Das: Trade and Global Integration

Das, Dilip. Trade and Global Integration. CSGR Working Paper No. 120/30.

"This paper focuses on the post-war process of creation of a global trading system and integration of world trade. As the former came into being, multilateral trade liberalization became an on-going feature of the global economy facilitating international trade, consequently importance of international trade in the global economy increased dramatically...Although the industrial economies were the primary beneficiaries of the multilateral trade liberalization in the past, for the developing economies trade, particularly trade in manufacturing goods, went on increasingly monotonically. The kaleidoscope of global trading system turned several times and international trade has enormously expanded over the preceding half century, which in turn contributed substantially to global integration through trade, albeit in a selective manner" (2).

This paper has two distinct foci: firstly, it is concerned with exploring how a global trading regime with liberal characteristics developed over time. Secondly, it is interested in the different shape that this global trade regime took as it evolved: how has the structure of international trade shifted over time?

The International Trade Organization was formed shortly after WWII, with the goal of merging with the other two Bretton Woods organizations to help orchestrate international economic interaction. The ITO fell short (US congress hesitation and fear of loss of control), and thus the General Agreement on Tariffs and Trade (GATT) was instituted instead. This was instituted in 1948. The Uruguay Round (1986-94) helped create the World Trade Organization, which incorporated the GATT along with other more specialized international agreements (on agriculture, textiles, etc.).

"Like the United Nations and the World Bank, [the WTO] became a key institution of global governance. Its essential functions are: (i) administering WTO trade agreements, (ii) providing a forum for multilateral trade negotiations, (iii) handling trade disputes between members, (iv) monitoring national trade policies, (v) providing technical assistance and training for developing countries, and (vi) handling economic co-operation with other international organizations" (7).

"Four trends can be clearly identified in the global trading system during the preceding half century: (i) highly uneven pace of liberalization of markets in goods and services in both developing and industrial economies, (ii) increasing differentiation in treatment for different levels of developing economies by the global trading system, (iii) a growing number of regional trading agreements...among both developing and industrial economies, and (iv) expanding scope and strength of[regional trade agreements]" (10).

"Measured in constant...dollars, the ratio of global trade in goods and services to global GDP increased from 8 percent in 1950 to 29.5% in 2000" (10).

Economic growth occurs because of trade liberalization for the following: "Essentially there are there sources of economic growth, namely, growth in inputs, improvement in efficiency of resource allocation and innovation" (11).

The author explores empirical claims that there is little evidence of globalization in trade. This is accomplished using the gravity model of trade. However, the proxy used within that model to measure the ease of trade between different parties is physical proximity. Globalization trends have imposed technologies that increasingly make those proximate relationships less impacting, and thus the gravity model is brought into question.