Identifier
1121
Document Type
Discussion Paper
Date of Paper
Fall 9-15-2025
Abstract
This paper 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 latter—those inducing structural transformation and institutional change—have 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 effects—technologically driven declines in transportation and communication costs, fragmentation of the production process, liberal trade regimes, multilateralism and geopolitical stability—are 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 and the green transition may offer new opportunities, emphasizing that future prospects will depend on policy choices in large economies and the adaptability of developing countries.
Acknowledgements
Prepared for the Handbook of Development Economics, 6th edition. We thank Bailey Marsheck and Shuhan Yue for superb research assistance and Greg Larson for his invaluable writing assistance. We are also grateful to Dave Donaldson, Aaditya Mattoo, Martin Sommer, Bob Staiger, Monika Sztajerowska, and participants of the Handbook of Development Economics Conference at Yale University for helpful discussions. The views expressed in this chapter are the authors’ and do not necessarily represent the views of the IMF or the National Bureau of Economic Research.
Recommended Citation
Pinelopi K. Goldberg and Michele Ruta. 2025. "The Changing Nature of International Trade and its Implications for Development." EGC Discussion Paper 1121.