Trade Liberalization and Poverty: A Handbook

The Authors:

Neil McCulloch (Institute of Development Studies) and L Alan Winters (University of Sussex and CEPR) with Xavier Cirera (Institute of Development Studies)

As the 142 members of the World Trade Organization prepare to meet in Qatar next month, a major new book shows the importance of trade liberalization for reducing poverty in the developing world. Developing countries are likely to bear the brunt of any world recession caused by the attacks of September 11^th’, with millions more people pushed into poverty during 2002. Ministers see the initiation of a new round of global trade talks in Qatar as a key to restoring flagging confidence and counteracting the downturn. They also offer an opportunity to translate Tony Blair’s aspirations for world community into concrete action. But if the talks are to succeed, they must address developing countries’ needs and the trade liberalization they bring must be seen to be helping the poor.

These arguments add weight to calls from the advocates of openness to trade, who laud the removal of trade barriers as the key to growth and prosperity, for rich and poor nations alike. Others, however, argue that expanding international trade and trade liberalization are among the causes of the persistent and extreme poverty in developing countries. In their new Handbook Neil McCulloch, L Alan Winters and Xavier Cirera move beyond the rhetoric to provide an authoritative guide to how trade liberalization and economic integration affect the poor and how they can be used to alleviate world poverty. In this comprehensive new study, funded by the UK’s Department of International Development, the authors argue that:

• "International trade is almost always good for growth and growth good for the poor, but the effects vary from case to case. Policy and research should focus on understanding the reliability of these links and how to make them stronger. Gains from trade liberalization have been estimated at $US 171 billion or 0.7% World GDP. However, more gains will be accrued from obtaining previously unavailable products."
  
• "Agricultural liberalization is key for poverty reduction constituting 28% of GDP in low-income countries and 2% in industrialized countries – but both developed and developing countries must liberalize."
  
  
• "The liberalization of services presents a major opportunity for growth and can help poverty reduction if care is taken to ensure access to key services for the poor. Current concerns about the way WTO will deal with public services are misplaced."
  
  
• "Improved international labour mobility has huge potential for poverty reduction, especially if it focuses on the less skilled. We calculate this form of liberalization could lead to gains as large as $300 billion a year. Therefore, resolving the practical and political difficulties of achieving this should be a priority."
  

• "Improved labour standards could help the poor and international action can help to tackle poor labour standards, but labour standards should not be linked to trade."
  
  
• "The environmental threats faced by the poor are overwhelmingly local – they should be tackled by appropriate domestic environmental policy. International environmental problems should be tackled by international environmental agreements, not just trade sanctions. "

The authors use economic analysis and practical experience to construct a framework for analysing the links between trade liberalization and poverty in developing countries and show how to implement trade liberalization in WTO-legal yet pro-poor ways. They consider both the broad linkages between liberalization and poverty, and specific issues that are likely to figure in future trade talks and unilateral trade reforms; they also identify policies that governments can implement to help to ensure that the poor gain from such liberalization. At a time when 1.2 billion people live on less than $1 a day, the publication of this invaluable Handbook – the first comprehensive analysis of this topic - makes a timely and practical contribution to the debate on trade liberalization that must occur over the next few months.

Notes for Editors:

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Trade Liberalization and Poverty: A Handbook
Funded by the UK Department for International Development and published by CEPR 15th October 2001.

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