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Are the Poverty Effects of Trade Policies Invisible?

  • Monika Verma


    (Center for Global Trade Analysis, Department of Agricultural Economics, Purdue University)

  • Thomas Hertel


    (Center for Global Trade Analysis, Department of Agricultural Economics, Purdue University)

  • Ernesto Valenzuela


    (Centre for International Economic Studies, School of Economics, University of Adelaide)

Beginning with the WTO's Doha Development Agenda and establishment of the Millennium Development Goal of reducing poverty by 50 percent by 2015, poverty impacts of trade reforms have become central to the global development agenda. This has been particularly true of agricultural trade reforms due to the importance of grains in the diets of the poor, presence of relatively higher protection in agriculture, as well as heavy concentration of global poverty in rural areas where agriculture is the main source of income. Yet some in this debate have argued that, given the extreme volatility in agricultural commodity markets, the additional price and therefore poverty impacts due to trade liberalization might well be barely discernible. This paper formally tests this invisibility hypothesis using the method of stochastic simulation in a trade-poverty modeling framework. The hypothesis test is based on the comparison of two samples of price and poverty distributions. The first originates solely from the inherent variability in global staple grains markets, while the second combines the effects of inherent market variability with those of trade reform in these same markets. Results, at both national and stratum levels, indicate that the short-run poverty impacts of full trade liberalization in staple grains trade worldwide are not distinguishable in the majority of cases, suggesting that the poverty impacts of more modest (and realistic) agricultural trade liberalization are indeed likely to be statistically invisible. This does not mean that such reforms are economically unimportant. Rather it is a direct consequence of the high degree of volatility in agricultural commodity markets.

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Paper provided by University of Adelaide, School of Economics in its series School of Economics Working Papers with number 2011-14.

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Length: 56 pages
Date of creation: Mar 2011
Date of revision:
Handle: RePEc:adl:wpaper:2011-14
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  1. Alós-Ferrer, Carlos & Weidenholzer, Simon, 2008. "Contagion and efficiency," Journal of Economic Theory, Elsevier, vol. 143(1), pages 251-274, November.
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