Since World War II international trade has consistently grown faster than output (table 4a). In the 1950s and 1960s this trend reflected recovery from the stagnation of the interwar years and a buoyant world economy. In the 1970s and 1980s world trade growth slowed but continued to outpace growth in the global economy. Led by rapid growth of East Asian exports, world trade in the 1990s is once again outstripping world output. In tandem with sharp growth in merchandise trade, there has been even sharper growth in services, whose share in world trade rose from 16 percent in 1980 to 18 percent in 1995.

Growth in trade has come from increasing trade liberalization, a result of successive international trade negotiations. Tariffs in industrial countries have fallen from 40 percent of imports in the 1950s to around 3–4 percent today. Developing countries, too, have reduced tariffs dramatically. In Latin America they have come down to around 15 percent, in Sub-Saharan Africa and the Middle East and North Africa to 25–30 percent, and in South Asia, which traditionally had high tariffs, to 45 percent (Finger, Ingco, and Reincke 1996). Under the Uruguay Round agreements countries are also progressively dismantling nontariff barriers.

In some developing countries trade integration goes hand in hand with financial integration, with private capital flows, particularly foreign direct investment (FDI), rising strongly (tables 4.22 and 5.2). Foreign direct investment to developing economies in 1995 accounted for 33 percent of all FDI, compared with 13 percent in 1990.

Table 4a Average annual growth of world trade and GDP, 1950–95
percent 

a. Exports of goods and services on a national accounts basis.

Source: World Bank staff estimates.

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Increased openness of economies and progressive dismantling of regulations and controls have been features of the economic policies of developing countries since 1980. Those that have seen the most rapid growth and integration have also had better macroeconomic management, as reflected in low inflation rates, stable real exchange rates, and small budget deficits (table 4.15). Indeed, for the fastest growing economies inflation rates have been relatively low (around 13 percent), real exchange rates more stable, and budget deficits around 2–3 percent of GDP. By contrast, countries growing more slowly and weak and slow integrators have seen inflation rates approaching 20 percent, budget deficits of 4–6 percent or more, and volatile real exchange rates.

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While the economies of Asia fared remarkably well in 1980–95, per capita output fell in Sub-Saharan Africa and the Middle East and North Africa and stagnated in Latin America and the Caribbean. The poor outcomes reflected dependence on commodities and falling world prices (despite the commodity boom of the early 1990s), the debt crisis in Latin America, poor policies and weak institutions, and, in Sub-Saharan Africa, political instability and civil wars. In many countries population-weighted trade ratios fell. And while eight countries received two-thirds of all foreign direct investment flows, many have no access to private foreign capital and must depend heavily on official development assistance.

In this unequal world a handful of developing economies are emerging as potential giants in the global economy (table 4b). The 10 largest economies account for 83 percent of the developing world’s population, 61 percent of its GNP (69 percent in purchasing power parity terms), and 66 percent of its exports. Although they have not all progressed at the same rate, their share of world output has grown from about 40 percent to 58 percent. Some smaller economies have higher output per capita, and others have grown faster, but the integration of these 10 into a growing world economy could transform the lives of billions of people in the next century.

a. Weighted average; data refer only to countries for which PPP data are available.

Source: Tables 1.1, 2.1, 4.21, 4.22, and 5.2 and World Bank staff estimates.

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