The Poverty Impacts of Global Commodity Trade Liberalization

Abstract

This paper examines the poverty impacts of global merchandise trade reform by looking at a wide range of developing countries in Africa, Asia and Latin America. Overall, we find that trade reform tends to reduce poverty primarily through the inclusion of agricultural components.The majority of our developing country sample experiences small poverty increases from nonagricultural reforms. We explore the relative poverty-friendliness of agricultural trade reforms in detail, examining the differential impacts on real after-tax factor returns of agricultural versus non-agricultural reforms. This analysis is extended to the distribution of households by looking at stratum-specific poverty changes. Our findings indicate that the more favorable impacts of agricultural reforms are driven by increased returns to peasant farm households' labor as well as higher returns for unskilled wage labor. Finally, we examine the commodity-specific poverty impacts of trade reform for this sample of countries. We find that liberalization of food grains and other processed foods represent the largest contributions to poverty reduction. More specifically, it is tariff reform in these commodity markets that dominates the poverty increasing impacts of wealthy country subsidy removal. Despite a lack of recent progress towards a multilateral trade reform agreement, the Doha Development Agenda negotiations of the WTO continue to generate interest for their poverty reduction potential. A distinguishing feature of the Doha Agenda was the lack of commitment to trade policy reform by developing countries -particularly the poorest countries which were offered "the round for free" (Anderson and Martin 2006). Recent research suggests that developing country tariff cuts -particularly in agriculture -are among the most poverty-friendly elements of a broader multilateral trade policy agenda (Hertel et al. 2009).Such analyses hinge critically on the measured protection for agriculture in developing countries. Unlike the OECD countries, where the measurement of agricultural protection has received considerable attention over the past two decades through the regular publication of "Producer Support Estimates" (PSE), there remained considerable uncertainty about current support and recent trends in agricultural protection in developing countries -particularly the smaller, low-income economies -until the new World Bank agricultural distortions database was compiled .In this chapter, we incorporate this new information on price distortions to assess the impact of agricultural and other trade reforms on poverty. These data on developing country protection in agriculture afford us the opportunity to consider the relative importance of agricultural versus non-agricultural protection at home and abroad more accurately than has been previously possible. Tracing the impacts of developments in multilateral trade policy from international markets to the household level is a long and complex process (Winters et al. 2004). A natural method for accomplishing t...