The Impact of the Global Economic Crisis on Industrialization of Least Developed Countries

The author examines the impact of the external shock resulting from recent global economic crisis on industrialization of least developed countries. LDCs are marginalized in international trade and output, yet they are highly integrated into the world economy, suffer from structural weaknesses, balance of payments and fiscal constraints; and they are dependent on production and exports of primary commodities and external sources of finance. The commodity boom of 2003-08 which allowed them to accelerate their GDP and MVA was followed by a “bust”. Food and fuel importing LDCs, in particular, have suffered from both the “boom” and the “bust”. As a result of the decline in their exports, workers remittances and external sources of finance, most LDCs have suffered from significant decline not only in their GDP and MVA, the closure of a number of their factories, thus unemployment, but also in their investment in production capacity The exposure of their manufacturing sector to severe external competitive pressure (resulting inter alia from changes in the rules of the game on international competition, increased the need for nurturing their manufacturing sector. Yet, their policy space has diminished due to pre-mature trade liberalization and “market oriented” strategies imposed on them. As a result, despite the acceleration of growth in their MVA during the boom years, most LDCs have faced de-industrialization as compared with their situation in early 1980s. The global economic crisis is a wake-up call for LDCs to reconsider their long-term industrial and development strategies. There is no “one-size-fit-for-all” strategy, but we have made, in this paper, some common as well as specific policy proposals for industrial development of various groups of LDCs. These countries still have some room to manoeuvre despite their loss of policy space. Further, in order to avoid the risk of human tragedy, particularly in Sub-Saharan countries we calls for changes in WTO rules and reconsideration of policies of IFIs towards LDCs , and resistance to the proposed Economic Partnership Agreements (EPAs). ---------------------------------------------------------------------------------------------------- *Mehdi Shafaeddin is a development economist with a D.Phil. degree from Oxford University. He is the former Head, Macroeconomics and Development Policies Branch, UNCTAD. He is currently affiliated with the Institute of Economic Research, University of Neuchâtel, Switzerland and the author of many articles on trade and industrial policies. His recent work includes Trade Policy at the Crossroads: The Recent Experience of Developing Countries, Palgrave and Competitiveness and Industrial Development, Anthem Press, forthcoming. Comments can be sent to him through M.Shafaeddin@Gmail.com or M.Shafaeddin@Shafaeddin.com