The Effect of Trade Liberalization on Chinese Rural Poverty

Abstract

There has been much controversy over the impacts of trade liberalization on poverty. Some have argued that trade liberalizations are beneficial to the poor in developing countries, while others have argued that the gains will be captured more by the non-poor. The policies of trade liberalization in China have reduced the NPRs of some agricultural products, which cut down the welfare of its producers, but the expansion in foreign trade of agricultural products rapidly reduces rural poverty. The change in foreign-trade construction of agricultural products not only impacts the welfare level of different kinds of agricultural producers, but also makes the farmers in coastal areas be the greatest gainers. This paper applies SURE with simultaneous-equations to assess the link of trade-poverty in China, and its result shows that the link of trade-poverty in China is characterized by inverted U-shape. That is, before the mid 1990s, trade liberalization in China worsens the rural poverty; and after then it is beneficial to rural poverty reduction.