Developing countries should focus on domestic demand: Unctad

NEW DELHI - With rich nations facing a severe downturn, developing countries like India must focus on creating domestic demand, with job-generation and wage hikes, since export-led growth seems an unviable option for the moment, says a UN agency.

“Exports-led growth ambitions will meet with increasing constraints now that the debt-financed consumption boom in the United States has ended,” said the latest Trade and Development Report of the United Nations Conference on Trade and Development (Unctad).

“Exports-led growth ambitions will meet with increasing constraints now that the debt-financed consumption boom in the us has ended,” said the Trade and Development Report (TDR) 2010 published by Unctad.

The report went on to add that with unemployment rates at the highest in 40-years, the US will no longer serve as the engine of growth for the global economy, nor will China, the Euro area or Japan assume this role in the foreseeable future.

“Policies for sustainable economic growth, job creation and reduction in poverty should be based on establishing a balanced mix of domestic and overseas demand,” said the report titled: “Employment, globalization and development”.

“But strengthening domestic demand as an engine of employment creation and relying less on exports for growth that many countries did in the past should not be viewed as a retreat from integration into the global economy.”

The report stressed on such a shift for developing countries as export markets were likely to grow more slowly than before and wage cuts for competition lead to a “race to the bottom” which is counterproductive for reducing poverty and creating jobs.

“I feel there is a recovery in production. But at the same time there is no recovery in employment and wage rates as they were in the pre-crisis time,” said Prof. Jayati Ghosh with the Centre for Economic Studies and planning at the Jawaharlal Nehru University.

“Sustainable recovery would only be guaranteed when job creation is also supplemented by a wage increases,” she said at an event here to unveile the latest Unctad report.