|
Poor Country Gains from Trade Greatly Overstated
Economic Growth a Bigger Factor in Poverty Reduction
For Immediate Release: November 18, 2004
Contact: Debi Kar, 202-387-5080
The Bush administration announced plans this week to move forward with
bilateral and regional trade agreements in President Bush's second term. But the
World Bank has cast doubt on the benefits to developing countries from these
agreements in its Global Economic Prospects 2005. A new report from the Center
for Economic and Policy Research, "Poor
Numbers: The Impact of Trade Liberalization on World Poverty" by Mark
Weisbrot, David Rosnick, and Dean Baker, similarly finds that gains to
developing countries from trade liberalization are smaller in reality than the
numbers that have been widely cited in the public debate. The authors'
calculations show that the impact of trade liberalization on poverty reduction -
while not inconsequential - will be to lift less than 100 million people from a
per capita income just below the international poverty line of $2 per day to
just above $2 per day.
entitled "
"The gains from trade liberalization for poor people in developing
countries have been overstated," said CEPR Economist and Co-Director Mark
Weisbrot, a co-author of the report. "At the same time, the costs to
developing countries of complying with commercial agreements such as the WTO are
often ignored. This leads to a lot of misunderstanding regarding the potential
impact of trade liberalization and the conditions that are attached to it."
Cline (2004), a leading reference on this subject, projects that rich country
trade liberalization would lift 540 million people out of poverty. This new CEPR
study shows that the projections in Cline (2004) substantially overstate the
likely benefits for three reasons. First, a calculation error led to an
overstatement of approximately 17 percent in the number of people who would be
lifted out of poverty. Second, the methodology used in the book - fitting the
income distribution using the Gini coefficient - is arbitrary and often quite
inaccurate. An equally plausible alternative methodology - fitting the income
distribution using the poverty rate - yields projections that are less than a
fifth as large. Third, calculating the combined impact of the economic growth
projected for a period in which any trade liberalization process takes place and
trade liberalization itself, shows that the impact of trade liberalization on
poverty reduction is approximately 20 percent as large as the corrected Cline
projections.
Further, the typical person raised above the poverty line in these
projections is someone with an income just below the international poverty level
of $2 per day. Trade liberalization is projected to raise their income just
above this $2 per day poverty level. While this gain can mean a significant
improvement in the lives of some poor people, most of the people who are
commonly described as being "pulled out of poverty" as they cross the
$2 per day threshold would still be seen as impoverished.
Though any reduction in poverty is desirable, since poor countries are being
forced to make concessions in exchange for trade liberalization in rich
countries, it is important that they approach trade negotiations with a clear
assessment of the size of the potential benefits. Many of these concessions,
such as the enforcement of rich country patent and copyrights, impose
substantial costs on developing countries. In addition, trade agreements often
limit the ability of developing countries to pursue the same sort of industrial
policies that rich countries used in order to develop. It is entirely possible
that the cost to developing countries from paying copyright- and
patent-protected prices to rich countries will equal or exceed the gains from
rich country trade liberalization, as suggested by the World Bank's preliminary
research. It is only by comparing the estimated costs and benefits of
international commercial agreements to developing countries that we can say
whether these will benefit poor people in developing countries.
|
