Summary

Research Report: Reviews the debates over the relationships between trade regimes, economic growth and poverty reduction.

Description

Author: Ron Duncan and Doan Quang, National Centre for Development
Studies, Australian National University with the assistance of AusAID

This paper reviews the debates over the relationships between trade regimes,
economic growth and poverty reduction. The theoretical positions on these
relationships are reviewed as well as the empirical tests of the
relationships. It is concluded that, based on the empirical evidence to
date, trade liberalisation appears to have a positive impact on growth;
although the impact seems to depend on the existence of important economic
institutions and complementary policies. Also, there remain questions
about the direction of causality between trade openness and economic
growth. It is also concluded that there is strong evidence that economic
growth reduces absolute poverty. However, the relationship between
economic growth and income inequality (relative poverty) remains ambiguous.

There is neither theoretical nor empirical support for a positive causal
relationship between trade liberalisation and reductions in absolute
poverty. However, it is argued that trying to design trade liberalisation
strategies with the aim of reducing absolute poverty is not a sensible policy
objective. Rather, designing a trade liberalisation program and
establishing the conditions for poor people to maximise their participation in
economic growth should be separate, but complementary, objectives.

A conceptual framework is suggested which can be used to aid the design of
trade liberalisation reforms on a country-specific basis that recognises the
need for the necessary complementary institutions and policies. The
framework also provides a checklist for removing obstacles to the poor
participating in whatever economic growth does take place.

Trade Liberalisation, Economic Growth and Poverty Reduction Strategies [PDF 98KB]

Available: Electronic version only

This report was commissioned by AusAID. The findings, interpretations and conclusions expressed in the report are those of the authors and do not necessarily reflect the views of AusAID or the Australian Government.

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