Trade Policy and Global Poverty William R. Cline

Global Free Trade Impact: Lift 500 million out of poverty in 15 years $200 billion annual long-term income gain for developing countries At least half from removing industrial country protection This is twice annual aid, and it benefits industrial country consumers Half of gains are in agriculture

Poverty Intensity of Imports from Developing Countries (%)

Growth Elasticity of Poverty Lognormal distribution: elasticity function of inequality (G), ratio of average to poverty income (z) Lower where inequality higher Higher where z higher Asia typically 3 or more Typically lower in Latin America (1 to 2) because high G; and in Africa (1 to 2) because low z

Special-regime export growth, gx* = gw (2.5) gylag (1.6) mfshr (1.97) R*lag (2.36) y*lag (1.0) LOME (2.36) CBI (2.39) ATPA (0.29) SSA (2.36) Adj R2 =.016; # obs. = 1412

Total Tariff Equivalent of Agricultural Protection Against Developing Countries (percent tariff equivalent) USCan.EUJapan Tariffs Tariff-Equivalent of domestic subsidies Total Tariff- Equivalent

Aggregate Measure of Protection (AMP, %) US EU JPN Agriculture Textiles, Apparel Other Manufactures Oil, other All (AMP)

DC agricultural protection and global poverty π=εw {Φ R [θ R γ R -  ] +Φ U θ U γ U } π= proportionate rise in poverty ε= poverty elasticity w= % increase in world price Φ=share of total poor in sector θ=share of food in budget γ= elast. food price wrt world price  =elast. farm income wrt farm price  =elast. farm price wrt world price

LDC food trade and comparative advantage CountryPoor (mn) # of countries Bangladesh –food trade deficit & comp. disadv. 991 Others: total37444 Food trade deficit21334 Food comparative disadvantage 11021

Decomposition of static welfare gains Benefit: DGC $bn % FT DEV $bn % FT Total $bn % FT Liberalize: DGC DEV sum Global Interaction

MFN Tariffs (%) AgricTxApOthMfOilRM DCs EU US JPN DGCs China India Korea Brazil Colom Tanz S Afr

Elasticity of output w.r.t. trade/GDP Levine-Revelt ‘ Frankel-Rose ‘ Alcala-Ciccone ‘ Dollar-Kraay ‘ Easterly ‘ Chaudri-Hakura ’00 (mid-tech industry) 0.18 World Bank GEP ‘ OECD ‘03 0.2

Long-term Impact of Free Trade on Global Poverty Reduction (millions)

Reduction in Poverty from Global Free Trade (millions)

Blueprint for a Doha Deal DCs: Phased deep tariff cuts or elimination, including in agriculture, textiles and apparel; DCs: Eliminate agricultural subsidies or fully “decouple” from production; Middle-income DGCs: cut protection at least percent; longer phase-in. Second track: immediate free entry from LDCs, HIPCs, SSA; 10-year tax holiday on FDI

Test for Preference Erosion ($bn gains) “Country” Free trade US, EU freeze P7 Mozambique Uganda South Africa Tanzania Other sub-Saharan Africa Central America Bangladesh Total, 7 poor (P7)