket than by changes in the country’s factor endowment.

Geographic export diversification

An increase in geographical diversification, i.e. an increase in the number of trade partners, indicates an increase in a country’s integration in to international trade. The figures above present intra-group trade of these groupings. Although not exactly intra-regional, the above figures demonstrate the intra-group trade, i.e. how much do countries trade with others in the same country groupings. In 2015, for example, only 5 per cent of LDCs’ total exports went to other LDCs, compared to 58 per cent for developing countries as a whole. For LLDCs and SIDS, the rate of intra-regional trade in 2015 was 5 per cent and 8 per cent, respectively. Among LDCs, the ratio of intra-group trade is highest in LDCs in Africa, accounting for around 8 per cent in 2015, compared to 0.5 per cent for Asian LDCs and 0.6 per cent of LDCs. 

Participation of micro, small and medium enterprises (MSMEs) in international trade

The Addis Agenda recognizes the importance of fostering integration of MSMEs, which constitute the backbone of developing-country economies, into value chains for achieving inclusive trade growth. According to the World Bank Enterprise Surveys, SMEs accounted for two-thirds of formal non-agricultural private employment. Their participation in trade, however, is not in line with their economic weight at the domestic level.

Direct exports are estimated to represent just 7.6 per cent per cent of total sales of SMEs in the manufacturing sector in developing countries, (0.9  per cent per cent of total services sales), compared to 14.1 per cent per cent (31.9 per cent per cent for services exports) for large enterprises. SMEs in the Balkan region as well as those in the Middle East have the highest proportion of direct exports in the manufacturing sector.