The Changing Nature of International Trade and Its Implications for Development

Pinelopi Goldberg and Michele Ruta
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Pinelopi Goldberg: Yale University
Michele Ruta: International Monetary Fund

No 2462, Cowles Foundation Discussion Papers from Cowles Foundation for Research in Economics, Yale University

Abstract: This chapter revisits the relationship between international trade, trade policy, and development in light of the structural, policy, and geopolitical shifts that have transformed globalization over the past decade. While trade has historically supported development through both static and dynamic channels, we argue that the latterÑthose inducing structural transformation and institutional changeÑhave been far more consequential for long-run development. Through access to global markets, participation in global value chains, and knowledge and technology transfers, and by providing an anchor for reform, trade and trade agreements have contributed to productivity gains, technological progress, quality and skill upgrading, and institutional change in many low- and middle-income countries. Yet, the conditions that enabled these effectsÑtechnologically driven declines in transportation and communication costs, fragmentation of the production process, liberal trade regimes, multilateralism and geopolitical stabilityÑare changing. Automation, digitization, climate change, the return of industrial policy in advanced economies, and the rise of geopolitical rivalry are reshaping the global trade environment. In this new context, the scope for replicating past export-led growth successes is unlikely as two key growth mechanisms, access to the lucrative markets of advanced economies and knowledge sharing, are under threat. We discuss whether trade in services or the green transition could provide alternative paths and emphasize that future development prospects will increasingly depend on the policy choices of large economies and the ability of developing countries to adapt to a more fragmented global system.

Pages: 69 pages
Date: 2025-09-15
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