1. Global Income Distribution and Poverty in the Absence of Agricultural Distortions Maurizio Bussolo, Rafael E. De Hoyos, and Denis Medvedev The World Bank Paper prepared for the 11 th annual GTAP conference 12-14 June 2008, Helsinki, Finland

2. State of the Debate 1.Agriculture is the sector with highest distortions: tariffs, export taxes, and production subsidies 2.Disputes over the reduction of agriculture markets distortions have stalled the whole multilateral trade negotiation 3.Three out of every four poor people are agriculture-dependent

3. Research Questions 1.What would happen to global poverty and inequality if agricultural tariffs, export taxes/subsidies, and producer/output subsidies were removed? 2.Are there important differences in poverty/inequality impacts across regions and countries?

4. Outline 1.The importance of farmers in global poverty 2.Methodology: Global Income Distribution Dynamics (GIDD) 3.Results: A Global and Within-Country View 4.Conclusions

5. –73 household surveys for low and middle income countries (1.2 million HH and 5.1 million individuals) –Grouped income data for 25 high-income and 22 developing countries –These 120 countries cover more than 90 percent of the global population A New Dataset on Global Income Distribution

6. Global Income Distribution

7. The Importance of Farmers for Global Poverty and Inequality

10. For most countries, incomes in the agricultural sector are better distributed

11. Methodology: GIDD

13. The global welfare effects of the removal of agricultural trade distortions depend on: –Proportion of the world population whose income dependent on agricultural activities –Initial position of farmers in the global income distribution – Dispersion of incomes within agricultural sectors The Expected Effects of Global Trade Reform

14. Growth in Agriculture is more Pro-Poor

16. Although there is more growth, global poverty increases

17. There are large regional variation in the incidence of the trade reform

18. Given its large contribution to global poverty, the negative effect in South Asia dominates

19. The contribution to the increase in global poverty is concentrated in India

20. Nevertheless, the story is very different if we set the poverty line at 2 dollars a day, PPP

21. Relatively rich Brazilian farmers win while very poor Indian farmers lose

22. India Wage of unskilled farmers decline 6% –1.3% decline in international price of imported agricultural products –decrease in tariff protection (2%) –reduction in export subsidies (3.4%) –reduction in output subsidies (6.9%) Brazil Wage of unskilled farmers increase 34% –2% increase in import prices –10% increase in export prices –reduction in import tariff (2.4%) –no initial export or output subsidies What’s Behind These Results?

23. Changes in the non-agricultural income gap reshape within-country inequality

24. 1.Small changes in global poverty and inequality 2.Significant variation at the regional and country level 1.Latin America reaps large gains, while South Asia may lose 2.Some convergence of within-country inequality 3.Caveats: 1.Poverty reduction potential is not the only measure of trade policy success 2.Static gains only 3.Only analyze changes in return to labor Conclusions