We are in a new era of international trade: Jose Antonio Ocampo

Jose Antonio Ocampo Professor, Professional Practice in International and Public Affairs Columbia University

The East Asian Miracle of the 1960s catapulted the likes of Japan and Singapore, until then middling at best, to superstardom. Since then, it hasn't been difficult for countries with growth aspirations to bet on exports.

Indeed, Indonesia, Malaysia and Thailand followed on this path some years later. Then, in 1989, came the Washington Consensus, coined by economist John Williamson to describe a set of export-centred reforms that multilateral agencies prescribed for countries in crisis. China's story in recent years is already well-known.

But it may now be time to wind down on this long-standing export hope. So says economist Jose Antonio Ocampo, who earlier this year was in the race to head the World Bank. "This is very important basically because all developing countries have put their eggs in the export basket," says Ocampo, who teaches at Columbia University.

Ocampo, 60, has been in the thick of macroeconomic policymaking for long now. Prior to his Columbia stint, Ocampo had served extensively at the United Nations and has also been minister of finance and public credit in his home country Colombia. Earlier this year, Brazil nominated him as a candidate for World Bank presidentship. However, he had to back off as Colombia didn't back him.

His word of caution for developing countries is because of the following trend. International trade has taken a beating after the world economic crisis of 2008-09. Just a year after that, the value of world exports had fallen by nearly a third - the speed of the fall was faster than what was witnessed eight decades earlier during the Great Depression. Though it recovered a year-and-a-half later, exports have slowed down ever since.

Crises such as the one in 2008-09 almost always jolt export-heavy countries in their aftermath. But as the handsomerun of world exports of over 7% between 1986 and 2007 shows, the return to high growth happens before long. This time, though, Ocampo is pessimistic about such a strong comeback.

In the last five years, world export growth has come down to a measly 2.7%. And Ocampo sees this number going up only marginally in the coming years: 3-4%. The crisis in Europe hasn't helped. That's a view also echoed by economists such as Nobel laureate Joseph Stiglitz who point out how the European banks also used to finance a lot of trade.

And Ocampo has two main reasons for why he is pessimistic about exports. First, the prolonged slowdown in the world's economic growth. This isn't seen changing in a hurry.

Second, the relationship between growth of trade and growth of GDP, or simply called elasticity. In the last decade, the best days of world exports, the ratio was a whopping 2.4.

"This is over," says Ocampo, who obtained a PhD in economics from Yale University. "The combination of these two has led to significant slowdown now and is likely to be so in the future."

One of the key reasons for this is what he calls the reversal of the "tendency to breakproduction chains". The breaking of the chains was what spurred exports in the first place. Now, the US and Europe seem to be going back on this. "Production will be closer to consumption, which used to be the old pattern."

Not surprisingly, in this crisis, manufacturing exporters have taken a hit. "This is the first time you see a significant reduction in manufacturing trade in poor countries," Ocampo says. With the crisis, countries have been increasingly showing their protectionist side as well, something that international trade law experts say is evidenced by the considerable rise in the number of trade disputes of late.

So, what's the recipe for developing countries? Look inward, says Ocampo, who was the United Nations under-secretary general for economic and social affairs between 2003 and 2007. "We have to do more of our domestic market," he says. Mexico and Turkey - two big manufacturing exporters - would know why. During the crisis, they hadn't taken steps to prop up the domestic economy and had to pay the price by enduring damaging recessions. And, as he points out, "The whole world is asking China to look inward. It's a correct thing."

That's what he wants developing countries to do more of: look back at the domestic market, increase incomes and spur demand there.

This is something relatively easier for bigger countries to follow, what with vast populations to cater to. Indeed, India, for which exports aren't that big an item as it would be for much of east Asia, didn't fare too badly in the aftermathof the crisis.

But for countries with smaller populations, Ocampo believes the answer is regional integration. "Regional integration is very important because it's sort of an expanded domestic market. Very important for smaller economies."

The old assumptions about exports have changed. "We are almost certainly in a new era of international trade."