Trade Liberalization and Poverty: The Evidence So Far

TLDR

There is little empirical evidence directly addressing trade liberalization’s impact on poverty, but long‑run data suggest it is likely strongly poverty‑alleviating and does not generally increase overall poverty or vulnerability. This paper assesses the current state of evidence on the impact of trade policy reform on poverty in developing countries. The authors use an analytic framework covering economic growth and stability, households and markets, wages and employment, and government revenue, and identify twelve key questions to discuss empirical studies and results. The authors find no simple generalizable conclusion, noting that trade liberalization is less negative than often suggested, yet the poor may be less able to protect themselves against short‑run adverse effects and to take advantage of favorable opportunities.

Abstract

This paper assesses the current state of evidence on the impact of trade policy reform on poverty in developing countries. There is little empirical evidence addressing this question directly, but a lot of related evidence on specific aspects. We summarize this evidence using an analytic framework addressing four key areas: economic growth and stability; households and markets; wages and employment and government revenue. Twelve key questions are identified and empirical studies and results are discussed. We argue that there is no simple generalizable conclusion about the relationship between trade liberalization and poverty, and the picture is much less negative than is often suggested. In the long run and on average, trade liberalization is likely to be strongly poverty alleviating, and there is no convincing evidence that it will generally increase overall poverty or vulnerability. But there is evidence that the poor may be less well placed in the short run to protect themselves against adverse effects and take advantage of favorable opportunities.