International trade and poverty alleviation

Abstract

Rade reform has long been part of the arsenal of policies used to promote economic efficiency, the development of new markets, and growth. Perhaps surprisingly, even after more than fifty years of trade negotiations, there is still significant protection in the world economy and thus scope for further benefits once protection is removed. Protection persists because it is a convenient and nontransparent way for governments to direct economic benefits to particular groups. Although trade liberalization raises the average standard of living in the medium term, groups that had been favored by protection will see their incomes decline, and the resulting restructuring of the economy may create economic dislocations in the short term. There is increasing awareness that some of those who lose from trade reform might be the poorest members of society, who have fewer assets to draw on to protect themselves during hard times, and are thus less able to absorb adjustment costs, than their fellow citizens. Even a transitory loss of income can cause the poor to lose opportunities to acquire human capital through education, health care, and better nutrition and thus can reduce their chances of escaping poverty. The vulnerability of the poor justifies looking more carefully at the effects of trade liberalization on the poor and asking whether trade liberalization can be designed to minimize its negative effects.