Globalize wgvictor

United Nations Conference on Trade and Development

Economic liberalization as a driving
force of globalization: experiences
of countries in North and Central
Asia
Victor Ognivtsev
Trade Analysis Branch, DITC
UNCTAD

Moscow
29 September, 2005

Structure of this Presentation:
General trends of the unfolding globalization
process

The role of economic liberalization, particularly of
trade liberalization, in the reform transition
process

Specific experiences of countries in North and
Central Asia and results achieved

Lessons learned

Division on International Trade in Goods, Services and Commodities
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Introduction
Countries in the Northern and Central Asian region
have been undergoing 15 years of profound, often
historically unprecedented reforms in the process of
transition to a market economy from a previously
centrally-planned system, in which economic
liberalization, particularly trade liberalization and
integration in the world economy were major elements
of the reform strategy.

The economic and social transition of these
countries was carried out against the background of
the unfolding globalization process. This made their
situation even more challenging.
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Economic liberalization and globalization:
Brief description of terms
Economic liberalization may be described as the
freedom to engage in economic activity at home and/or
abroad, a freedom subject to institutional and policy
constraints needed to guarantee public interests at
large.

Globalization may be seen as a major driving force
of global economic integration and has the following
main features: (1) internationalization of production
with very fast changes in the structure of production;
(2) liberalization and expansion of world trade in goods
and services; and (3) unprecedented expansion of
international financial flows supported by the latest
technological advances.
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Role of Trade
International trade is widely recognized as an
important engine of the world economic growth and the
evolving process of globalization. It had also a major
contribution to make in the process of transition of
formerly centrally-planned economies.

In the transition process, normally, the first measures
were trade-related and consisted of phasing out the
state foreign trade monopoly, allowing enterprises to
carry out foreign trade transactions directly and freeing
their access to foreign currency for trade purposes.

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Trade Liberalization

Trade liberalization has been the central part of mainstream
policy advice for at least 20 years, and has been actively
picked up by most developing countries and economies in
transition in the design of their development strategies.

However, the intensive international discussion over the
benefits of trade liberalization and its welfare effects on
developing countries and their societies is far from over. The
search for consensus continues, while some simpler
postulates like a freer trade alone brings more economic
growth, which, in turn, have beneficial effects on social life
and leads to better living standards, including reduced poverty
– have produced mixed results, thus raising a general concern
of whether open trade can contribute substantially and directly
to the process of development.
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“Washington Consensus” – «One Size Fits All»

John Williamson originally coined the phrase in 1990 “to refer to
the lowest common denominator of policy advice being
addressed by the Washington-based international financial
institutions to Latin American countries”:
Fiscal discipline
Tax reform (to lower marginal rates and broaden the tax base)
Interest rate liberalization
A competitive exchange rate
Trade liberalization
Liberalization of inflows of foreign direct investment
Privatization and deregulation
Secure property rights

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“Washington Consensus”: Evolution

Over the time, some additional elements were added:

Corporate governance
Anti-corruption measures
Flexible labour markets
WTO agreements
Financial codes and standards
“Prudential” regulations over financial flows
Effective and stable exchange rate regimes
Independent central banks/inflation targeting
Social safety nets
Targeted poverty reduction

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Trade liberalization (cont.)

The approaches to trade liberalization are becoming
more complex and realistic in that liberal trade policy
are no more entirely “delinked” from other policy
issues (e.g. financial, monetary, environmental
protection, adjustment costs, supply constraints and
capacity building in developing countries, etc.)

It is now widely recognized that the scope and form of
government interventions, vis-à-vis markets and the
private sector, have to be based on a rational
determination of the basic economic state functions,
and not on biased ideological approaches.
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Transition Reforms in the Region:
Gradualism or Radicalism?
Many of the countries in the Northern and Central Asian Region decided to
embark on a radical way of transformation. Apart from positive impacts of
such approach, such strategy, however, also resulted in a number of
cases in drastic decrease of GDP, and consequently substantial lowering
in the standard of living of their citizens. By the year 2004, many of these
countries still have not reached the GDP level from the year 1989.

The “shock therapy” approach was based on a naive, ideological – indeed,
almost religious belief that there is no need for development policy and
that the market alone would balance the economy and generate wealth.

In fact, the aim of any economic policy is development, while everything
else is the means to achieve this aim. Unfortunately, quite often in policy-
making the aim is confused with instruments to achieve that objective. For
example, stable exchange rates are sometimes taken for the target of
economic policy. The lowest possible inflation, whatever the cost, is
sometimes assumed to be the ultimate policy aim. The same goes for
accession to certain international organizations like the WTO.

