The Effect Of Trade On Poverty - 1377 Words

1. INTRODUCTION Foreign trade has been a widely debated issue across the developing world. In the last 30 years, a number of developing countries increased their openness to foreign trade. World trade as a percentage of world output has increased 1.46 times between 1980 and 2003.These years witnessed an integration of individual economies into a globalized economy, which has been beneficial for the participating countries in many ways. This integration includes the flow of capital across countries in addition to the traditional trade in goods and services. In this piece, we focus on trade in goods and services between nations. We study the effects of trade on poverty. While the many advantages of trade liberalization have been widely†¦show more content†¦It opens new markets for domestic products and introduces new products in the domestic market. This is beneficial to both consumers and producers and in turn leads to an increase in national income. However, there are gains as well as losse s. As developing countries have sizable populations that live in poverty and access to basic necessities is not a given, the impact of foreign trade on poverty becomes an important issue. Even if the national income increases, the impact on poverty cannot be overlooked. Theoretical as well as empirical evidence says that trade liberalization is poverty alleviating although it is not the strongest tool for poverty reduction, though it is the cheapest and most accessible (Winters et al 2004). Winters et al (2004) decompose the link between poverty and trade liberalization using a framework developed by Winters (2000, 2002). They say that liberalization has distributional effects for which four routes have been outlined: macroeconomic aspects, households and markets, wages and employment and government revenue and spending. But the ambiguity remains because poverty is heterogeneous. A lot of differences are noted among individual households. The macroeconomic aspect deals with economic growth. Liberalization invariably leads to growth. The second route identified is through markets. Poor in most countries are mostly self-employed and have multiple sources of income like