Call Girls In Connaught Place Delhi ❤️88604**77959_Russian 100% Genuine Escor...
Trade and poverty addis - june 2013
1. Does Trade Reduce Poverty?
A View from Africa
Raju Jan Singh (World Bank)
Maëlan Le Goff (CEPII)
June 5 - 6, 2013
Trade and Regulation in Services in Africa, Addis Ababa
2. Introduction
• Trade liberalization promoted as a key component in
development strategies. It potentially affects poverty
through its effects on both growth and income
distribution.
• However, theoretically and empirically, the impact of
trade openness on poverty reduction is ambiguous.
• The literature on the trade-poverty relationship in Africa
is almost non-existent.
MOTIVES
3. Introduction
1- Empirically examine the effect of trade openness on poverty
in Africa.
2- Remove uncertainty regarding the effect of TO on poverty by
testing whether the poverty reduction effect of greater trade
openness depends on a variety of structural
characteristics, including some that are subject to reform.
Define general policy guidelines to help trade liberalization
policies alleviate poverty in Africa.
OBJECTIVES (1)
4. Introduction
More precisely, we examine the possible role played by:
• financial development: can help the poor create market
activities by easing the provision of important inputs + may
diminish rising income risks when they switch from
producing subsistence-local goods to producing tradable
goods.
• education level: indicates whether the poor have enough
skills to gain from trade liberalization, to interact with
markets and how vulnerable they are to change.
• institutional quality: can promote the effect of trade on
growth
OBJECTIVES (2)
5. Literature review
• Two broad strands of argumentation when discussing the effects
of freer trade on poverty: static and dynamic (Bhagwati and
Srinivasan, 2002)
• The static approach based on the Stolper-Samuelson theorem
(the abundant factor should see an increase in its real income
when a country opens up to trade) + changes in prices.
• The dynamic approach: economic growth is key to sustained
poverty alleviation and trade liberalization is argued to lead to the
needed increases in productivity to sustain growth (Berg and
Krueger, 2003; Grossman and Helpman, 1991; Lucas, 1988).
IN THEORY
6. Literature review
IN THEORY
1. Factors may not be as mobile as assumed;
2. Informal sector may crowd out formal
employment;
3. Skill-biased technological change;
4. Natural resources instead of labor-intensive
sectors.
7. Literature review
EMPIRICAL STUDIES
1. Employment effects of freer trade policies were
generally rather limited (Krueger, 1983);
2. Cross-country studies on poverty seem to show that
at best the benefits of greater trade openness have
bypassed the poor (Beck et al., 2007; Dollar and
Kraay, 2001; Guillaumont-Jeanneney and
Kpodar, 2011; Kpodar and Singh, 2011; Singh and
Huang, 2011).
8. Literature review
CONCLUSIONS
suggesting that trade liberalization may require a
combination with other policies
1. Policies that would encourage investment, allow effective
conflict resolution, and promote human-capital
accumulation (Winters et al., 2004: Bolaky and
Freund, 2008);
2. Domestic political structures and institutions (such as
oligarchic or predatory regimes) may prevent the poor
from benefiting from globalization (Sindzingre; 2005);.
3. (a) Macroeconomic stability and a sound investment
climate; and (b) protection for workers, maintenance of
high-quality working conditions, and facilitation of labor
transitions (Newfarmer and Sztajerowska, 2012)
9. Empirical Analysis
• 30 African countries
• Over the period 1981 to 2010
• Data averaged over five-year periods (1981-1985; 1986-
1990; 1991-1995; 1996-2000; 2001-2005; 2006-2010)
SAMPLE
10. Empirical Analysis
• Poverty measure
The poverty headcount index (% of the population living with income
or consumption per person below the $1.25 poverty line) – World Bank
Global Poverty Index Database
• Trade openness
The sum of exports and imports as a share of GDP (rather than a
legalistic measure of liberalization)- WDI
• Control variables
- Gross Domestic Product per Capita- WDI
- Primary completion rate- UNESCO
- Private credit as a share of GDP- IFS
- Inflation- WDI
- Law and order- ICRG
DATA AND VARIABLE DEFINITIONS
11. Empirical Analysis
• Our point of departure :
EMPIRICAL MODEL (1)
tiittititi XTOPoverty ,,2,1,
- Poverty is the log of the poverty headcount index
- X is the matrix of control variables
- TO is our measure of trade openness
12. Empirical Analysis
• We then allow the poverty reduction effect of openness
to vary with some country characteristics by estimating
the following model :
EMPIRICAL MODEL (2)
tiittititititi xTOXTOPoverty ,,,3,2,1,
- Poverty is the log of the poverty headcount index
- X is the matrix of control variables
- TO is our measure of trade openness
- x represents alternatively: financial development, education level and
institution quality
Note: all variables are included in log, except the variable of institutional quality
13. Empirical Analysis
• Presence of unobserved period- and country-specific
effects
• Most explanatory variables could be jointly endogenous
with poverty (simultaneity or reverse causation)
Use of the System Generalized Method-of-Moment
(GMM) estimator developed by Blundell and Bond
(1998).
METHODOLOGY
14. -2
024
2 3 4 5 6
Log of trade openness
Bottom group Linear prediction (bottom group)
Top group Linear prediction (top group)
-2
024
Logofpovertyheadcount
2 3 4 5 6
Log of trade openness
Bottom group Linear prediction (bottom group)
Top group Linear prediction (top group)
-2
024
Logofpovertyheadcount
2 3 4 5 6
Log of trade openness
Bottom group Linear prediction (bottom group)
Top group Linear prediction (top group)
Empirical Analysis
RESULTS-FIRST LOOK
Financial
development
Education
level
Institutional
quality
16. Empirical Analysis
RESULTS (2)
Results of the basic equation estimation (columns 1):
• Control variables: results are consistent with previous
empirical literature:
- Gross Domestic Product per capita- negative
- Percentage of primary school complete- negative
- Inflation- positive
- Private credit as a share of GDP- non significant
- Law and order- non significant
• Trade openness: greater trade openness is associated with higher
levels of poverty, albeit not in a significant way
18. Empirical Analysis
RESULTS (4)
Trade poverty relationship and development of the financial system:
• Better access to credit allows poor people to benefit more from
trade openness
• The poor can benefit from trade when domestic private credit
overcomes the threshold of 17.7% as a share of GDP (sample
average=21.2%).
20. Empirical Analysis
RESULTS (6)
Trade poverty relationship and human capital level:
• The beneficial impact of an increase in trade openness is larger
when the investment in human capital is stronger;
• Trade openness starts being favorable to the poor when primary
completion rate exceeds 46.7% (sample average= 55%)
22. Empirical Analysis
RESULTS (8)
Trade poverty relationship and the country’s institutional
environment:
• The negative association between trade and poverty could
diminish with improvements in the respect of rule of law and even
reverse;
• Trade openness could be favorable to the poor when institutional
quality reaches 3.3 (sample average=2.9)
23. Concluding Remarks
• While on average trade does not seem to be associated with
lower poverty in Africa, this observation hides important non-
linearities.
• More openness results in a reduction in poverty when
financial sector is deeper, education levels higher, and
governance stronger.
• Trade liberalization should therefore not be seen in isolation
and additional policies will sometimes be needed to enhance
its impact on poverty.
• If these services are not developed, could the countries import
them?
