Trade, Growth, and
Poverty Reduction
William R. Cline
Center for Global Development and
Institute for International Economics
Average GDP&Export Growth
Average Annual GDP Growth
15
10
5
0
-15
-10
-5
0
5
10
15
-5
-10
-15
Average Annual Export Growth
80s 90s
20
25
30
Change in long-term productivity
for 1% rise in trade/GDP (%)
Levine-Revelt ‘92
0.14
Frankel-Rose ‘00
0.33
Alcala-Ciccone ‘01
1.44
Dollar-Kraay ‘01
0.25-0.48
Easterly ‘03
0.14-0.96
Chaudri-Hakura ’00
(mid-tech industry)
0.18
World Bank GEP ‘02
0.8
OECD ‘03
0.2
Percent reduction in poverty
for 1% per capita GDP growth
Bangladesh 2.3
Brazil
1.5
China
2.9
Mexico
2.1
India
2.5
Turkey
3.5
Indonesia
3.0
Mozambique
1.0
Pakistan
3.2
South Africa
1.7
Philippines
2.2
Tanzania
1.0
Thailand
3.5
Uganda
1.4
Argentina
2.9
Aggregate Measure of
Protection (AMP, %)
US
EU
JPN
Agriculture
19.9
46.4
82.0
Textiles, Apparel
10.9
11.6
9.2
Other Manufactures
2.1
3.2
1.5
Oil, other
0.9
0.6
0.3
All (AMP)
4.0
9.5
16.6
Combined Long-term Static and Dynamic Effects of Free Trade on Poverty
(millions, change from baseline)
Country
Static:
central
Asia
Bangladesh
China
India
Indonesia
Pakistan
Philippines
Thailand
Latin America
Argentina
Brazil
Cen. Am.& Carib.
Mexico
Europe
Central & E. Eur.
Middle E., N. Africa
Sub-Saharan Africa
Mozambique
South Africa
Tanzania
Uganda
Other
Total
Dynamic:
high
-63.5
-2.7
-20.3
-20.1
-5.2
-7.2
-1.7
-4.1
-8.4
-0.7
-1.5
-3.2
-0.4
-2.4
-2.4
-5.1
-18.8
-0.5
-0.8
-1.4
-0.4
-15.6
-201.9
-12.0
-82.7
-66.5
-14.2
-12.3
-1.4
-4.0
-5.5
0.2
-0.9
-2.9
0.4
-1.0
-1.0
-4.4
-31.6
-0.1
-1.3
-3.1
-2.3
-24.8
- 98.2
- 244.4
Total:
productivity 1/2 add'l net steady
effect
state effect
-150.1
-145.0
-23.9
-2.4
-38.6
0.0
-52.9
-77.3
-7.6
-6.3
-21.0
-42.3
-2.2
-1.1
-0.7
-9.1
-1.3
-5.5
-0.1
-0.1
0.0
-0.4
-1.1
-1.6
-0.2
-0.1
-0.7
-0.2
-0.7
-0.2
-2.7
-7.5
-0.9
-26.8
-0.2
-0.5
0.1
-0.2
0.0
-0.5
0.0
-0.4
-0.8
-24.6
- 155.8
- 184.3
central
high
-358.7
-29.1
-58.9
-150.3
-19.1
-70.5
-5.0
-13.9
-15.2
-0.9
-1.9
-5.9
-0.8
-3.3
-3.3
-15.4
-46.0
-1.2
-0.9
-2.0
-0.9
-41.0
-496.9
-38.3
-121.3
-196.7
-28.1
-75.6
-4.7
-13.8
-12.3
0.0
-1.3
-5.6
0.0
-1.9
-1.9
-14.7
-58.6
-0.8
-1.4
-3.6
-2.7
-50.1
- 438.6
- 584.5
Global Free Trade Impact:





Lift 500 million out of poverty in 15 years
$200 billion annual long-term income gain
for developing countries
At least half from removing industrial
country protection
This is twice annual aid, and it benefits
industrial country consumers
Half of gains are in agriculture
Blueprint for a Doha Deal




DCs: Phased deep tariff cuts or elimination,
including in agriculture, textiles and apparel;
DCs: Eliminate agricultural subsidies or fully
“decouple” from production;
Middle-income DGCs: cut protection at least
50-60 percent; longer phase-in.
Second track: immediate free entry from
LDCs, HIPCs, SSA; 10-year tax holiday on
FDI
July ’04 Framework






Eliminate agricultural export subsidies
Substantially cut domestic ag. subsidies; 20%
in 1st year; deeper for higher subsidies
Deeper cuts for higher agricultural tariffs (but
‘sensitive’ products)
Manufactures: nonlinear tariff formula
DgCs longer phase in, limited departures
SUM: Framework can yield large or small
liberalization
WTO Rulings on Cotton, Sugar




Sound analytical cases
Put US, EU on defensive
Increases pressure to decouple agricultural
subsidies from output
Dovetails with rising fiscal pressure in US
FY2006 Budget trims farm
subsidies
 5%
cut in the $16 billion/year
program
 Maximum cut from $360,000 to
$250,000
 Needed: Decoupling from
production
 US subsidies = 10% tariff
Does global agricultural
liberalization hurt LDCs?




Food deficit misleading; LDCs are “everything
deficit” but have food comparative advantage
So LDCs gain from terms of trade when ag prices
rise (10%) and manufactured goods prices fall (only
requires ½% decline for net gain on current flows)
Stories about loss of EU quota rents are ad hoc, not
convincing
Bangladesh exception but gains in DgC
manufactures markets as part of overall package
LDC food trade and
comparative advantage
Country
Bangladesh –food trade
deficit & comp. disadv.
Others: total
Poor
(mn)
99
# of
countries
1
374
44
Food trade deficit
213
34
Food comparative
disadvantage
110
21
Does preference erosion from
global free trade hurt LDCs?


LDCs gain in access to markets in middleincome countries, industrial countries with
constrained preferences
LDCs gain from own-liberalization as part of
package
Test for Preference Erosion
($bn gains)
“Country”
Free trade
US, EU
freeze P7
0.09
0.07
0.28
0.24
Mozambique
Uganda
South Africa
Tanzania
0.13
0.09
1.33
0.29
Other sub-Saharan Africa
2.36
-0.02
Central America
Bangladesh
Total, 7 poor (P7)
4.02
0.39
8.61
1.78
-0.20
2.24