Globalization has contributed to lifting millions out of poverty. In many countries, integration into the global trading system has dramatically shifted production structures, allowed for specialization according to their comparative advantages and created employment opportunities. While policymakers have not always been able to adequately address the challenges posed by such a dramatic change in terms of both social and environmental impacts, there is ample evidence that trade has contributed significantly to the drastic reduction in extreme poverty observed since 1990.7
Yet, the ETI results show that high barriers to entry and prohibitive trade costs are preventing millions of people around the world from engaging in, and therefore benefitting from international trade. Unsurprisingly, rural communities, the young and women are the least likely groups to participate.8 These populations are mostly employed—if employed at all—by micro-enterprises and SMEs, which account for the largest share of employment, in excess of 90 percent in some countries.9 The ability of these businesses to compete in international markets is very often undermined by poor product quality, lack of knowledge and information about customers. Trade barriers and costs further undercut their competitiveness. As a result these businesses stand little chance of engaging in and sustaining trade. On the import side, trade barriers and costs also prevent businesses and populations at large from accessing technology, inputs and products.
More than half (3.8 billion people) of the world population live in countries ranked in the bottom half of the overall ETI rankings (Figure 2).10 The top 10 performers account for only 3 percent of the world population. Only three of the world’s 10 most populous nations feature in the top half of the rankings: Japan (16th), United States (21st) and China at 61st. The remaining seven, with a combined population of 2.4 billion people, rank in the bottom half. Indonesia is 71st, while the other six countries rank below 100: India (102nd), Brazil (110th), Russia (111th), Pakistan (122rd), Bangladesh (123rd), and Nigeria (127th). These six countries together with China and Indonesia are home to more than half (394 million) of the world’s 767 million people living below the international poverty line.11 Eight of the 10 countries with the largest number of poor people are ranked below 100: India, Mozambique (104th), Madagascar (109th), Tanzania (115th), Ethiopia (117th), Bangladesh, Nigeria (127th), and the Democratic Republic of Congo (133rd).
On average advanced economies are almost twice (86 percent) as effective at enabling trade than low-income economies.12 And low-income countries are less than halfway (48 percent) to the “frontier”, as defined by the average score of the five best performers in each pillar. The World Bank estimates that low-income countries face even higher relative trade costs in agriculture and manufacturing sectors—about three times higher than costs faced by advanced economies.13
As developing countries take on a more prominent role in the global economy, these issues are bound to assume increasing significance. Combined output of developing countries accounted for 58 percent of world GDP in 2016, up from 36 percent in 1990.14 Trade among developing countries has naturally followed suit. In these situations, trade is therefore doubly hampered: on the exporting end and on the importing end.