The international financial institution World Bank has stated that global trade has led to development and poverty reduction over the last three decades, but gains from trade can be more inclusive.
Spreading the benefits of trade more broadly, both within and between countries, will play a critical role as the world attempts to rebound from the COVID-19 pandemic, which has reversed years of poverty reduction.
According to The Distributional Impacts of Trade: Empirical Innovations, Analytical Tools and Policy Responses report, new data and tools developed by the World Bank can allow policymakers to ensure trade delivers more for the poor. Policies can be structured to optimize benefits and minimize possible losses by determining in advance which industries and regions are most impacted by shifts in trade patterns.
Mari Pangestu MD of Development Policy & Partnerships World Bank
“There is no question that the rise in trade over the past 30 years has helped to dramatically reduce global poverty, but the benefits were not shared equally. Trade plays a vital role in the pandemic response, ensuring food and medicine can cross borders freely and vaccines are distributed where they are needed. Better policies are needed to make trade more inclusive, as we work to build back better and set a path toward green, resilient and inclusive development.”
The report’s new insights, data, and methods will help policymakers in developing countries better understand the distributional effects of trade, track the implementation of policies to counter them, and coordinate responses across government.
The rapid expansion of global trade has been a primary driver of development and poverty reduction in developing countries. According to the reports,” From 1990 to 2017, global poverty fell from 36 percent to 9 percent as developing countries increased their share of global exports from 16 percent to 30 percent. Many countries have used trade to create jobs, boost exports, reduce poverty and increase shared prosperity.”
Despite these advances, foreign policy reforms have resulted in winners and losers, with certain societies and employees benefiting more than others, weakening public support for trade liberalization and growing support for protectionism.
“The aggregate gains from trade are clearly established, but gains and losses have been often heavily concentrated and particularly visible in some sectors, jobs, and regions and longer-lasting than previously understood,” as per the report, which looked at the impact of trade on labor markets, consumption, and poverty in Bangladesh, Brazil, Mexico, South Africa, and Sri Lanka.
This report equips policymakers with the resources they need to assess the effect of trade policy on developing countries’ regions, markets, and jobs. Governments would have a greater understanding of how trade affects national and subnational income and wages, levels of formal employment, consumption, poverty, and inequality.
A better understanding of trade’s distributional effects is important for designing better policies that distribute trade’s benefits more widely, making trade work better for all. Not only will minimizing its negative effects and optimizing its benefits aid in the fight against poverty, but it will also aid in the fight against rising economic nationalism.
