1. Trade Policies, Household Welfare and Poverty Alleviation Book Launch Nina Pavcnik Dartmouth College UNCTAD, September 8, 2014

2. Why this book? Low- and middle-income countries have dramatically increased their participation in global economy – Exports of low income countries grew from 26 percent of their GDP in 1994 to 55 percent in 2008 – Exports of middle income countries grew from 25 to 55 percent of their GDP between 1994 and 2008 Global poverty has dropped from 52% in 1981 to 22% in 2008 ($1 a day measure) How do the poor fare in a globalized world? Source: Hanson (2012), Chan and Ravallion (2012)

3. Why this book? How do the poor fare as low-income countries embrace more liberalized trade policies and expose domestic markets to intl. competition? Under what circumstances do the poor benefit as countries gain access to high- income export markets? What are the consequences of terms-of-trade shocks for the poor?

4. This book Contributes to research on globalization and poverty Examines the welfare and poverty consequences of changes in global commodity prices and trade policies Collection of 8 case studies

5. Outline of the talk The book in broader context of research on globalization and poverty Overview of case studies Key insights

6. Outline of the talk The book in broader context of research on globalization and poverty Overview of case studies Key insights

7. Globalization and Poverty Effects of trade on poverty through – economic growth – effects on relative prices, wages, and employment – effects on relative prices, consumption and production/earnings Case studies in this book focus on the third mechanism

8. Main mechanism Short-term effects of price changes on household welfare and poverty through household – consumption – production – wage earnings Quantify the role of these channels with information from household-level survey data

9. Basic idea: Consumption Individuals differ in income and goods vary in sensitivity of demand to income Poor and rich individuals differ in consumption expenditure shares at given prices Trade shocks (via prices) have unequal effects on welfare of poor/rich – Consumers with lower incomes benefit more from price reductions of low-income elastic goods

10. Basic idea: Production Individuals differ in source of earnings/production Individuals differ in income shares from production/wage earnings at given prices Trade shocks (via prices) have unequal effects on welfare of poor/rich through production

11. Terms-of-trade shocks in food Welfare effects of food price changes revealed to be a concern for individuals and policy makers in low- and middle-income countries – Riots and policy responses to 2007-8 food price increases – Motivated by concerns about increased poverty To the extent the poor are net consumers of food, they would be disproportionately negatively affected Poor would benefit if they are net producers of food

12. Focus on food Large component of average household budget – 6.6% in the US; 25% in India; 27% in China; 40% or over in Nigeria, Cameroon, Pakistan The largest budget item for the very poor in less developed economies – 58-75 % of household budget of the poor spent on food Source: USDA Economic Research Service (2012), Duflo and Benarjee (2007)

13. Focus on food Prevalence of agricultural employment in low-income countries

14. Outline of the talk The book in broader context of research on globalization and poverty Overview of case studies Key insights

15. The book has two broad themes Welfare and poverty consequences of recent increases in global food prices – Importing countries (Philippines, FYR of Macedonia) – Exporting country (Argentina) Welfare effects of trade policies and exchange rate shocks – Costa Rica, Peru, Nigeria, China, and Viet Nam

16. Topics

17. Case-study countries Case studies focus on lower-middle to middle income countries

18. Case-study countries Case study countries differ in aggregate poverty levels (as measured by $1 a day)

19. Case-study countries Case-study countries differ in their exposure to global agricultural markets through production and employment

20. Outline of the talk The book in broader context of research on globalization and poverty Overview of case studies Key insights

21. Broad findings Not possible to generalize how trade policy or higher food prices affect the poor – Add to evidence by Aksoy and Hoekman (2010) The consequences of shocks for the poor are country- and commodity-specific and depend on – Impact of the policy change on domestic prices – The magnitude of price change – Exposure of the poor households to price fluctuations as consumers and producers/wage earners

22. Broad findings-an illustration Philippines Importer of rice Increase in the price of rice Harms the rural poor – Net consumers of rice FYR of Macedonia Importer of maize Increase in the price of maize Benefits the rural poor – Net producers of maize

23. Importance of micro-survey analysis Policy-makers are concerned about distributional effects of price shocks/policy Useful to evaluate consequences of trade policy or policy responses to terms-of-trade shocks with evidence based on micro data – Short-term effects of price changes – Ex-ante impact of potential trade policy Potential short-term effect of CAFTA-DR in Costa Rica

24. Domestic distortions Welfare effects of price changes/policy depend on how price changes are passed through the supply chain from ports/producers to consumers Domestic distortions influence transmission of price changes to domestic producers and consumers – Internal trade costs – Wholesale and retail distribution – Imperfect pass-through (variable markups) Distortion might vary across poor vs. rich households

25. Domestic distortions: an illustration Producer welfare gains from higher prices – The main beneficiaries might be the middlemen and intermediaries rather than producers of commodities – Case studies for Vietnam, Argentina Consumer welfare gains from lower import tariffs – Consumer welfare gains might be reduced when wholesale importers do not fully pass-on cost savings to consumers of final goods Case studies for Costa Rica, Peru

26. Summary The case studies in this book provide useful policy-relevant insights on welfare and poverty consequences of changes in global commodity prices and trade policies in case- study countries

27. Thank you