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Reform Experiences of Other Countries in
the Region and Elsewhere
The experiences of now developed countries, as well as of some countries
in the Region would also suggest that a more empirical analysis of
approaches to reforms, particularly to trade liberalization is required. The
effects of freer trade, as suggested by such experiences, can be quite
beneficial after a country has achieved a certain level of economic and
institutional development, as well as after its economy has reached a
degree of international competitiveness and has effective access to world
markets for its exported products and services.
Thus, a certain “Triad” could be formulated for a successful trade
liberalization strategy – Supply Capacity, International Competitiveness
and Market Access.
Such empirical approach also reveals that trade liberalization requires the
existence and smooth functioning of a number of interrelated institutions,
which facilitate the implementation of liberalization measures at the lowest
possible social and political costs. To mention just a few of the institutions
required: a social safety net for those who become unemployed; retraining
for the labour force which is becoming redundant; assistance for business
entities in introducing the necessary structural adjustments; and labour
mobility to facilitate the movement of labour among different regions of the
country.

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Experiences of Countries in North and Central Asia
– several considerations
The accumulated experience of transition economies in the Region
warrants some inconclusive considerations:
The importance of legal and regulatory issues
The need for coherence and coordination of all components of economic
strategy and policies
Full account of national cultures and other specificities
Trade policy reform, in particular, should include not only the removal of
tariffs and traditional trade barriers, but also the development of
appropriate regulations and institutions
Trade liberalization should be assessed not only in terms of its effects on
trade flows, but also by its contribution to stimulating economic growth,
increasing overall economic efficiency, improving economic regulations
and institutions
Reform sustainability and public support depend on the capacity of the
governments to deal with inevitable adjustment costs that emerge in the
initial stages of the reform process
A favourable business and economic environment should be created
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Role of Regional Integration

Regional integration should play an important
supportive and positive role both in the context of
economic reforms and globalization process. It has
a very strong potential manifested by the empirical
evidence in other Regions and ongoing efforts in
the North and Central Asian Region.

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Results of Reforms in the Region: Selected
Development Indicators

To illustrate the reforms achieved so far, let us
explore some selected development indicators
on a country-by-country basis. The sources of
data are from UNCTAD and the World Bank.

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Population growth (annual %)

Countries 2000 2001 2002 2003

Armenia -1 -1 -1 -0
Azerbaijan 1 1 1 1
China 1 1 1 1
Georgia -1 -1 -1 -1
India 2 2 2 1
Kazakhstan -1 -1 -0 0
Korea, Rep. 1 1 1 1
Kyrgyz Republic 1 1 1 1
Mongolia 1 1 1 1
Russian
Federation -1 -1 -0 -0
Tajikistan 1 1 1 1
Turkmenistan 2 2 2 1
Ukraine -1 -1 -1 -1
Uzbekistan 1 1 1 1

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GNI (current US dollars)
Countries 2000 2001 2002 2003

Armenia 2,026,622,336 2,172,214,528 2,441,106,432 2,888,358,144
Azerbaijan 4,912,775,680 5,341,731,328 5,857,832,448 6,714,029,056
China 1,063,813,120,000 1,138,632,818,688 1,237,896,658,944 1,416,683,454,464
Georgia 3,111,522,048 3,064,528,128 3,285,784,832 3,846,015,744
India 455,611,187,200 477,931,077,632 493,996,867,584 571,260,731,392
Kazakhstan 18,864,269,312 20,108,328,960 22,618,537,984 26,911,703,040
Korea, Rep. 460,375,031,808 501,103,591,424 537,129,254,912 577,223,065,600
Kyrgyz
Republic 1,373,377,664 1,382,703,872 1,453,215,488 1,725,416,704
Mongolia 941,419,264 957,899,328 1,037,427,328 1,198,585,600
Russian
Federation 250,308,493,312 259,626,418,176 305,521,033,216 373,874,327,552
Tajikistan 1,112,984,576 1,065,393,600 1,135,435,776 1,344,935,936
Turkmenistan 2,885,190,912 3,338,782,976 4,064,029,184 5,289,255,936
Ukraine 34,353,143,808 35,354,198,016 38,213,963,776 46,928,003,072
Uzbekistan 15,431,982,080 13,868,641,280 11,488,569,344 10,832,100,352

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GNI per capita (current US dollars)
Countries 2000 2001 2002 2003

Armenia 650 700 800 950
Azerbaijan 610 660 720 820
China 840 900 970 1,100
Georgia 660 660 710 840
India 450 460 470 540
Kazakhstan 1,250 1,350 1,520 1,810
Korea, Rep. 9,790 10,580 11,270 12,050
Mongolia 390 400 420 480
Russian
Federation 1,720 1,790 2,120 2,610
Tajikistan 180 170 180 210
Turkmenistan 620 710 850 1,090
Ukraine 690 720 780 970
Uzbekistan 630 560 450 420

