Trade Liberalization and Poverty: What Have We Learned in a Decade?

Abstract

This article reviews key recent literature on the effects of trade liberalization on poverty in developing countries and asks whether our knowledge has changed significantly over a decade. The conclusion that liberalization generally boosts income and thus reduces poverty has not changed; some authors suggest that this finding is not true for very poor countries, but this suggestion is far from proven at present. With regard to microeconomics, recent literature again confirms that liberalization has very heterogeneous effects on poor households, depending, inter alia, on what trade policies are liberalized and how the household earns its living. Working in the export sector predicts gains, and working in the import-competing sector predicts losses, a finding that is reinforced by studies of the effects of liberalization on wages. New research has suggested several ways in which intrasectoral wage inequality is increased by trade, but this research generally does not indicate that the poor actually lose. A fairly common finding is that female workers gain from trade liberalization.

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