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PRESS/534 
15 July 2008 
 
(08-3389) 
WORLD TRADE REPORT 
The WTO launches World Trade Report 2008: Trade in a 
Globalizing World  
Trade and globalization have brought greater prosperity to hundreds of millions as well as greater 
stability among nations, according to a report published today by the World Trade Organization.   
Trade has allowed nations to benefit from specialization and economies of scale to produce more 
efficiently. It has raised productivity, supported  the spread of knowledge and new technologies, 
and enriched the range of choices available to co nsumers. But deeper integration into the world 
economy has not always proved popular, nor ha ve the benefits of trade and globalization 
necessarily reached all sections of society. As a consequence, trade scepticism is on the rise in certain quarters. 
 
This year’s World Trade Report , entitled “Trade in a Globalizing World”, is devoted to an 
examination of the gains from international trade and the challenges arising from higher levels of 
integration. Over many years, governments in most countries have increasingly opened their 
economies to international trade, whether through multilateral trade negotiations, increased regional cooperation or as part of domestic reform programmes.  
 
“Few would contest the benefits that globalization and trade have brought in terms of greater prosperity for hundreds of millions, as well as greater stability among nations. But many 
individuals in different societies across the world have shared little or not all in the benefits. The 
challenges facing governments in managing glob alization are formidable, and success in spreading 
prosperity more widely requires a strong co mmon purpose” says WTO Director-General Pascal 
Lamy in an introduction to the Report. 
 The Report explores a range of interlinking ques tions, starting with a consideration of what 
constitutes globalization, what drives it, the benefits it brings, the challenges it poses and what 
role trade plays in this world of ever-growing interdependency. We ask why some countries have managed to take advantage of falling trade cost s and greater policy-driven trading opportunities 
while others have remained largely outside international commercial relations. We also consider 
who the winners and losers are from trade in society and what complementary action policy-makers need to take in order to secure the bene fits of trade for society at large. In examining PRESS/534 
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 these complex and multi-faceted questions, the Repo rt reviews both the theoretical trade literature 
and empirical evidence that can help to give answers to these questions. 
The causes and consequences of globalization 
 The Report notes that the key economic characteristic of globalization is deeper integration of 
product, capital and labour markets. Globalization is driven by technological innovation, political change, and economic policy choices, and this process of integration has caused significant 
structural changes in parts of the world economy.  The increased fusion of product, capital and 
labour markets internationally has resulted in a more efficient allocation of economic resources. Economic integration has resulted in higher levels of current output and prospects of higher future 
output. Capital can flow to countries which need it the most for economic growth and 
development. Allowing workers to move across national borders can alleviate skill shortages in receiving countries or respond to the needs in rapidly ageing societies while alleviating 
unemployment or under-employment in countries providing these workers.  
 Today’s industrialized economies were the early beneficiaries of globalization in the immediate 
post-war period, and more recently newly industrializing economies have been among the major 
winners from increasing economic integration. Trade has consistently grown faster than output in the world economy, and manufactures have accounted for an expanding share of total trade. 
Traded services have also grown significantly, although their importance is still poorly understood 
as a consequence of limited data. A major evolving feature of production is the fragmentation of production processes across multiple jurisdictions. International capital flows have played a vital 
role in the internationalization of production, and more generally in fostering globalization.  
 
Qualified public support for globalization 
 International surveys of public attitudes towards globalization suggest that a majority of people recognize these benefits. But this recognition is accompanied by anxieties about the challenges 
that come with globalization. While large majorities believe that international trade benefits their 
countries, they also fear the disruptions and downsides of participating in the global economy. Seemingly, stronger support exists for trade in  some emerging economies than in industrial 
countries. Support for globalization appears to be waning in the industrialized countries even 
though it still enjoys the support of a majority  of the public. For policymakers who embrace more 
open markets, survey results indicating overall support for globalization may be encouraging, but 
disregard for rising public concern about some as pects of globalization threatens to undermine the 
legitimacy of governments and imperils social support. The answer to this tension lies in a balance between open markets and complementary domestic policies, along with international initiatives 
that manage the risks arising from globalization.  
 
The sources of gains from trade 
 Turning more specifically to trade, the Report id entifies different sources of economic gain from 
trade. These include the gains from exploiting relative efficiency through specialization and 
increased competition, increased product variety, realizing economies of scale, and increased 
productivity within industries. These insights and theories, dating from the late eighteenth century to the present day, have been subjected to exte nsive study and testing. Much of the theory has 
proven robust in terms of its basic insights rega rding the gains from trade, although some of the 
empirical testing has brought out more nuanced conclusions.  PRESS/534 
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In addition to this static analysis, which compares the situation before and after a given change, a 
growing body of literature has identified dynamic gains from change. International trade can affect 
the growth process through its effect on the accumulation of capital and on technological change. 
Classical growth theory focuses on the effect of trade on capital accumulation via its impact on the 
prices of factors of production and products. The nature of trade taking place is therefore key in determining how trade affects growth. By contrast, an analytical framework that focuses on the 
determinants of technological progress yields di fferent, and sometimes conflicting, conclusions on 
the relationship between trade and growth. Some  studies suggest that the removal of trade 
barriers could under particular circumstances encour age specialization in sectors with low growth 
potential. But this conclusion is challenged by studies that capture mechanisms that associate 
more open trade with higher growth. Such mech anisms include increased market size, knowledge 
spillovers, greater competition, and improvements in the domestic institutional framework. While 
some studies have pointed to possible offsetting  effects, many others establish strong links 
between growth and trade. These studies do not,  however, mean that more trade means more 
growth. Work continues on the causal direction and true causes of this observed relationship.  
 
