Human Development Report 2013 - UNDP

BOX 2.3Ties that bind: the mutual dependence of North and SouthA substantial share of South–South trade, especially in manufactured partsand components, is driven by demand in the North. This makes the countriesof the South sensitive to shocks in the North. After the 2008 global financialcrisis, for instance, exports from Southeast Asia to Japan, the EuropeanUnion and the United States fell about 20% between 2008 and 2009. Thepercentage drop in China’s exports to these economies was also in doubledigits.The North is also increasingly relying on the South to power its own rebound.Since 2007, US exports to China and Latin America and the Caribbeanhave grown two and a half times faster than US exports to traditional marketsin the North. Helped by a weak dollar and increasing purchasing powerin the South, expansion of US exports involved not only traditional sectorssuch as aircraft, machinery, software and Hollywood movies, but also new,high-value services such as architecture, engineering and finance. BehindShanghai’s booming architectural wonders (including Shanghai Towers,which will be the country’s tallest building in 2015) are US designers andstructural engineers, who are drawing an ever-increasing share of fees androyalties from services exported to Brazil, China and India.Furthermore, a growing “app economy” supported by such companiesas Apple, Facebook and Google employs more than 300,000 people whosecreations are easily exported across borders. Zynga, a large company thatmakes online games and mobile applications, recorded $1.1 billion inrevenue in 2011, a third of it from players outside the United States. Theimpact of a growing consumer class in the South is felt not only in services,but also in manufacturing and commodities. A third of US exportsare now accounted for by firms employing fewer than 500 people; throughnew techniques, such as three-dimensional printing, many are recapturingmarkets once lost to imports. Emerging markets have also revived the USrole as a commodity producer (of grains, for example). These shifting tradepatterns suggest that a slowdown in the South would halt growth in thenewly dynamic exports from the North, just as the recession in the Northhit the South.Source: HDRO; The Economist 2012b.was exceptionally high in around 60 developingcountries (figure 2.3). 34 Of the 10 countrieswith the most users of popular social networkingsites such as Facebook, 6 are in the South. 35While these rates reflect in part the low base in2000, the spread and adoption of new mediahave revolutionized many sectors across diversecountries (box 2.4).Impetus from human developmentSuccessful performance in trade, investmentand international production also depends onrising levels of human development, as illustratedby the association between high exportearnings per capita and achievement in educationand health (figure 2.4). The more successfulcountries in the upper right quadrantof the figure also tend to have better economicopportunities for women. Increased tradedraws new workers, often women, into thelabour market, expanding their choices. Thesenew workers do not always benefit from goodworking conditions; efforts to keep costs lowcan put pressure on wages and work environments.Some governments may be reluctant toexpand worker rights, if they believe it wouldraise production costs and reduce competitiveness(box 2.5). 36The capacity of people and institutions alsoaffects the benefits from FDI. Host countriesneed to invest in the capacity of their peopleto identify, assimilate and develop the usefulknowledge embedded in foreign capital andideas. 37 Indeed, an educated and healthyworkforce is often a key factor in influencingthe decision of foreign investors on where tolocate. This positive association between FDIinflows and achievements in health and educationis evident for a sample of 137 countries(figure 2.5). 38This relationship between a skilled populaceand inward foreign investment tends tobe mutually reinforcing. But there are outliers.FDI could still flow to countries withmodest achievements in human developmentif they are exceptionally well endowed innatural resources. Between 2003 and 2009,for instance, many resource-rich Africancountries where FDI contributed substantiallyto economic growth saw some of thelowest nonincome Human DevelopmentIndex (HDI) values. 39 However, the impacton development is limited when such investmentsare confined to enclaves and delinkedfrom the rest of the economy. Spilloverbenefits from FDI are unlikely to be widespreadif there is no sustained investment inpeople’s capabilities. In this regard, relativelyHost countries need toinvest in the capacity oftheir people to identifyand use the knowledgeembedded in foreigncapital and ideasChapter 2 A more global South | 49