IDEAS home Printed from https://ideas.repec.org/p/gta/workpp/1208.html
   My bibliography  Save this paper

The Earnings Effects of Multilateral Trade Liberalization: Implications for Poverty in Developing Countries

Author

Listed:
  • Hertel, Thomas W.
  • Maros Ivanic
  • Paul Preckel
  • John Cranfield

Abstract

Poverty reduction is an increasingly important consideration in the deliberations over multilateral trade liberalization. However, the analytical procedures used to assess the impacts of multilateral trade liberalization on poverty are rudimentary, at best. Most poverty studies have focused on a single country using detailed household survey data. When it comes to multi-country, global trade liberalization analyses, researchers are often forced to resort to a discussion of average, or per capita effects, suggesting that if per capita real income rises, then poverty will fall. As we show in this paper, such an inference can be misleading. Our paper combines results from a new international, cross-section consumption analysis, with earnings data from household surveys, to analyze the implications of multilateral trade liberalization for poverty in Indonesia. This method could readily be extended to analysis of poverty impacts in the other thirteen countries in our sample. By emphasizing the earnings-side of the poverty story, we complement earlier studies of poverty that have tended to emphasize consumption determinants, often to the exclusion of earnings impacts. Specifically, we stratify households according to their primary source of income, identifying those that are specialized (95% or more of their income) in agriculture enterprises, non-agriculture enterprises, wage/salary labor, and transfers. Together, these account for more than half of the population. All other households are considered to be diversified, and therefore less vulnerable to trade shocks. We find that, following global trade liberalization, the national headcount measure of poverty in Indonesia is reduced by a small amount in the short run, and significantly more in the long run. We also decompose the poverty changes in Indonesia associated with different countries’ trade policies. We find that liberalization in other countries’ policies leads to a reduction in national poverty in Indonesia, while liberalization of Indonesia’s own trade policies leads to an increase in the poverty headcount. However, the aggregate reduction in Indonesia’s national poverty headcount masks a more complex set of impacts among different groups. In the short run, the poverty headcount actually rises slightly for self-employed, agricultural households, as agricultural profits fail to keep up with increases in consumer prices. In the long run, the poverty headcount falls for all earnings strata in Indonesia, as the increased demand for unskilled workers lifts incomes for the formerly self-employed, some of whom move into the wage labor market.

Suggested Citation

  • Hertel, Thomas W. & Maros Ivanic & Paul Preckel & John Cranfield, 2004. "The Earnings Effects of Multilateral Trade Liberalization: Implications for Poverty in Developing Countries," GTAP Working Papers 1208, Center for Global Trade Analysis, Department of Agricultural Economics, Purdue University.
  • Handle: RePEc:gta:workpp:1208
    Note: Working Paper No. 16
    as

    Download full text from publisher

    File URL: https://www.gtap.agecon.purdue.edu/resources/res_display.asp?RecordID=1208
    Download Restriction: no

