Economic growth through trade as described above
is one means of measuring the linkages. Another way
asks how the price changes generated by trade reform
affect poor households/families given their patterns
of consumption and production. The literature in
this line of inquiry tries to measure impacts on rural
areas, where most of the developing-world poor actually live and work (usually as small-scale farmers).
A key question is whether the
changes in prices caused by free
trade are felt in the countryside.
The answer seems to depend on the availability of
infrastructure, and in particular on whether the policies of public or private marketing agencies allow transmission to farm gate prices received by farmers. But it
also is clear that when trade liberalization creates viable markets for the poor (e.g. jobs for young women in
clothing or in cut-flower exports, or for young men in
fishing) these groups will be better off. If trade liberalization destroys existing markets, or if, as a result of
internal liberalization, official marketing boards stop
providing inputs or purchasing from small poor farmers in remote areas, then these groups will lose.
To the extent that the effects of trade reform are
transmitted locally, agricultural producers are quite
responsive to price incentives when they have access
to the necessary inputs, information and credit. The
policy implication of this finding is that governments
need to put in place complementary policies targeted at small farmers, such as extension services, credit
facilities and infrastructure. There is very little work,
however, on how these adjustments affect inequality.
When trade liberalization produces
dynamic growth in some agricultural sectors, as is often the case, evidence shows
that this normally produces strong benefits for the
rest of the rural economy and particularly for the
poor, in both farm and non-farm sectors.
Trade liberalization may also increase the
risks faced by poor households, and this
effect could be magnified by the absence
or limited coverage of social protection mechanisms
in rural areas. This is an area where there is little systematic evidence and where more research is necessary. And price changes induced by open trade could
affect poverty and inequality through consumption. Poorer households devote a large share of their
expenditures to basic items such as food. This channel has been largely ignored in empirical work.
Trade: Creating Jobs or Destroying Them?
Trade liberalization may significantly affect poverty
through its impact on employment and wages. In theory, trade liberalization induces job creation with new
investment and expansion in some parts of the economy. But it also sparks company closures and job losses
in other parts of the economy (“creative destruction”).
In the short run, the net employment effects may be positive or
negative depending on country-specific factors. In the long run, efficiency gains are
expected to lead to positive employment effects, in
terms of both quantity and quality.
A number of general conclusions and trends
emerge from the literature. Employment effects of
Globalization and Economic Growth What Current researCh says
Does liberalization stimulate growth? yes But not unconditionally. Most high performing countries have
used unorthodox and gradual policies.
Does economic growth reduce poverty? yes If the growth is high and sustained.
Does liberalization boost productivity? yes There are often strong positive effects in some sectors, but
effects on poverty depend on cuts in public sector programs,
employment and net employment effect, and patterns of
productivity increases across sectors.