Global trade will play a critical role in driving economic recovery from the COVID-19 pandemic, ensuring the flow of food, medical supplies, and vaccines, and contributing to poverty reduction. But policies must be in place to ensure that gains from trade are spread across regions, industries, and workers in developing countries.
Transcript
Mel Fleury: Trade is now more important than ever to poverty reduction around the world.
Global trade will play a critical role in driving economic recovery from the COVID-19 pandemic, ensuring the flow of food, medical supplies, and vaccines—while also contributing to poverty reduction.
For that to happen, economies will need policies in place to make sure that gains from trade are spread equitably across regions, industries, and workers in developing countries.
Welcome to the third episode of the Poverty Podcast. I’m your host, Mel Fleury.
Today, I am joined by Gladys Lopez-Acevedo, a Lead Economist in the Poverty & Equity Global Practice, and Maryla Maliszewska, a Senior Economist in the Macroeconomics, Trade & Investment Global Practice.
On today’s episode, Gladys and Maryla will walk us through a new World Bank report called “The Distributional Impacts of Trade: Empirical Innovations, Analytical Tools, and Policy Responses.”
For some background, the World Bank has been examining the links between global trade and poverty reduction, how changing trade patterns affect the poor, and how policies can guarantee that gains are shared more widely. This report is a result of this work. It provides new knowledge, data, and tools to inform policy responses to spread the gains from trade more widely, and to make trade work for everyone.
But how exactly does trade affect poverty reduction?
According to Maryla, opening an economy to trade allows the country to specialize in the production of goods and services that it can produce more efficiently or more cheaply, by importing other goods.
Maryla: Trade also has long-term implications for growth because it gives access to more advanced technological inputs. And it provides incentives to innovate.
Mel: Research shows that trade and poverty reduction go hand in hand. From 1990 to 2017, developing countries increased their share of global trade from 33.8 in 1990 to 48.3 in 2017
Maryla: The way that trade contributes to poverty reduction directly is by opening new employment opportunities. It's bringing structural change in the economy that can foster employment, growth, availability of better jobs, better paid jobs, more efficient, more productive jobs.
Mel: A successful example that the report showcases is the case of trade in Bangladesh, specifically in the apparel sector. In the country, higher exports translated into higher wages and more people moving into the formal work sector. According to Gladys, in the case of Bangladesh, higher exports in the garment sector also meant a reduction in the wage gap between men and women, as more women are employed in that sector.
Gladys: Not just in the garment industry, but also through the entire economy over the long run. So, this is a specific example in terms of how greater exposure to trade can benefit workers, not only in this specific sector, in the case of Bangladesh, but also these benefits spread through the economy, increase wages, reducing informality, and reducing poverty.
Mel: This World Bank report is different from previous ones not just because it looks at trade now, during the COVID-19 pandemic, but also because it looks at the impacts and distribution of trade in developing countries, providing findings on the impacts of trade reforms in those countries.
Maryla: This report comes at a time when trade is more important than ever. Keeping markets open and facilitating trade will ensure that vaccines and medicines are produced where it is most efficient and flow to where they are most needed.. Moreover, trade can play a key role in the economic recovery. While COVID-19 disrupted trade in the early months of the crisis, the recovery in goods trade has been robust. By October 2020 trade was growing relative to the same month in the previous year, and in December it was up nearly 8 percent. As the global economy rebounds from the COVID-19-induced recession, the accompanying strength in global trade offers an opportunity to jumpstart the recovery in EMDEs.
However, we know the COVID pandemic has hit the poor and women disproportionately hard, making the case for understanding and addressing those distributional impacts of trade even stronger.
Mel: According to Gladys and Maryla, new data and tools developed by the World Bank can allow policy makers to ensure trade delivers more for the poor. By identifying in advance those sectors and regions that are most affected by changes in trade patterns, policies can be designed to maximize the gains and mitigate potential adjustment costs.
A deeper understanding of the distributional impacts of trade is critical to design better policies that spread the benefits of trade more broadly, making trade work better for everyone. Minimizing the adjustment costs and maximizing its benefits will not only help to combat poverty but also to counter rising economic nationalism.
For this reason, the report looks closely at the impact of trade on wages, employment, and income of the poor in five countries: Bangladesh, Brazil, Mexico, South Africa, and Sri Lanka.
Gladys: So, we see that here in the case of both Brazil and Mexico, which might be similar to other countries, the gains from trade remain concentrated on specific geographic areas, or sectors. Another important lesson from our work on the report is that it is also important for policy to encourage opportunity and mobility.
In the case of Bangladesh, the analysis shows that localities more exposed to trade experience increasing wages and reduction of informality. And those positive effects are spread through the economy over time and benefited all of those sectors as well.
Mel: In the case of Brazil, higher exports helped boost formal employment and wages between 2003 and 2015. The research shows that a ten percent increase in exports led to a 2 percent increase in employment and a 3 percent increase in average wages.
This report provides policy makers with tools to analyze the impact of trade policy across regions, industries, and workers in developing countries. Governments will better understand how trade will impact income and wages, levels of formal employment, consumption, poverty, and inequality at both national and sub-national levels.
Among the most critical lessons of the report is that maximizing the gains from trade requires a comprehensive and economy-wide approach, including lowering labor mobility costs as well as the need for complementary policies such as business environment reforms and supporting skills development.
Gladys: The report clearly states that by identifying in advance sectors and regions that will be most affected or impacted by changes in trade factors, policies can be designed to maximize the gains and mitigate adjustment costs. The Report contributes to this goal by providing tools, data, and approaches to design smarter policies for inclusive trade.
Mel: This report also provides a framework that could guide policymakers for planning, implementation and mitigation anchored in 3 areas: reduce distortions, reduce trade cost, and speed up labor market adjustment.
This is our episode for today. We invite you to read our new report at worldbank.org/dit
Make sure to follow us on Twitter for regular updates, at WBG_ Poverty. We’ll be back soon with more updates on poverty, stories, data and analysis from the World Bank Group and its staff around the globe.
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