Free trade helps reduce poverty, says new WTO secretariat study

A new WTO Secretariat study published today (19 June) finds that trade liberalization helps poor countries to catch up with rich ones and that this faster economic growth helps to alleviate poverty. WTO Director-General Mike Moore said: “This report confirms that although trade alone may not be enough to eradicate poverty, it is essential if poor people are to have any hope of a brighter future. For example, 30 years ago, South Korea was as poor as Ghana. Today, thanks to trade led growth, it is as rich as Portugal.”

Download the report in pdf format:
> Ch 1: An overview (265 KB)
> Ch 2: Trade, growth and disparity among nations (492 KB)
> Ch 3: Trade and poverty: Is there a connection? (264 KB).The 74-page report is only available in English.

> Guide to downloading files

The following is a selection of the highlights of the study "Trade, Income Disparity and Poverty", by Dan Ben-David of Tel Aviv University and L. Alan Winters of Sussex University.(1)

Extreme poverty is a huge problem. 1.2 billion people survive on less than a dollar a day. A further 1.6 billion, more than a quarter of the world's population, make do with one to two dollars a day.
To alleviate poverty, developing economies need to grow faster, and the poor need to benefit from this growth. Trade can play an important part in reducing poverty, because it boosts economic growth and the poor tend to benefit from that faster growth.
The study finds that, in general, living standards in developing countries are not catching up with those in developed countries. But some developing countries are catching up. What distinguishes them is their openness to trade. The countries that are catching up with rich ones are those that are open to trade; and the more open they are, the faster they are converging.
The study also finds that poor people within a country generally gain from trade liberalization. It concludes that "trade liberalization is generally a strongly positive contributor to poverty alleviation—it allows people to exploit their productive potential, assists economic growth, curtails arbitrary policy interventions and helps to insulate against shocks". This concurs with a new World Bank study (2) which, using data from 80 countries over four decades, confirms that openness boosts economic growth and that the incomes of the poor rise one-for-one with overall growth.
The WTO study acknowledges that some people do lose in the short run from trade liberalization. Some are well-off, others not. The report argues that the plight of the losers should not be ignored, but that the right way to alleviate their hardship is through social safety nets and job retraining rather than by abandoning reforms that benefit most people.

Notes:

1.WTO Special Study No.5: "Trade, Income Disparity and Poverty", available in English, French and Spanish -
ISBN 92-970-1215-6;
June 2000; Price CHF 30.- Back to text

2. Growth Is Good for the Poor" by David Dollar and Aart Kray.Available from www.worldbank.org/research
/growth/absddolakray.htm.
Back to text