IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Log in (now much improved!) to save this paper

Trade Policy and Pro-Poor Growth

  • Rolf Maier

This paper analyzes empirically the impact of trade policy and sector specific openness on pro-poor growth in a cross-country approach to answer the question, whether the poorest 20 and 20 to 40 percent benefit from trade openness. To capture this issue, we estimate the distribution effect of eight different openness indicators, six adjusted trade sector indicators (agricultural raw materials exports and imports, food exports and imports, manufactures exports and imports) and two tariff indicators (export duties and imports duties). In addition, we estimate the total effect, i.e. the distribution and growth effect, to analyze potential trade-offs between the impact of trade liberalization on poverty via overall economic growth and distribution. To test the poverty effects, we collect an irregular and unbalanced panel of time-series cross-country data on the first and second quintile share in 72 countries for the period 1971 to 1999 and apply two econometric specifications, a growth equation and a system GMM equation. We estimate the poverty effects of trade policy for all countries and, separately, for developing/transitional and industrial countries due to considerable differences in economic structure. Finally, we estimate poverty effects of trade liberalization with respect to the level of the countries’ development. Combining empirical findings of the system GMM estimation for both the distribution and total effect, estimation results suggest the importance of sector specific trade policy for the poorest 20 and 20 to 40 percent. First, liberalization in agricultural raw material exports is very important for the poorest 40 percent of low income developing countries due to both the distribution and total effect. In addition, liberalizing imports in agricultural raw materals is highly positively related to the mean income of the poor without changing the distribution. Second, trade reforms in food exports affect negatively the mean income of the poorest 40 percent in low income developing countries through the growth effect. However, higher food imports are associated with positive distribution effects, but without total effects on the poorest 20 percent in low income developing countries. Third, promotion of manufactures exports lead to a positive total effect on the poorest 40 percent in developing countries via the growth effect, while trade reforms in manufactures imports are never relevant. Finally, reduced export and import duties affect positively the mean income of the poorest 40 percent in low income developing countries, an effect primarily driven by the growth effect. Findings for agriculture exports, food exports, export and import duties, however, are only relevant if we exploit information on both the cross-country and within-country variation of the income of the poor in a system GMM estimator. In addition, results of the growth equation suggest positive total effects of agriculture imports on the poorest 20 and 20 to 40 percent in development countries driven by the growth effect alone. Thus, empirical findings suggest the following policy recommendations with respect to poverty-reducing trade reforms in low-income developing countries. While results are not always consistent between the growth equation and the system GMM estimation, liberalization of agricultural raw material exports and imports seems to be the most promising approach. On the other hand, liberalization in food markets and manufactures imports are not associated with poverty alleviation in low- income developing countries. Finally, a promotion of manufactures exports and a reduction of export and import duties seem to increase mean income of the poorest 40 percent in low-income developing countries only via the growth effect.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://econwpa.repec.org/eps/it/papers/0504/0504007.pdf
Download Restriction: no

Paper provided by EconWPA in its series International Trade with number 0504007.

as
in new window

Length:
Date of creation: 21 Apr 2005
Date of revision:
Handle: RePEc:wpa:wuwpit:0504007
Note: Type of Document - pdf
Contact details of provider: Web page: http://econwpa.repec.org

