What we do and don’t know about trade liberalization and poverty reduction

Strong opinions about the impact of globalization on poverty are not always backed by robust factual evidence. As argued in this paper, however, it is not all that easy to lay our hands on ‘robust’ facts. Quantitative analyses of trade liberalization appear highly sensitive to basic modelling and parameter assumptions. Altering these could turn the expectation that, for instance, Africa’s poor stand to gain from further trade opening under the Doha Round into one in which they would stand to lose. Most studies agree though that trade opening probably adds to aggregate welfare, but gains are small and unevenly distributed.computable general equilibrium models, trade policy, economic integration, trade and labour market interactions, welfare and poverty, international linkages to development, foreign exchange policy

Impact of the global crisis on the achievement of the MDGs in Latin America

Progress towards the MDGs is expected to slow as a consequence of the global economic downturn. This study applies an economy-wide framework to analyze the impact of the crisis on MDG achievement in six Latin American countries. It finds significant setbacks towards the goals and, in the case of the region’s low-income countries, the cost of achieving these would rise between 1.6 and 3.4 per cent of GDP per year between 2010 and 2015 as compared with a no-crisis scenario. The additional public spending would contribute to economic growth though not sufficiently for full recovery to pre-crisis growth.computable general equilibrium models, distribution, welfare and poverty, foreign aid, macroeconomic analyses of economic development

Liberalizing Trade, and its Impact on Poverty and Inequality in Nicaragua

The Doha Round of multilateral trade negotiations stalled in 2008 owing in no small degree to a lack of agreement on the terms of substantially reducing trade-distorting support for agricultural products and to what extent this would be beneficial to developing countries. Nicaragua presents an interesting case in point, being one of the poorest economies in Latin America with still a relatively large agricultural sector and high degrees of rural poverty. In 2005, the country signed a free trade agreement with the United States. A previous study showed that most welfare gains of this agreement for Nicaragua would potentially come from the increased market access for textiles and clothing exported to the United States. Under the agreement, the country stands to benefit much less from reducing tariffs on agricultural imports or agro-industrial export quotas. Since the United States is Nicaragua’s main trading partner, this raises the question whether further trade liberalization with all trading partners, including full elimination of all taxes and tariffs on agricultural production and trade, would be any more beneficial. Using a CGE model and a microsimulation methodology, this study shows that small welfare gains in terms of increased output and poverty reduction may be expected for Nicaragua under various scenarios of trade opening. At best, however, there would be a static gain in aggregate output of 1.5 percent as compared with the baseline scenario. This outcome would materialize only in a scenario of worldwide liberalization of trade in agricultural and non-agricultural products as this would yield relatively strong positive terms-of-trade effects for Nicaragua. Employment and real wage growth would contribute to poverty reduction, but only very modestly in a country with still widespread poverty. Most of these small gains would accrue to the rural poor. The analysis further shows that these gains tend to be smaller when using trade elasticity estimates based on country-specific data as compared with the much higher elasticities typically assumed by global trade models, including the Global Linkage model.Distorted incentives, agricultural and trade policy reforms, national agricultural development, Agricultural and Food Policy, International Relations/Trade, F13, F14, Q17, Q18,

A Non-Parametric Microsimulation Approach to Assess Changes in Inequality and Poverty

This paper presents a non-parametric microsimulation methodology for assessing the determinants of changes in income inequality and poverty. One great advantage of this method over alternatives is that it is not very demanding in terms of modelling labour supply and household behaviour while still providing a plausible link between changes in overall labour market conditions and the full household income distribution. The paper also shows how the method can be adapted to assess the poverty and inequality effects of changes in non-labour incomes (such as through a government transfer programme) and how it can be combined with economy-wide models.Non-parametric simulation methods; Computable General Equilibrium Models; Income Distribution; Employment, Unemployment, and Wages; Measurement and Analysis of Poverty; Effects of Welfare Programs; Supply and Demand for Labour; Segmented Labour Markets

Development and the colour of money : should developing countries have their own currency?

In just about a year from now you will have to replace your Dutch guilders for euros. You mayor may not have asked yourself the question: will this be good for me and for the economy? With the decline of its rate against the dollar you may have started to think that this euro business is not such a good idea after all. If you are concerned about this, let me disappoint you up front. I am not going to discuss with you the possible bright and dark spots of a declining euro/dollar rate. Something I will address though, is whether the introduction of the euro could be part of a global process towards fewer currencies. Why should some 185-odd countries all be printing their own money? We are moving towards a world with two soft drink companies, two major aeroplane manufacturers, three toothpaste producers and an increasing concentration of international banking and insurance companies. So why have all those different bank notes? Shouldn't we better move towards a world with only a few currency zones? And now that we are reducing numbers, why not have just have one single world currency, as recently proposed by 1999 Nobel Prize winner Robert Mundell (2000)? Such an idea might encounter serious political obstacles at the moment, but it could be overtaken by events. The Internet has adopted the dollar as its de facto trading currency. With the lilcely rapid expansion of Internet sales, maybe countries should start anticipating an evolution towards a single world currency? Would the world and, more in particular, developing countries gain from such a system

A non-parametric microsimulation approach to assess changes in inequality and poverty

This paper presents a non-parametric microsimulation methodology for assessing the impact of labour market changes and government transfers on income inequality and poverty at the household level. The approach assumes that labour markets are segmented and determines (as part of a randomized process) which individuals are expected to move in or out of employment and which move from one employment segment to another based on either known or counterfactual information of aggregate labour market changes. The methodology assumes that the distribution of earnings of those who become employed in a particular segment resembles that of the individuals observed to be employed in that segment. The approach can be effectively combined in top-down fashion with static or dynamic computable general equilibrium (CGE) models, which typically provide insufficient information about household income distribution. The paper discusses the virtues and limitations of applying this methodology and further explains to practitioners how to implement it as a stand-alone methodology or in combination with a CGE model. It also shows how the methodology can be generalized to also capture the poverty and inequality effects of changes in non-labour incomes, such as government transfers. One great advantage of this method is that it is not very demanding in terms of modelling labour supply and household behaviour as compared with alternative parametric approaches, while at the same time providing a plausible link between changes in overall labour market conditions and the full household income distribution.

Redistribution without structural change in Ecuador: Rising and falling income inequality in the 1990s and 2000s

This study examines the rise and fall in income inequality in Ecuador over the past two decades. Falling income equality during the 2000s partly coincides with the rise to power of a new leftist government, but the trend was already set early in the decade. The recent trend is mainly associated with a recovery from the country's deep crisis of the late 1990s. The new leftist regime's social transfer policies helped reduce inequality further, but the continuation of Ecuador's primary export-based growth model and the lack of structural economic change do not augur for a more structural decline in inequality