Working Paper: CEPR ID: DP2382
Authors: L. Alan Winters
Abstract: This paper traces the links from trade shocks to poverty in developing countries. It considers the determinants of household and individual welfare (including potential differences between household members) and then identifies six trade-to-poverty links: the extent to which prices change and the effect of changes on the poor; links via factor markets (especially employment and wages); changes in government revenue and expenditure; changes in risk and vulnerability; effects on economic growth; and adjustment strains. There are no general results, but among the most important issues to check in each case are: whether trade reform destroys markets or creates new ones, how it affects the ability to bear risk, how labour demand shocks divide between wage and employment effects, and the country's comparative advantage.
Keywords: poverty; trade policy; trade liberalization; developing countries
JEL Codes: F10; F16; I32
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| trade shocks (F14) | changes in prices (E30) |
| changes in prices (E30) | household welfare (I38) |
| trade reforms (F13) | employment and wages (J39) |
| labor demand increases for labor-intensive products (J23) | higher wages or employment for the poor (J68) |
| labor demand shifts towards semi-skilled labor (J24) | poverty worsens (I32) |
| trade reform (F13) | government revenue (H27) |
| reducing tariffs (F13) | increase in revenue (H27) |
| government reallocates resources (H77) | impact on the poor (F63) |
| trade liberalisation (F13) | risk and vulnerability (D80) |
| risk and vulnerability (D80) | increase in poverty (I32) |
| trade openness (F43) | economic growth (O49) |
| economic growth (O49) | sustained poverty alleviation (I32) |