Empirical innovation, analytical tools and policy response From Report on the distributional impact of trade

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There is a clear link between trade, economic growth and poverty reduction. From 1990 to 2017, the proportion of developing countries in total global exports increased from 16% to 30%; At the same time, the global extreme poverty rate has plummeted from 36% to 9%.

However, whenever tariffs are removed or competition stimulating regulations are added, the livelihood of business owners or employees may be threatened.

Changes in trade policy will produce winners and losers, and sometimes weaken people’s support for trade liberalization. Even the most staunch protectors of trade must realize that the distributive effect of trade is still uneven.

Trade gains and losses are highly concentrated in some industries, posts and regions. In order to support trade, we must narrow the gap between regions and industries, formulate and implement policies, and promote the wider spread of trade interests.

The just released World Bank report “the distributional impact of trade: Empirical innovation, analytical tools and policy responses” not only analyzes the indisputable link between Global trade and poverty reduction, It also deepens our understanding of how the “trade shock” (i.e. the sharp increase or fall in trade volume) affects the poor and how trade policies can ensure that the benefits of trade can be more widely shared.

The report analyzes in detail the impact of trade on wages, employment and income levels of the poor in Bangladesh, Brazil, Mexico, South Africa and Sri Lanka. This analysis is crucial as the adverse distributional effects of trade associated with globalization are increasingly used as a justification for trade protectionism.

Although the total gains from trade are obvious, the rapidly growing literature within economies suggests that trade losses may be larger, more concentrated and more durable than previously expected. However, the literature is mainly concentrated in developed economies. The report enhances our understanding of the distributional impact of trade on developing countries and provides guidance for policies aimed at enhancing trade inclusiveness.

“As the world tries to recover from the crisis of the 19th century, trade will be more important to economic growth, job creation and poverty reduction than at any time in history.”

Take Bangladesh as an example. The increase in the country’s exports has raised the wage level of workers and helped women gradually enter the formal sector for employment. From 2005 to 2010, for every 100 US dollars increase in per capita export income of employees, the employment rate of informal industries in areas with higher level of trade development in China decreased by 0.7 percentage points. The positive impact of trade on the wage level and employment rate of informal industry gradually spread to the whole country.

In the prospect chapter, the report points out that if Sri Lanka can reduce trade barriers, it will reduce poverty, increase GDP growth and promote international trade. However, reducing trade barriers will also lead to a larger wage gap. Without the introduction of supporting policies, trade income may be concentrated in urban areas. Improving the business environment and reducing the cost of labor mobility can promote the wider spread of trade benefits.

Importantly, the analysis in the report shows that countries should continue to view trade as a development path. An important lesson of the report is that in order to maximize the benefits of trade, it is necessary to adopt an integrated approach covering the entire economic field.

Developing countries can use these tools to better understand the potential impact of trade on distribution, monitor policy implementation, and coordinate the actions of various government departments before trade policy implementation.

In addition, the report also provides practical solutions for countries to ensure that trade contributes to poverty reduction and common prosperity, including the formulation of policies to reduce trade distortions, facilitate commerce, reduce trade costs, accelerate the process of labor market adjustment and enable workers to find new jobs by improving trade facilitation and logistics.

As the world tries to recover from COVID-19, trade will be more important to economic growth, job creation and poverty reduction than any other period in history.

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