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Pritchett, Lant, 1996. "Measuring outward orientation in LDCs: Can it be done?," Journal of Development Economics, Elsevier, vol. 49(2), pages 307-335, May.
  2. Antonio Spilimbergo & Juan Luis Londoño & Miguel Székely, 1997. "Income Distribution, Factor Endowments, and Trade Openness," IDB Publications (Working Papers) 6803, Inter-American Development Bank.
  3. Wacziarg, Romain & Welch, Karen Horn, 2003. "Trade Liberalization and Growth: New Evidence," Research Papers 1826, Stanford University, Graduate School of Business.
  4. Robert E. Baldwin, 2004. "Openness and Growth: What's the Empirical Relationship?," NBER Chapters, in: Challenges to Globalization: Analyzing the Economics, pages 499-526 National Bureau of Economic Research, Inc.
  5. Christina D. Romer & David Romer, 1999. "Monetary policy and the well-being of the poor," Economic Review, Federal Reserve Bank of Kansas City, issue Q I, pages 21-49.
  6. Ravallion, Martin, 2001. "Growth, inequality, and poverty : looking beyond averages," Policy Research Working Paper Series 2558, The World Bank.
  7. R Blundell & Steven Bond, . "Initial conditions and moment restrictions in dynamic panel data model," Economics Papers W14&104., Economics Group, Nuffield College, University of Oxford.
  8. Jeffrey D. Sachs & Andrew M. Warner, 1995. "Economic Convergence and Economic Policies," Harvard Institute of Economic Research Working Papers 1715, Harvard - Institute of Economic Research.
  9. Kristin J. Forbes, 2000. "A Reassessment of the Relationship between Inequality and Growth," American Economic Review, American Economic Association, vol. 90(4), pages 869-887, September.
  10. David Dollar & Aart Kraay, 2004. "Trade, Growth, and Poverty," Economic Journal, Royal Economic Society, vol. 114(493), pages F22-F49, 02.
  11. Carlos Leite & Charalambos G. Tsangarides & Dhaneshwar Ghura, 2002. "Is Growth Enough? Macroeconomic Policy and Poverty Reduction," IMF Working Papers 02/118, International Monetary Fund.
  12. L. Alan Winters & Neil McCulloch & Andrew McKay, 2004. "Trade Liberalization and Poverty: The Evidence So Far," Journal of Economic Literature, American Economic Association, vol. 42(1), pages 72-115, March.
  13. John Whalley, 2003. "Assessing the Benefits to Developing Countries of Liberalization in Services Trade," NBER Working Papers 10181, National Bureau of Economic Research, Inc.
  14. Rodríguez, Francisco & Rodrik, Dani, 1999. "Trade Policy and Economic Growth: A Sceptic's Guide to the Cross-National Evidence," CEPR Discussion Papers 2143, C.E.P.R. Discussion Papers.
  15. Reimer, Jeffrey J., 2002. "Estimating the Poverty Impacts of Trade Liberalization," GTAP Working Papers 1163, Center for Global Trade Analysis, Department of Agricultural Economics, Purdue University.
  16. Dollar, David & Kraay, Aart, 2001. "Growth is good for the poor," Policy Research Working Paper Series 2587, The World Bank.
  17. Ravallion, Martin & Shaohua Chen, 2001. "Measuring pro-poor growth," Policy Research Working Paper Series 2666, The World Bank.
  18. Harrison, Ann, 1996. "Openness and growth: A time-series, cross-country analysis for developing countries," Journal of Development Economics, Elsevier, vol. 48(2), pages 419-447, March.
  19. Giovanni Andrea Cornia, 2003. "The Impact of Liberalisation and Globalisation on Income Inequality in Developing and Transitional Economies," CESifo Working Paper Series 843, CESifo Group Munich.
  20. Erwin Tiongson & Hamid Reza Davoodi & Sawitree S. Asawanuchit, 2003. "How Useful Are Benefit Incidence Analyses of Public Education and Health Spending," IMF Working Papers 03/227, International Monetary Fund.
  21. Barro, Robert J & Lee, Jong-Wha, 2001. "International Data on Educational Attainment: Updates and Implications," Oxford Economic Papers, Oxford University Press, vol. 53(3), pages 541-63, July.
  22. Glewwe, Paul & Hall, Gillette, 1998. "Are some groups more vulnerable to macroeconomic shocks than others? Hypothesis tests based on panel data from Peru," Journal of Development Economics, Elsevier, vol. 56(1), pages 181-206, June.
  23. Stephen Bond & Anke Hoeffler & Jonathan Temple, 2001. "GMM Estimation of Empirical Growth Models," Economics Papers 2001-W21, Economics Group, Nuffield College, University of Oxford.
  24. Jeffrey A. Frankel & David Romer, 1996. "Trade and Growth: An Empirical Investigation," NBER Working Papers 5476, National Bureau of Economic Research, Inc.
  25. Ravallion, Martin, 2001. "Inequality convergence," Policy Research Working Paper Series 2645, The World Bank.
  26. International Monetary Fund, 2002. "Financial Crises, Poverty, and Income Distribution," IMF Working Papers 02/4, International Monetary Fund.
  27. Stephen Bond & Anke Hoeffler, 2001. "GMM Estimation of Empirical Growth Models," Economics Series Working Papers 2001-W21, University of Oxford, Department of Economics.
  28. Jonathan Temple, 1999. "The New Growth Evidence," Journal of Economic Literature, American Economic Association, vol. 37(1), pages 112-156, March.
  29. Easterly, William & Fischer, Stanley, 2000. "Inflation and the poor," Policy Research Working Paper Series 2335, The World Bank.
  30. repec:rus:hseeco:121595 is not listed on IDEAS
  31. Mattias Lundberg & Lyn Squire, 2003. "The simultaneous evolution of growth and inequality," Economic Journal, Royal Economic Society, vol. 113(487), pages 326-344, 04.
  32. Deininger, Klaus & Squire, Lyn, 1998. "New ways of looking at old issues: inequality and growth," Journal of Development Economics, Elsevier, vol. 57(2), pages 259-287.
  33. Andrew Berg & Anne O. Krueger, 2003. "Trade, Growth, and Poverty; A Selective Survey," IMF Working Papers 03/30, International Monetary Fund.
  34. Ravallion, Martin, 2004. "Pro-poor growth : A primer," Policy Research Working Paper Series 3242, The World Bank.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:wpa:wuwpit:0504007. 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: (EconWPA)

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.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with 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 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.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.