The location of production and the organization of firms 
 The Report also examines the determinants of the location of production within the world 
economy. Work on the so-called new “economic geography” and offshoring explains the location decisions of firms and why they sometimes choos e to spread their production processes across 
different countries. Falling trade costs — as a resu lt of trade-opening, trade facilitation and new 
technologies — can help to explain both why firms may concentrate geographically (agglomeration) and why they might break up the supply chain across different locations 
(fragmentation). The economic geography literatu re makes three important predictions. First, 
countries will tend to export products for which there is a large domestic market (the home market effect). The domestic market allows increasing retu rns to scale to operate, establishing a base for 
exports. At the same time, agglomeration permits various kinds of productivity “spillovers” to 
strengthen the competitive position of firms. Seco nd, the home market effect will be amplified by 
falling trade costs, at least in the first instance (t he magnification effect). Third, while falling trade 
costs will result in an initial period when manufacturing is concentrated in the “core”, with the 
“periphery” specializing in non-manufactures, fu rther reductions in trade costs, along with 
emerging limits to the advantages of agglomeration, will eventually reverse this process and lead 
to a dispersion of manufacturing activity.  
 Available evidence suggests that o ffshoring is on the rise, driven by declines in the absolute costs 
of trading goods and services and advances in telecommunications technology. Recent work points 
to other factors, besides the traditional elements typically associated with comparative advantage, that also influence the evolution of production fragmentation. These include the quality of 
institutional frameworks, the costs of establishing a business and the quality of infrastructure. For 
these reasons, low-income countries may be at a significant disadvantage when it comes to participation in international production networks. 
 
The distributional consequences of trade 
 The Report also examines the distributional consequences of trade — a major aspect of the tension 
detectable in public attitudes towards global ization and trade. Studies have attempted to 
disentangle the various elements of economic change that increase inequality. Much points to a PRESS/534 
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 significant effect arising from technological ch ange, which raises productivity and wages among 
skilled workers, leaving the relatively unskilled  behind. But trade may also play a role, where 
demand for unskilled workers in richer countries fa lls as a result of specialization through trade 
with lower-income countries where skill levels are on average lower than in rich countries. 
 
In the case of developing countries, one might have expected that trade would reduce both poverty and inequality through positive effects on growth and income distribution. But evidence 
suggests that trade liberalization has not always gone hand in hand with reductions in inequality. 
Empirical evidence suggest that this is partly due to trade liberalization triggering technological change. The timing of trade policy change, the pr e-existing level of protection and a range of 
factors relating to such factors as the structure and functioning of markets and basic infrastructure 
may also play a part.  
In considering the relationship between trade and poverty, the Report notes that trade reform can 
help to alleviate poverty, which is one of the bi ggest challenges facing the world community today. 
Even though most of the literature concludes that trade has helped to reduce poverty on average, 
not all poor households have been able to take advantage of this. The relationship is complex, 
since trade affects growth, employment, revenue, consumer prices and government spending, all 
of which are factors entering the calculus of income effects upon households.  
 
The social consequences of trade opening 
 Opening to trade implies adjustment, with some workers losing their jobs in import-competing 
firms that seek out efficiency gains, contract in or der to survive, or simply fold. Exporting firms, on 
the other hand, may grow after a trade reform. A policy challenge of managing change will 
nevertheless remain. In many countries, policies are in place to assist displaced workers. 
Adjustment policies aimed specifically at trade have not always proved successful, in part because it is frequently difficult to distinguish in a meaningful way among various potential reasons for job 
losses. Trade-specific adjustment programmes may ne vertheless be attractive in order to help sell 
nationally beneficial trade-opening policies. In countries where general social protection is available, trade-specific programmes may be harder to justify, but in developing countries that 
lack general social protection, such specificity may make more sense. More research and 
experimentation is needed to identify the most effective means of addressing the adverse social 
consequences of desirable economic change.  
 
Global integration and international cooperation 
 Despite continuing gaps in our knowledge and understanding, the theoretical and empirical case 
for the gains from trade is strong. But certain factors have the potential to reduce those gains or to skew their distribution. The final section of the Report contemplates how international 
cooperation, including through the WTO, may help to  mitigate the adverse effects of these factors. 
In addressing trade costs and supply constraints that diminish potential gains from trade, much depends in the first instance on national policy action. Public investment to enhance physical 
infrastructure is key, as is a willingness to lowe r trade costs through trade and regulatory reform.  
 But international cooperation can also make a big difference. In the context of the WTO, including 
the ongoing Doha Round, trade opening, actions to reduce trade costs, and the implementation of 
multilateral agreements can all contribute to enhanced opportunities to gain from trade. The market access negotiations in agriculture and non-agricultural market access (NAMA) offer the PRESS/534 
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possibility of coordinated trade opening, where governments gain from both their own reduced 
trade costs and those of others. The trade facilitation negotiations focus on a particular set of trade 
costs. The Aid for Trade initiative helps developing countries to build supply capacity and to reduce other constraints on trade. Technical assistance also offers opportunities for strengthening the 
ability of governments to manage trade policy in ways that will enhance national competitiveness. 
Finally, technology can be spread through trade,  by making technologically more sophisticated 
intermediate goods available for production, by a process of learning and adaptation to new 
technologies conveyed through trade, and thro ugh person-to-person communication associated 
with trading relationships. Technology transfer and diffusion can be enhanced through international cooperation, accompanied by appropriate property rights in order to ensure that 
technologies are developed which are suited to the domestic environment.  
 The World Trade Report  can be downloaded free of charge  from the WTO web site: www.wto.org. 
Printed copies in English, French and Spanish can be purchased from the WTO online bookshop 
(onlinebookshop.wto.org).  
 
END