By: Cristian Ugarte* (email: Cristian.Ugarte@unctad.org)
virtual institute UNCTAD
This book is the culmination of a
three-year capacity-building project conducted by the Virtual Institute,
UNCTAD’s programme for academic cooperation. Co-funded by the United Nations Department
of Economic and Social Affairs and the Government of Finland, the goal of the project was to provide researchers in developing and
transition economies with the knowledge and tools necessary to conduct
empirical analyses of the effect of trade on poverty, so that they may assist
national policymakers in the design of pro-poor trade policies.
Increased integration of developing
countries into the global economy has sparked a debate in academic and policy
circles about the relationship between trade liberalization and poverty. Do the
poor benefit as their countries gain access to new export markets? Or do they
suffer as trade liberalization exposes domestic markets to increased import
competition?
The research in this compendium uses a
methodology based on household-level surveys to examine short-term effects of
global price changes or trade policies on household consumption, production and
labour income, and, subsequently, on household welfare and poverty.
The studies collected in this volume
examine the welfare and poverty consequences of external trade shocks and
domestic trade-related policies for households in the Philippines, the former
Yugoslav Republic of Macedonia, Argentina, China, Costa Rica, Peru, Nigeria and
Viet Nam. One set of studies examines the welfare impact of the recent
increases in global food prices. The other set analyses the welfare effects of
trade policy and exchange rate changes.
The analysis yields several insights about
the relationship between changes in commodity prices or trade policies and
poverty. Most importantly, they provide additional support for the conclusion
that it is not possible to generalize about how higher consumer or producer prices
affect the poor and that effects of price changes on poverty are case-specific.
In fact, welfare changes depend on the exposure of poor households to price
fluctuations as producers and consumers of the good, the exposure of these
households to price shocks through their labour incomes, and the magnitude of
the price changes. For example, while the rural poor tend to be harmed by
increases in the price of rice in the Philippines, they benefit from an
increased price of maize in the former Yugoslav Republic of Macedonia. This
difference stems from the fact that the rural poor in the Philippines tend to
be net consumers of rice, while the rural poor in the former Yugoslav Republic
of Macedonia are net producers of the commodity that experienced a large price
increase. Similarly, poor households in Nigeria, which spend a large portion of
their budget on agricultural products, benefit from the availability of cheaper
imported goods following the reduction of import tariffs, while producers of
the same products suffer reductions in welfare as a result of increased import
competition.
The welfare analysis developed in some case
studies in this volume may be particularly useful for ex-ante evaluation of a price or policy change and in terms of
short-term household welfare responses to price fluctuations. Such ex-ante assessments provide a useful
policy tool that can be undertaken using existing household-level surveys to
better understand the potential short-term effects of policy changes on the
distribution of income as is done in the study on Costa Rica, for example,
which examines the potential effects of the Dominican Republic-Central
America-United States Free Trade Agreement (CAFTA-DR) prior to its full
implementation.
Several studies in this volume also
conclude that transmission of price or policy changes to consumer or producer
prices depends on the structure of commodity markets, the local supply chain,
the distance from the border and the development of market institutions, among
other factors. The studies on Viet Nam and Argentina, for instance, suggest
that poor farmers or poor consumers may not always necessarily be the main
beneficiaries of policies intended to reduce poverty. The middlemen or
intermediaries are at times better positioned to capture benefits from price
changes. The studies therefore underline the need to explore institutional characteristics
that affect price transmission throughout the supply chain in order to enhance the
potential positive impact of trade liberalization on poverty.
