Trade and Governance in Developing countries

Dr Manzoor Ahmad
I would first like to discuss the role of good governance and open trade in achi
eving economic growth, and then suggest the way forward for developing countries
.
Whether we look at the last ten years or twenty or fifty, one fact comes out cle
arly. Counties which had good governance and open trade policies have in general
been successful in reducing their poverty levels and in bringing peace for thei
r people. Other factors such as abundance of natural resources or having prefere
ntial access to overseas markets are of secondary importance. Many resource-rich
countries have performed poorly either because of poor governance or due to the
ir closed economy. For example, in Africa, countries such as Libya, Nigeria, Gab
on, Angola, Equatorial Guinea, Mauritania, and Chad are all oil-rich but still h
ave not done as well as their neighbours who were resource-poor. In Asia, oil-ri
ch countries such as Iran and Iraq whose economies are ranked as â not freeâ have done m
ch poorly compared to other oil-rich countries whose economies were relatively o
pen or even compared to many others who did not have any natural resources.
It is common practice in many countries to blame others for their poor economic
performance. Undoubtedly, some countries are treated rather unfairly and their e
xports face much higher tariffs as compared to others or even compared to develo
ped countries. But this should not stop them from doing what they could do to im
prove their economic welfare. What has to be realized is that having duty-free o
r preferential market access to overseas markets may help countries but it will
not be the determining factor for their economic growth or reduction of poverty.
Already most poor countries have full market access but because of their own re
strictive trade policies or poor governance they have not done as well as others
who did not have such access. In fact when I look at my country (Pakistan) whic
h has had alternating periods of good governance and open trade regime versus lo
ng periods of bad governance and restricted import policy, I find a direct corre
lation between higher economic growth on the one hand and good governance and op
en trade on the other.
My second point, which is very much linked to the first one, is that for many de
veloping countries trade policies are formulated in such a way as to create rent
-seeking opportunities for influential politicians, traders and bureaucrats. Let
me give you an example of rent-seeking from my own country. In Pakistan sugar m
ills are mostly owned by influential politicians as it is a restricted industry.
Very often trade policy is manipulated so as to provide big gains for the owner
s of that industry. This is either done through restricting imports or through g
iving subsidies to the sugar industry. As a result consumers as well as the exch
equer suffers. If there was transparency, accountability and inclusiveness this
would not happen repeatedly. Many developing countries, where there is no transp
arency, follow such practices and as a result a few people become very wealthy a
t the expense of the general populace.
What is the way forward to put in place a transparent and open trade policy?
First, greater transparency, accountability and inclusiveness have to be made a
part of trade policy. This would reduce corruption and misallocation of resource
s.
Second, independent forums should be established to bench-mark economic policies
and openness against neighbouring countries that are doing relatively well and
try to match them.
Third, examine various international conventions and recommendations and try to
adopt them. For example, there is a WTO agreement on Information Technology. Tho
se countries that are signatory to this agreement have seen their IT sector make
big progress. There is another WTO agreement on government procurement. Followi
ng the good practices prescribed by this agreement could cut corruption substant
ially.
To sum up, if a country is able to have good governance and open trade policy re
gime, it can flourish without depending on foreign aid or any other external fac
tors.