Would Freeing Up World Trade Reduce Poverty and Inequality? The Vexed Role of Agricultural Distortions

Trade policy reforms in recent decades
have sharply reduced the distortions that were harming
agriculture in developing countries, yet global trade in
farm products continues to be far more distorted than trade
in nonfarm goods. Those distortions reduce some forms of
poverty and inequality but worsen others, so the net effects
are unclear without empirical modeling. This paper
summarizes a series of new economy-wide global and national
empirical studies that focus on the net effects of the
remaining distortions to world merchandise trade on poverty
and inequality globally and in various developing countries.
The global LINKAGE model results suggest that removing those
remaining distortions would reduce international inequality,
largely by boosting net farm incomes and raising real wages
for unskilled workers in developing countries, and would
reduce the number of poor people worldwide by 3 percent. The
analysis based on the Global Trade Analysis Project model
for a sample of 15 countries, and nine stand-alone national
case studies, all point to larger reductions in poverty,
especially if only the non-poor are subjected to increased
income taxation to compensate for the loss of trade tax revenue.