Global Economic Prospects 2003: Investing to Unlock Global Opportunities

Note: This is an annual publication. Global Economic Prospects 2006: Economic Implications of Remittances and Migration is the latest in this series, published in November 2005.

In the face of uncertainties in the global environment, Global Economic Prospects 2003 outlines steps that can be adopted by rich and poor countries to increase growth rates and accelerate poverty reduction. Though global GDP is expected to rise by 2.5 percent in 2003 as a result of improved business health and policy stimulus in the U.S. and Europe, the chances of the world economy sliding toward recession are real. Regional variations in growth in developing countries are striking: 6.1 percent in East Asia compared to 1.8 percent in Latin America. The poverty targets are likely to be achieved by most regions, except for Africa which lags behind. 

Transcript and powerpoint presentation from the Washington D.C. launch, and transcript from a Latin America and the Caribbean launch.

The sluggishness in the world economy is also seen in a reduction in private capital flows to developing countries – both net commercial lending and foreign direct investment (FDI). FDI flows to developing countries peaked at $180 billion in 1999, and have fallen back to the $160 billion range. Rising global risk premiums have led to a reversal in debt capital flows. The precarious market conditions have also reduced infrastructure investment sharply. Besides the fall in investment in absolute terms, investors are becoming more selective in choosing their investment destinations. As a result, investment is flowing to countries with better domestic investment climates: good governance, sound institutions and a system of property rights. 

To take advantage of the opportunities associated with globalization—and reduce associated risks—the report underscores the importance of domestic policies to raise investment levels and improve its productivity. Adopting policies that promote competition are central to raising productivity. Policy barriers to competition in developing countries are common—legal restrictions prevent entry of foreign participants, trade barriers limit import competition, state monopolies protect domestic firms from private sector competition and poorly designed regulatory regimes in privatized industries shun competitors—stifling productivity growth. Firms in Korea, Malaysia and Thailand are more productive than firms in India and China partly because of lower trade restrictions and administrative barriers to entry. Introduction of competition in privatized industries is also helpful: telephone services in countries with competitive markets expanded three times faster than countries with private monopolies.

The international community can help developing countries improve their investment climates. Investment and competition—issues to be taken up at the Cancun ministerial in September 2003—can have a positive impact, provided the trade discussions address important development concerns. Particularly important are investment-distorting trade barriers faced by developing country exports. A global agreement on new investor protections against adverse government policies is unlikely to encourage additional investment flows to developing countries. Private restraints on competition are shown to have adverse affects on prices for consumers and producers in developing countries, and harm their ability to compete in global markets. For example, international cartels have taxed consumers in developing countries by up to $7 billion in the 1990s. Ending exemptions to anti-trust laws can help reduce private anti-competitive practices inherent in national export cartels and maritime transport.