Does Trade Reduce Poverty? A View from Africa
Although trade liberalization is being actively promoted as a key component in development strategies, theoretically, the impact of trade openness on poverty reduction is ambiguous. A more liberalized trade regime is argued to change relative facto...
| Main Authors: | , |
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| Format: | Policy Research Working Paper |
| Language: | English en_US |
| Published: |
World Bank, Washington, DC
2013
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| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/2013/01/17194965/trade-reduce-poverty-view-africa http://hdl.handle.net/10986/12165 |
| Summary: | Although trade liberalization is being
actively promoted as a key component in development
strategies, theoretically, the impact of trade openness on
poverty reduction is ambiguous. A more liberalized trade
regime is argued to change relative factor prices in favor
of the more abundant factor. If poverty and relative low
income stem from abundance of labor, greater trade openness
should lead to higher labor prices and a decrease in
poverty. However, should the re-allocation of factors be
hampered, the expected benefits from freer trade may not
materialize. The theoretical ambiguity on the effects of
openness is reflected in the available empirical evidence.
This paper examines how the effect of trade openness on
poverty may depend on complementary reforms that help a
country take advantage of international competition. Using a
non-linear regression specification that interacts a proxy
of trade openness with proxies of various country structural
specificities and a panel of 30 African countries over the
period 1981-2010, the analysis finds that trade openness
tends to reduce poverty in countries where financial sectors
are deep, education levels high and governance strong. |
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