Poverty and Trade

Source: IFPRI
Ethiopia


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Changes in international markets can have a direct, positive or negative, impact on poverty. Such an impact may be a result of exogenous shocks (climate change), large market failures (e.g. financial crisis, high volatility in world prices), international agreements (e.g. multilateral or regional trade agreements), unilateral policies of large economies (e.g. agricultural domestic support or biofuel mandates). While the effects of these changes vary across countries, depending on their trade specialization, degree of openness, and adjustment capacities, the domestic redistributive effects among citizens in a particular country can be quite pronounced.

While macro analysis aimed to understand the economy wide impacts of such changes is important for policy makers, developing tools focusing on the poverty and inequalities impacts is crucial to promote poverty reduction policies and insure inclusive growth. IFPRI has developed a large set of skills to address the challenging issue of the links between trade and poverty.

Developing a consistent and detailed modeling instrument that allows understanding how poverty in low income countries reacts to these different shocks is the topic of this research program that implements a poverty module in the MIRAGE trade model of the world economy. In particular this program links a global model of the world economy with detailed information coming from household surveys.

Another aspect of this program measures the transmission of food prices from world market to local markets in selected countries and estimates the distributional impact of staple food price changes. This is done by analyzing the relationship between local and international prices, generating estimates of the proportion of international price changes that is transmitted to domestic markets and the time-lag in this transmission. The effect of food crop price changes on household welfare are examined using household survey data.

The Doha Development Agenda, an ambitious program of multilateral liberalization launched by the World Trade Organization in 2001, also has widespread implications for the impact of trade in developing regions. IFPRI’s work surrounding these talks continues, providing important analysis and recommendations for utilizing such international agreements to address the needs of the world’s poorest and most vulnerable economies and to substantially improve global trade.