Summary

Research Report: Reviews the impact that globalisation and trade has on development, and what that means for aid.

Description

Author: Ian Anderson, AusAID

This paper reviews the impact that globalisation and trade has on
development, and what that means for aid.

The paper begins by reviewing the latest findings about whether
globalisation contributes to growth, equity, and sustainable development.
Case studies are drawn from the experience of China, Vietnam, Indonesia, the
Philippines, Russia, and the Asian Financial crisis.

The paper argues that while, on balance, globalisation can offer
opportunities for developing countries the actual process of engaging in the
international economy is not easy. Nor is it automatic.
There are structural, policy, and institutional constraints within the
developing country. And there are trade barriers and
distortions imposed by developed countries - and other developing countries -
that target the very products that developing countries are most keen and
capable to sell. Case studies of the distortions to the
international trade of sugar and cotton are canvassed, and the adverse trade
and developmental implications highlighted.

What, then, is the role of development assistance? Can aid really play
a part in the development process when it is so small compared to the much
larger economic flows associated with globalisation? Each year, for
example, industrialised countries provide over $300 billion in support to their
own agricultural producers - roughly six times the amount they spend on
aid.

Although small in absolute and relative terms, aid can be the critical
catalyst to the development process. Its impact occurs not so much
through the financial resources that it adds but through its capacity to
stimulate change and reform. It can help shape and support broad policy,
legal, institutional and service delivery reform in developing countries in
ways that trade and finance simply cannot do. Aid can strengthen
the physical, social, and institutional infrastructure that is the necessary
foundation for development and broader engagement with the international
economy. Aid is not so much about adding 'resources' as such as
it is about adding value to the reform and development process that most
developing countries are grappling with. Case studies are presented of
how Australian aid seeks to achieve this in countries such as China, Vietnam,
PNG and elsewhere.

The paper concludes that globalisation presents a major opportunity for
developing countries. Foregoing that opportunity is a high risk strategy:
no developing country has achieved sustained economic or social development
without engaging in the broader international economic environment. But
engaging in globalisation also has real risks, and winners and
losers. Successful engagement in the international economy is not
easy. Nor is it automatic.

At the heart of successful engagement in globalisation are the policy
choices that developing country governments make. And that is where
aid programs have a clear comparative advantage and contribution.
Even relatively small amounts of aid can help shape policies, institutions,
capacities and environments in which a developing country can engage in the
development process.

Good development contributes to a prosperous, stable, and secure
region. That is in the national interest of developing
countries. And it is in the national interest of Australia.

Globalisation, Trade and Development - What is left for aid to do? [PDF 157KB]

Available: Electronic version only

This report was commissioned by AusAID. The findings, interpretations and conclusions expressed in the report are those of the authors and do not necessarily reflect the views of AusAID or the Australian Government.

To view files marked PDF you need Acrobat Reader, available as a free download (see also the 'About this site' link below).