In the longer run (after 1997), the world's speed of integration will eventually slow, after evolving through a business cycle. Trade dependency indicators are fairly procyclical variables. However, the speed of integration should stay at around the level observed after the mid 1980s (2.8 percent), which will be conducive to a continued robust world trade growth of over 6 percent a year, on average, for the next 5-10 years. The underlying forces will be the emergence of the growth poles in LMIC, sustained capital flow and resulting financial integration, market openings (both autonomous and GATT related), and the ongoing structural adjustments that will continue to desynchronize OECD business cycles in the medium term. The direction of trade statistics in Table 2 also imply prospects for robust growth in intra-regional trade in East Asia and Latin America; for a surge in East Asia-Latin America trade; for Eastern Europe and FSU reentering the world markets, which should particularly benefit trade between OECD Europe and Eastern Europe and FSU; and for stronger pulls on OECD countries from these LMIC regions in general.<sup>23</sup> In the medium to long term, trade between OECD and LMIC (in both directions) and trade among LMICs will continue to be substantial driving forces in world trade, despite the projected recovery in intra-OECD trade. The liberalization drive, which has put some LMIC countries on an faster trade integration path and a faster output growth path since the mid 1980s, could fortify its virtuous cycle if supported by compatible and complementary reforms in domestic markets.

Chart 12 shows the likely developments in trade/output ratios.<sup>2 4</sup> A successful completion of GATT Uruguay Round sets the underlying pace of integration throughout the world in the coming derade. Since the gains from the Round should be felt most strongly in EU, the United States, and Japan, where distortions have been high and more concentrated, a high pace of trade integration is projected for OECD. The US economy, situated at a crossroads of new outward-oriented North-South trade and investment arrangements (NAFTA and APEC), should keep a relatively high speed of integration by its historical standard. Although the speed of trade integration slows as the trade/output ratio increases for the technical reason explained above,25 the ratio should increase from less than 18 percent in 1991-93 to over 25 percent during the next decade.

Japan, after more than two decades of a stagnant trade/GDP ratio, should accelerate its integration in the coming decade. Japan had a high pace of trade integration from the end of World War II until the first oil crisis in the early 1970s (SOI of 4.6 for the 1960s). Contrary to the high speed of integration in the early years, which was attained largely by the drive toward exports, the projected acceleration of Japan's speed of integration will be brought about by its market opening, or drive toward imports. Accelerated market deregulation and heightened consumer awareness of the lower cost of

> 23 For historical trend and prospects in South-South trade and trade regionalization, see Shigeru Otsubo and Tetsuo Umemura, "Regionalization and South-South Trade: could it be an entry point for the South toward global integration?" Policy Research Working Paper (forthcoming), World Bank, 1996.

> 24 Global forecasts are created using BANK-GEM. Long-term forecasts are from February 1995, and are subjective to future revisions. 2's See footnote 20.

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