Working Paper: CEPR ID: DP7749
Authors: Kym Anderson; John Cockburn; Will Martin
Abstract: Trade policy reforms in recent decades have sharply reduced the distortions that were harming agriculture in developing countries, yet global trade in farm products continues to be far more distorted than trade in nonfarm goods. Those distortions reduce some forms of poverty and inequality but worsen others, so the net effects are unclear without empirical modeling. This paper summarizes a series of new economy-wide global and national empirical studies that focus on the net effects of the remaining distortions to world merchandise trade on poverty and inequality globally and in various developing countries. The global LINKAGE model results suggest that removing those remaining distortions would reduce international inequality, largely by boosting net farm incomes and raising real wages for unskilled workers in developing countries, and would reduce the number of poor people worldwide by 3 percent. The analysis based on the Global Trade Analysis Project (GTAP) model for a sample of 15 countries, and ten stand-alone national case studies, all point to larger reductions in poverty, especially if only the non-poor are subjected to increased income taxation to compensate for the loss of trade tax revenue.
Keywords: farm trade policy; income inequality; poverty; price distortions
JEL Codes: D30; D58; D63; F13; O53; Q18
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| removing agricultural distortions (Q17) | reduce international inequality (F63) |
| removing agricultural distortions (Q17) | boost net farm incomes (Q12) |
| removing agricultural distortions (Q17) | raise real wages for unskilled workers (F66) |
| agricultural policy liberalization (Q18) | alleviate extreme poverty (I32) |
| agricultural policy liberalization (Q18) | reduce poverty in China (I32) |
| agricultural policy liberalization (Q18) | reduce poverty in sub-Saharan Africa (O55) |
| removal of subsidies and tariffs (F69) | increase poverty in India (I32) |
| agricultural policy liberalization (Q18) | impact on income distribution (F61) |