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Trade and poverty linkages study

Sheila Page

Overseas Development Institute

2004

SARPN acknowledges permission from Helena McLeod, trade advisor, DFID(SA), to post this article.
The report was commissioned by DFID from the ODI.
[Download complete version - 260Kb ~ 1 min (46 pages)]     [ Share with a friend  ]

Introduction

  1. The purpose of the paper

    This paper presents a framework of analysis for examining the impact of changes in trade regimes on poverty. It aims to guide research undertaken in case study countries as part of the Africa Trade and Poverty Programme (ATTP) and we hope that it will result in the development of a robust and empirically based understanding of

    • how reforms and economic events interact and impact on growth, the distribution of such growth and its effects on poverty and well-being;

    • what the key impacts on a range of sectors (including agriculture and manufacturing) have been or are likely to be.

    One of the premises underpinning this research is that policy matters, that trade policy affects trade, and trade then has effects on poverty, for example through effects on economic activities in which poor people participate, through effects on the prices that they pay for goods and services, and through effects on government taxation and expenditure, which in turn affects their entitlements from government. Sheila Page (2003) points out that there are three views of markets and development which underlie people's views of increasing access to markets:

    • It will help a country develop and reduce poverty
    • It can help a country develop and reduce poverty
    • Increased access to markets normally will not benefit development, and it has to be modified, by policy or other intervention, to correct the normal negative consequences

    Another premise is that it is difficult to mitigate negative effects of changes in trade through administrative targeting and social policy. Therefore analysing the first round effects of trade changes acquires additional importance.

    We take as a starting point that opening up a country's markets to a greater volume and range of traded goods and services and easing restrictions on exports will generate both positive and negative direct and indirect effects. We acknowledge that segments of the population and sectors of the economy will be differentially affected over the short, medium and long term. These effects may intensify the poverty of one group of people over the short term, while decreasing the poverty of another over the longer term.

    Identifying the direct effects of trade policy on poverty may be possible (a change in tariff affecting a basic good like mosquito nets, for example), but it is complicated by the different magnitude and speed of changes in trade practice and whether they are generated by economic causes or policy changes. Also it is not always clear what the outcomes of a specific policy will be. They depend, in part, on the effectiveness of implementation as policy does not translate automatically or seamlessly and faultlessly into action. Implementation processes can be highly flawed, and it is policy as experienced through real changes in action, rather than policy as documented, that we are interested in.


  2. The structure of paper

    The main body of this paper introduces topics which are examined in greater detail through the Checklist (Annex 1) and Matrix (Annex 2). The Checklist and Matrix provide the ideal range of issues that would be considered in an in-depth trade-poverty linkage study. However, the range of issues and the depth with which researchers examine them will depend on the time and financial resources available, and the availability of studies and data from which they are able to draw their analysis. The starred items in the Checklist (Annex 1) are considered to be priority issues, particularly for examining first round effects.

    In Section 2 we present a number of approaches to defining poverty and highlight the importance of a good quality poverty and social analysis. We highlight the importance of differentiating the poor by the severity of their poverty, by their location (e.g. spatial concentrations of poor people in remote rural areas, urban slums, low potential rural areas etc.), by the duration of their poverty (transitory versus chronic) and by their social identity (e.g. ethno-linguistic group, gender, disability). In Section 3 we outline the importance of the nature of poverty in terms of its affect on trade and trade policy.

    In Section 4 we present an analysis of trade effects, and outline the possible relationships between a range of trade and macro-economic policy instruments and poverty, e.g. import taxes and tariffs. We then move on, in Section 5, to assessing how changes in trade regimes can affect the poor. This section includes an overview of the debates surrounding trade liberalisation and economic growth, and an examination of whether increased trade flows increase income differentiation. The section also assesses the possible impact of changes in trade on asset levels, livelihood and coping strategies , consumption, well-being and transfers.

    Annex 1 presents a checklist of questions that researchers into trade-poverty linkages can use as an aide memoire when designing or undertaking research into trade-poverty linkages. Annex 2 is a matrix of issues which link trade and poverty, examples found in the literature and possible research methods for exploring such issues. In Annex 3 we suggest a range of research methods and approaches which may be useful in examining trade-poverty linkages, and in Annex 4 we present an annotated bibliography on poverty and trade issues.



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