The report analyzes the ways in which trade shocks – abrupt rises or drops in trade – affect consumption and local labor markets.
Without compensatory public policies, trade liberalization can perpetuate historic disparities.
New data and new techniques allow policymakers to design complementary policies to address subnational distributional impacts before a trade shock.
The World Bank has published a report that explores the role of trade in lowering poverty, and provides recommendations on how to enable global trade to deliver benefits for the poor. In light of rising protectionism, it highlights the importance of promoting an effective multilateral trading system (MTS) to strengthen a global trade agenda that delivers benefits to the poor.
Titled, ‘The Distributional Impacts of Trade: Empirical Innovations, Analytical Tools, and Policy Responses,’ the report notes that “the rise of international trade has transformed the global economy,” overlapping with a “dramatic” reduction in global poverty. For example, in the 1990-2017 period, global poverty fell from 36% to 9%, and developing countries’ share in global exports grew from 16% to 30%. However, the report warns that “labor market and consumption gains tend to concentrate in some regions and worker categories,” with impacts varying across countries and over time.
According to the publication, many developing countries, particularly in East Asia, have built the infrastructure to support trade, reformed their economic policies to promote it, and directed their youth towards jobs in industries that depend on trade, which brought new jobs and helped those countries integrate into global and regional value chains, and reduce poverty.
Yet some countries have struggled to mitigate the losses and make the gains from trade inclusive. While most countries have reduced tariffs, nontariff barriers and poor infrastructure, among other impediments, continue to raise trade costs and make it difficult to spread the benefits of trade across the developing world.
The report analyzes the ways in which trade shocks – abrupt rises or drops in trade – affect consumption and local labor markets. It concludes that due to the country-specific nature of the mechanism at play, it is difficult for trade policymakers in developing countries to “predict how changes in trade policy might affect local labor markets and consumer prices.”
To help global trade deliver for the poor, the report:
- Provides new data, tools, and country analyses to advance policymakers’ understanding of how trade shocks affect consumers and workers, especially in developing countries;
- Generates new findings through case studies from Bangladesh, Brazil, Mexico, South Africa, and Sri Lanka on how trade has affected poor consumers and workers, accounting for the type and duration of the trade shock, labor market characteristics, transmission channels, location, and policy environment; and
- Offers a comprehensive set of complementary policies and economy-wide approaches to enable trade to help reduce poverty and inequality by minimizing distortions and strengthening the functioning of markets, lowering trade costs, and speeding up labor market adjustment.
Key findings include:
- Labor mobility and linkages between tradeable and non-tradeable sectors are critical to spreading the gains from trade;
- Without compensatory public policies, trade liberalization can perpetuate historic disparities;
- Trade shocks can lead to higher rates of informal employment in the short term, but export gains generate incentives for these workers to reenter formal employment; and
- New data and new techniques allow policymakers to design complementary policies to address subnational distributional impacts before a trade shock.
The publication is part of the World Bank’s Trade and Development Series, which aims to provide information about the new trade agenda by addressing topics ranging from regional trade agreements and customs reform to agriculture, intellectual property rights (IPRs), services, and other key issues. [Publication: The Distributional Impacts of Trade: Empirical Innovations, Analytical Tools, and Policy Responses] [Publication Landing Page]