Trade Policies, Household
Welfare and Poverty Alleviation
Book Launch
Nina Pavcnik
Dartmouth College
UNCTAD, September 8, 2014
Why this book?
• Low- and middle-income countries have dramatically
increased their participation in global economy
– Exports of low income countries grew from 26 percent of
their GDP in 1994 to 55 percent in 2008
– Exports of middle income countries grew from 25 to 55
percent of their GDP between 1994 and 2008
• Global poverty has dropped from 52% in 1981 to 22%
in 2008 ($1 a day measure)
• How do the poor fare in a globalized world?
Source: Hanson (2012), Chan and Ravallion (2012)
Why this book?
• How do the poor fare as low-income countries
embrace more liberalized trade policies and
expose domestic markets to intl. competition?
• Under what circumstances do the poor
benefit as countries gain access to highincome export markets?
• What are the consequences of terms-of-trade
shocks for the poor?
This book
• Contributes to research on globalization and
poverty
• Examines the welfare and poverty
consequences of changes in global commodity
prices and trade policies
• Collection of 8 case studies
Outline of the talk
• The book in broader context of research on
globalization and poverty
• Overview of case studies
• Key insights
Outline of the talk
• The book in broader context of research on
globalization and poverty
• Overview of case studies
• Key insights
Globalization and Poverty
• Effects of trade on poverty through
– economic growth
– effects on relative prices, wages, and employment
– effects on relative prices, consumption and
production/earnings
• Case studies in this book focus on the third
mechanism
Main mechanism
• Short-term effects of price changes on
household welfare and poverty through
household
– consumption
– production
– wage earnings
• Quantify the role of these channels with
information from household-level survey data
Basic idea: Consumption
• Individuals differ in income and goods vary in
sensitivity of demand to income
• Poor and rich individuals differ in consumption
expenditure shares at given prices
• Trade shocks (via prices) have unequal effects
on welfare of poor/rich
– Consumers with lower incomes benefit more from
price reductions of low-income elastic goods
Basic idea: Production
• Individuals differ in source of
earnings/production
• Individuals differ in income shares from
production/wage earnings at given prices
• Trade shocks (via prices) have unequal effects
on welfare of poor/rich through production
Terms-of-trade shocks in food
• Welfare effects of food price changes revealed
to be a concern for individuals and policy
makers in low- and middle-income countries
– Riots and policy responses to 2007-8 food price
increases
– Motivated by concerns about increased poverty
• To the extent the poor are net consumers of food, they
would be disproportionately negatively affected
• Poor would benefit if they are net producers of food
Focus on food
• Large component of average household
budget
– 6.6% in the US; 25% in India; 27% in China; 40% or
over in Nigeria, Cameroon, Pakistan
• The largest budget item for the very poor in
less developed economies
– 58-75 % of household budget of the poor spent on
food
Source: USDA Economic Research Service (2012), Duflo and Benarjee (2007)
Focus on food
Prevalence of agricultural employment in low-income countries
Outline of the talk
• The book in broader context of research on
globalization and poverty
• Overview of case studies
• Key insights
The book has two broad themes
• Welfare and poverty consequences of recent
increases in global food prices
– Importing countries (Philippines, FYR of
Macedonia)
– Exporting country (Argentina)
• Welfare effects of trade policies and exchange
rate shocks
– Costa Rica, Peru, Nigeria, China, and Viet Nam
Topics
Case-study countries
Case studies focus on lower-middle to middle income countries
Country
Philippines
GDP per capita
(PPP USD 2010)
3,910
FYR of Macedonia
11,367
Argentina
12,016
China
Costa Rica
7,503
11,504
Peru
9,355
Nigeria
2,388
Viet Nam
3,334
Case-study countries
Case study countries differ in aggregate poverty levels (as measured by $1 a day)
Country
Philippines
GDP per capita Poverty rate
(PPP USD 2010) ($1.25 a day)
3,910
18.4
FYR of Macedonia
11,367
0.6
Argentina
12,016
0.9
7,503
16.3
11,504
3.1
Peru
9,355
4.9
Nigeria
2,388
68
Viet Nam
3,334
16.9
China
Costa Rica
Case-study countries
Case-study countries differ in their exposure to global agricultural markets through
production and employment
Country
Philippines
GDP per capita Poverty rate
(PPP 2010 USD) ($1.25 a day)
Agricultural
employment
(share of total)
3,910
18.4
33
FYR of Macedonia
11,367
0.6
19
Argentina
12,016
0.9
1
7,503
16.3
37
11,504
3.1
15
Peru
9,355
4.9
26
Nigeria
2,388
68
45
Viet Nam
3,334
16.9
48
China
Costa Rica
Outline of the talk
• The book in broader context of research on
globalization and poverty
• Overview of case studies
• Key insights
Broad findings
• Not possible to generalize how trade policy or
higher food prices affect the poor
– Add to evidence by Aksoy and Hoekman (2010)
• The consequences of shocks for the poor are
country- and commodity-specific and depend on
– Impact of the policy change on domestic prices
– The magnitude of price change
– Exposure of the poor households to price fluctuations
as consumers and producers/wage earners
Broad findings-an illustration
Philippines
• Importer of rice
FYR of Macedonia
• Importer of maize
• Increase in the price of rice
• Increase in the price of
maize
• Harms the rural poor
• Benefits the rural poor
– Net consumers of rice
– Net producers of maize
Importance of micro-survey analysis
• Policy-makers are concerned about
distributional effects of price shocks/policy
• Useful to evaluate consequences of trade
policy or policy responses to terms-of-trade
shocks with evidence based on micro data
– Short-term effects of price changes
– Ex-ante impact of potential trade policy
• Potential short-term effect of CAFTA-DR in Costa Rica
Domestic distortions
• Welfare effects of price changes/policy depend on how
price changes are passed through the supply chain
from ports/producers to consumers
• Domestic distortions influence transmission of price
changes to domestic producers and consumers
– Internal trade costs
– Wholesale and retail distribution
– Imperfect pass-through (variable markups)
• Distortion might vary across poor vs. rich households
Domestic distortions: an illustration
• Producer welfare gains from higher prices
– The main beneficiaries might be the middlemen and
intermediaries rather than producers of commodities
– Case studies for Vietnam, Argentina
• Consumer welfare gains from lower import tariffs
– Consumer welfare gains might be reduced when
wholesale importers do not fully pass-on cost savings
to consumers of final goods
• Case studies for Costa Rica, Peru
Summary
• The case studies in this book provide useful
policy-relevant insights on welfare and
poverty consequences of changes in global
commodity prices and trade policies in casestudy countries
Thank you