Global trade has contributed to growth and poverty reduction in the past three decades, but gains from trade can be more inclusive, the World Bank said today. Spreading the benefits of trade more widely, within and between countries, can play a key role as the world seeks to recover from the COVID-19 pandemic, which has reversed years of poverty reduction.
New data and tools developed by the World Bank can allow policy makers to ensure trade delivers more for the poor, according to The Distributional Impacts of Trade: Empirical Innovations, Analytical Tools and Policy Responses report. By identifying in advance those sectors and regions that are most affected by changes in trade patterns, policies can be designed to maximize the gains and mitigate potential losses.
“There is no question that the rise in trade over the past 30 years has helped to dramatically reduce global poverty, but the benefits were not shared equally,” said Mari Pangestu, World Bank Managing Director of Development Policy and Partnerships. “Trade plays a vital role in pandemic response, ensuring food and medicine can cross borders freely and vaccines are distributed where they are needed. Better policies are needed to make trade more inclusive, as we work to build back better and set a path toward green, resilient and inclusive development.”
Policy makers in developing countries can use the new findings, data, and approaches in the report to better understand the distributional effects of trade, monitor the implementation of policies to address them, and coordinate responses across government.
The rapid increase in global trade has been a key engine of growth and poverty reduction in developing countries. From 1990 to 2017, global poverty fell from 36 percent to 9 percent as developing countries increased their share of global exports from 16 percent to 30 percent. Many countries have used trade to create jobs, boost exports, reduce poverty and increase shared prosperity.
Despite these gains, changes in trade policy have created winners and losers with some communities and workers not gaining as much as others, sometimes undermining popular support for trade liberalization, and increasing support for protectionism.
The aggregate gains from trade are clearly established, but gains and losses have been often heavily concentrated and particularly visible in some sectors, jobs, and regions and longer-lasting than previously understood, according to the report, which looked at the impact of trade on labor markets, consumption, and poverty in Bangladesh, Brazil, Mexico, South Africa, and Sri Lanka.
This report provides policy makers with tools to analyze the impact of trade policy across regions, industries, and workers in developing countries. Governments will better understand how trade will impact income and wages, levels of formal employment, consumption, poverty, and inequality at both national and sub-national levels.
A deeper understanding of the distributional impacts of trade is critical to design better policies that spread the benefits of trade more broadly, making trade work better for everyone. Minimizing its negative impact and maximizing its benefits will not only help to combat poverty but also to counter rising economic nationalism.