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Harris, Richard G. & Robertson, Peter E., 2013. "Trade, wages and skill accumulation in the emerging giants," Journal of International Economics, Elsevier, vol. 89(2), pages 407-421.
    2. Maros Ivanic & Will Martin, 2008. "Implications of higher global food prices for poverty in low-income countries-super-1," Agricultural Economics, International Association of Agricultural Economists, vol. 39(s1), pages 405-416, November.
    3. Joseph Francis Francois & Hugo ROJAS-ROMAGOSA, 2008. "Equity and International Trade," Economics working papers 2008-14, Department of Economics, Johannes Kepler University Linz, Austria.
    4. Tellería, Roberto & Ludeña, Carlos & Fernández, Soraya, 2011. "Policy alternatives and strategies for the Plurinational State of Bolivia following the end of trade preferences," Documentos de Proyectos 3922, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL).
    5. Bussolo, Maurizio & Niimi, Yoko, 2009. "Do Regional Trade Pacts Benefit the Poor? An Illustration from Dominican Republic--Central American Free Trade Agreement in Nicaragua," World Development, Elsevier, vol. 37(1), pages 146-160, January.
    6. ., 2012. "Socio-economic impact of regional transport infrastructure in the Greater Mekong Subregion," Chapters,in: Infrastructure for Asian Connectivity, chapter 4, pages 95-138 Edward Elgar Publishing.
    7. repec:bla:jageco:v:68:y:2017:i:1:p:164-181 is not listed on IDEAS
    8. Stone, Susan & Strutt, Anna & Hertel, Thomas, 2010. "Assessing Socioeconomic Impacts of Transport Infrastructure Projects in the Greater Mekong Subregion," ADBI Working Papers 234, Asian Development Bank Institute.
    9. Thomas W. Hertel & Roman Keeney & Maros Ivanic & L. Alan Winters, 2015. "Why Isn't the Doha Development Agenda more Poverty Friendly?," World Scientific Book Chapters,in: Non-Tariff Barriers, Regionalism and Poverty Essays in Applied International Trade Analysis, chapter 18, pages 375-391 World Scientific Publishing Co. Pte. Ltd..
    10. Verma, Monika & Hertel, Thomas W., 2009. "Commodity Price Volatility and Nutrition Vulnerability," 2009 Annual Meeting, July 26-28, 2009, Milwaukee, Wisconsin 49344, Agricultural and Applied Economics Association.
    11. Fan, Linlin & Nogueira, Lia & Baylis, Katherine R., 2013. "Agricultural Market Reforms and Nutritional Transition in Rural China," 2013 Annual Meeting, August 4-6, 2013, Washington, D.C. 150203, Agricultural and Applied Economics Association.
    12. Keeney, Roman & Beckman, Jayson, 2009. "WTO negotiations on agriculture and the distributional impacts for US rice farm households," Food Policy, Elsevier, vol. 34(1), pages 70-80, February.
    13. Harry G. Broadman, 2005. "From Disintegration to Reintegration : Eastern Europe and the Former Soviet Union in International Trade," World Bank Publications, The World Bank, number 7511.
    14. Hussein, Zekarias & Golub, Alla A. & Hertel, Thomas W., 2012. "Climate Change Mitigation Policies and Global Poverty," 2012 Annual Meeting, August 12-14, 2012, Seattle, Washington 124689, Agricultural and Applied Economics Association.
    15. Ali, Tariq & Huang, Jikun & Yang, Jun, 2013. "Impact assessment of global and national biofuels developments on agriculture in Pakistan," Applied Energy, Elsevier, vol. 104(C), pages 466-474.
    16. Breisinger, Clemens & Ecker, Olivier, 2014. "Simulating economic growth effects on food and nutrition security in Yemen: A new macro–micro modeling approach," Economic Modelling, Elsevier, vol. 43(C), pages 100-113.
    17. Surabhi Mittal, 2007. "OECD Agricultural Trade Reforms Impact On India's Prces and Producer's Welfare," Working Papers id:1072, eSocialSciences.
    18. Gabriel Sánchez & María Laura Alzúa & Inés Butler, 2008. "Impact of Technical Barriers to Trade on Argentine Exports and Labor Markets," CEDLAS, Working Papers 0079, CEDLAS, Universidad Nacional de La Plata.
    19. Krisztina Kis-Katos & Robert Sparrow, 2011. "Child Labor and Trade Liberalization in Indonesia," Journal of Human Resources, University of Wisconsin Press, vol. 46(4), pages 722-749.
    20. Francois, Joseph & Rojas-Romagosa, Hugo, 2011. "Household inequality, social welfare, and trade," Journal of Development Economics, Elsevier, vol. 96(2), pages 422-431, November.
    21. Valenzuela, Ernesto & Hertel, Thomas W. & Ivanic, Maros & Nin Pratt, Alejandro, 2004. "Evaluating Poverty Impacts of Globalization and Trade Policy Changes on Agricultural Producers," 2004 Annual meeting, August 1-4, Denver, CO 20242, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    22. Dick Durevall & Roy Weide, 2017. "Importing High Food Prices by Exporting: Rice Prices in Lao PDR," Journal of Agricultural Economics, Wiley Blackwell, vol. 68(1), pages 164-181, February.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:gta:workpp:1208. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Jeremy Douglas). General contact details of provider: http://edirc.repec.org/data/gtpurus.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.