Trade and Poverty: Is There a Connection?
L Alan Winters1 A. Introduction
The issue Openness and trade liberalization are now seen almost universally as key components of the national policy cocktail required for economic growth and aggregate economic well-being. They are believed to have been central to the remarkable growth of industrial countries since the mid-20th century and to the examples of successful economic development since around 1970. The continued existence of widespread and abject poverty, on the other hand, represents perhaps the greatest failure of the contemporary global economy and the greatest challenge it faces as we enter the 21st century. This essay asks whether the two phenomena are connected. Specifically it asks whether the process of trade liberalization or the maintenance of a liberal trade regime could have caused the poverty that so disfigures modern life, or whether, in fact, it has contributed to its alleviation. Extreme poverty—living on, say, $1 a day per head— is basically restricted to the developing countries, and so I focus exclusively on them. I also focus largely on the effects of those countries’ own trade policies—i.e. how their own openness or trade liberalization might affect their own poverty. In almost all circumstances countries are more affected by their own trade policies than by their partners’, and, of course, it is the former over which they have most influence. As will become plain, however, most issues concerning partners’ policies or shifts in world markets can be analyzed using the same tools as I discuss below for countries’ own policies. The approach If trade liberalization and poverty were both easily measured, and if there were many historical instances in which liberalization could be identified as the main economic shock, it would be simple to derive simple empirical regularities linking the two. Unfortunately, none of these conditions is met, and so we are reduced to examining fragmentary evidence on...