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GDP growth (% annual)
Countries 2000 2001 2002 2003

Armenia 6 10 13 14
Azerbaijan 11 10 11 11
China 8 8 8 9
Georgia 2 5 5 11
India 4 5 4 9
Kazakhstan 10 14 10 9
Korea, Rep. 8 4 7 3
Kyrgyz Republic 5 5 -0 7
Mongolia 1 1 4 6
Russian
Federation 10 5 5 7
Tajikistan 8 10 9 10
Turkmenistan 19 20 20 17
Ukraine 6 9 5 9
Uzbekistan 4 4 4 4

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Agriculture value-added (% of GDP)

Countries 2000 2001 2002 2003

Armenia 26 28 26 24
China 16 16 15 15
Georgia 22 22 21 20
India 25 25 23 22
Kazakhstan 9 9 9 8
Korea, Rep. 4 4 4 3
Mongolia 33 30 30 28
Russian
Federation 6 7 6 5
Turkmenistan 25 25 .. ..
Ukraine 17 16 15 14
Uzbekistan 34 34 35 35

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Industry value-added (% of GDP)

Countries 2000 2001 2002 2003

Armenia 35 33 35 39
China 50 50 51 52
Georgia 22 22 24 25
India 27 26 27 27
Korea, Rep. 36 35 34 35
Russian
Federation 38 36 34 34
Ukraine 36 35 38 40

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Services value-added (% of GDP)

Countries 2000 2001 2002 2003

Armenia 39 38 39 37
China 33 34 34 33
Georgia 56 56 55 54
India 49 49 51 51
Korea, Rep. 59 61 63 62
Russian 61
Tajikistan 45 45 46 ..
Turkmenistan 30 30 .. 46
Ukraine 47 49 47 43
Uzbekistan 43 43 44

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Export of goods and services (% of GDP)
Countries 2000 2001 2002 2003

Armenia 23 25 29 32
China 26 25 29 34
Georgia 23 25 29 32
India 14 13 15 14
Korea, Rep. 41 38 35 38
Russian
Ukraine 62 55 55 53

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High-technology exports (% of manufactures
exports)
Countries 2000 2001 2002 2003

Armenia 5 .. 2 1
Azerbaijan 4 9 8 5
China 19 21 23 27
Georgia 13 38 .. 24
India 5 5 5 5
Kazakhstan 11 10 .. 9
Korea, Rep. 35 30 31 32
Kyrgyz Republic .. .. 6 2
Mongolia 0 0 0 0
Russian
Tajikistan .. .. .. ..
Turkmenistan 5 .. .. ..
Ukraine 5 5 5 ..
Uzbekistan .. .. .. ..

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Internet users (per 1,000 people)
Countries 2000 2001 2002 2003

Armenia 11 13 16 37
Azerbaijan 2 3 37 ..
China 17 26 46 63
Georgia 5 9 15 31
India 5 7 16 17
Kazakhstan 6 9 16 ..
Korea, Rep. 414 .. .. 610
Kyrgyz Republic 11 .. .. 38
Russian
Federation 20 .. .. ..
Tajikistan 0 1 1 1
Ukraine 7 12 19 ..

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COUNTRY (out of 155 EASE OF STARTING A DEALING REGISTERING
studied countries) DOING BUSINESS WITH PROPERTY
BUSINESS LICENSES

New Zealand 1 4 2 1
Singapore 2 5 7 14
United States 3 3 17 12
Canada 4 1 21 27
Japan 10 81 5 36
Malaysia 21 57 101 53
Korea 27 97 25 64
Armenia 46 41 55 9
Bangladesh 65 52 53 151
Russian Federation 79 31 143 35
China 91 126 136 24
Turkey 93 46 137 49
Georgia 100 55 127 17
India 116 90 124 101
Ukraine 124 110 98 127
Uzbekistan 138 67 .. 149

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LESSONS LEARNED

(1) Effective Social Protection:

The development of a reasonably effective
social protection system oriented to
renewed progress in terms of human
development is essential and requires
growth in real terms of social expenditure.

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LESSONS LEARNED (Cont.)
(2) Professional public administration:

The vital role of a professional public administration
cannot be overestimated. Enforcing laws and
regulations on enterprises, affluent people and local
bodies cannot be achieved by demoralized, ill-
informed, and poorly paid officials. In other words,
the administrative functioning of the state must be
considerably strengthened. Beyond being
reasonably well-paid, so as to provide motivation
and to lower the probability of civil service
corruption, officials in public administration must
be well-trained in technical and cultural terms, know
foreign languages.

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THANK YOU!

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