7. International Trade Policy for Growth and Prosperity

Trade is essential for maintaining a dynamic economy. It enables the acquisition of quality goods, and services that are either not available at home or not available at competitive prices. Companies also learn about advanced technical methods used abroad. Besides providing consumers with a variety of goods and services, trade increases incomes and employment. Case studies reviewing the experience of the twelve most rapidly growing countries over the past few decades show the important contribution of trade in raising employment and incomes. Fragile states account for about 2% of global trade and tend to depend on the export of a limited number of commodities (subject to high price volatility) for their foreign exchange revenues: oil and minerals, agricultural products, and low skill manufactures and services. Net food imports constitute a higher percentage of their economy. They are vulnerable to changes in trade due to their limited diversification. Changes associated with trade can contribute to conflict in several ways. High export prices for oils, minerals, and similar commodities can raise the risk of conflict by creating an incentive to appropriate rising revenues through fighting (it provides the means to finance conflict). A ten percent increase in the price of oil or minerals is likely to raise the number of conflict events by two percent. It is important to realize that the effect of commodity prices on conflict varies by the type of commodity. A rise in the price of certain commodities such as oil, minerals that are valuable, capital-intensive, geographically concentrated, and subject to easier appropriation can increase conflict, while increases in the price of agricultural commodities, livestock (labor-intensive, produced over wide areas, difficult to control) can reduce conflict by raising the opportunity cost participating in a rebellion.