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Would Freeing Up World Trade Reduce Poverty and Inequality? The Vexed Role of Agricultural Distortions

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Author Info

  • Kym Anderson

    ()
    (School of Economics, University of Adelaide)

  • John Cockburn

    ()
    (Dept. of Economics, Université Laval, Québec)

  • Will Martin

    ()
    (Economics Research, World Bank Group)

Abstract

Trade policy reforms in recent decades have sharply reduced the distortions that were harming agriculture in developing countries, yet global trade in farm products continues to be far more distorted than trade in nonfarm goods. Those distortions reduce some forms of poverty and inequality but worsen others, so the net effects are unclear without empirical modeling. This paper summarizes a series of new economy-wide global and national empirical studies that focus on the net effects of the remaining distortions to world merchandise trade on poverty and inequality globally and in various developing countries. The global LINKAGE model results suggest that removing those remaining distortions would reduce international inequality, largely by boosting net farm incomes and raising real wages for unskilled workers in developing countries, and would reduce the number of poor people worldwide by 3 percent. The analysis based on the Global Trade Analysis Project (GTAP) model for a sample of 15 countries, and ten stand-alone national case studies, all point to larger reductions in poverty, especially if only the non-poor are subjected to increased income taxation to compensate for the loss of trade tax revenue.

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Bibliographic Info

Paper provided by University of Adelaide, Centre for International Economic Studies in its series Centre for International Economic Studies Working Papers with number 2009-05.

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Length: 52 pages
Date of creation: Dec 2009
Date of revision:
Handle: RePEc:adl:cieswp:2009-05

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Keywords: Poverty; income inequality; price distortions; farm trade policy;

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References

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  1. Elhanan Helpman & Oleg Itskhoki & Stephen Redding, 2009. "Inequality and Unemployment in a Global Economy," CEP Discussion Papers dp0940, Centre for Economic Performance, LSE.
  2. Francois Bourguignon & Victoria Levin & David Rosenblatt, 2004. "Declining International Inequality and Economic Divergence: Reviewing the Evidence Through Different Lenses," Economie Internationale, CEPII research center, issue 100, pages 13-26.
  3. Valenzuela, Ernesto & Kym Anderson, 2009. "Alternative Agricultural Price Distortions for CGE Analysis of Developing Countries, 2004 and 1980-84," GTAP Research Memoranda 2925, Center for Global Trade Analysis, Department of Agricultural Economics, Purdue University.
  4. Anderson, Kym & Masters, William A., 2007. "Distortions to Agricultural Incentives in Africa," Agricultural Distortions Working Paper 48554, World Bank.
  5. Anderson, Kym & Kurzweil, Marianne & Martin, Will & Sandri, Damiano & Valenzuela, Ernesto, 2008. "Measuring distortions to agricultural incentives, revisited," Policy Research Working Paper Series 4612, The World Bank.
  6. Keijiro Otsuka & Takashi Yamano, 2006. "Introduction to the special issue on the role of nonfarm income in poverty reduction: evidence from Asia and East Africa," Agricultural Economics, International Association of Agricultural Economists, vol. 35(s3), pages 393-397, November.
  7. Kym Anderson & Will Martin, 2005. "Agricultural Trade Reform and the Doha Development Agenda," The World Economy, Wiley Blackwell, vol. 28(9), pages 1301-1327, 09.
  8. Anderson, Kym & Martin, William J., 2007. "Distortions to Agricultural Incentives in Asia," Agricultural Distortions Working Paper 48557, World Bank.
  9. Ferreira, Francisco H.G. & Ravallion, Martin, 2008. "Global poverty and inequality : a review of the evidence," Policy Research Working Paper Series 4623, The World Bank.
  10. Thomas W. Hertel & Maros Ivanic & Paul V. Preckel & John A. L. Cranfield, 2004. "The Earnings Effects of Multilateral Trade Liberalization: Implications for Poverty," World Bank Economic Review, World Bank Group, vol. 18(2), pages 205-236.
  11. Estudillo, Jonna P. & Otsuka, Keijiro, 2010. "Rural Poverty and Income Dynamics in Southeast Asia," Handbook of Agricultural Economics, Elsevier.
  12. Kym Anderson, 2009. "Distortions to Agricultural Incentives : A Global Perspective, 1955-2007," World Bank Publications, The World Bank, number 9436, October.
  13. François Bourguignon & Maurizio Bussolo & Luiz A. Pereira da Silva, 2008. "The Impact of Macroeconomic Policies on Poverty and Income Distribution : Macro-Micro Evaluation Techniques and Tools," World Bank Publications, The World Bank, number 6586, October.
  14. Bussolo, Maurizio & De Hoyos, Rafael E. & Medvedev, Denis, 2008. "Is the developing world catching up ? global convergence and national rising dispersion," Policy Research Working Paper Series 4733, The World Bank.
  15. Cranfield, J. A. L. & Preckel, Paul V. & Eales, James S. & Hertel, Thomas W., 2002. "Estimating consumer demands across the development spectrum: maximum likelihood estimates of an implicit direct additivity model," Journal of Development Economics, Elsevier, vol. 68(2), pages 289-307, August.
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Citations

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Cited by:
  1. Anderson, Kym, 2012. "Agricultural Price Distortions: Trends and Volatility, Past and Prospective," 2012 Conference, August 18-24, 2012, Foz do Iguacu, Brazil 125692, International Association of Agricultural Economists.
  2. Dethier, Jean-Jacques & Effenberger, Alexandra, 2012. "Agriculture and development: A brief review of the literature," Economic Systems, Elsevier, vol. 36(2), pages 175-205.
  3. Kym Anderson & Markus Bruckner, 2012. "Distortions to Agriculture and Economic Growth in Sub-Saharan Africa," Departmental Working Papers 2012-06, The Australian National University, Arndt-Corden Department of Economics.

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