chapter  2
20 Pages

Trade and poverty: theory, evidence and policy issues: Jayatilleke S. Bandara


The link between trade liberalisation and poverty has been a hotly debated topic in international trade and development in recent years, for a number of reasons. First, poverty reduction has become a main priority of national governments and global institutions such as the United Nations (UN) and the World Bank since the setting of millennium development goals (MDGs) by the UN. According to MDG 1 (the poverty goal), the world needs to reduce absolute poverty by half between 1990 and 2015 on the basis of the international poverty line (using a US$ 1-a-day poverty line). Second, poverty has become an important issue as a result of the social and political consequences of rapid globalisation (UNCTAD 2004: 68). In a recent report, UNCTAD (2004: 67) argue that trade can play an important role in reducing poverty in both least developed and developing countries, although the link between trade and poverty is not clear and automatic. Finally, recent food price rises and the global financial crisis have made achieving MDG 1 even more challenging for policy makers in developing countries and international organisations. The literature on the link between poverty and either trade liberalisation or

globalisation has grown rapidly over the last few years. The purpose of this chapter is to survey the literature with a specific focus on studies of the South Asia experience in order to set the context for the country case studies in the ensuing chapters. In order to achieve this objective, the chapter begins with a brief overview on the main channels through which trade liberalisation affects poverty in the next section. It then focuses on some empirical studies carried out so far on the trade-poverty link related to South Asian countries in Section 3. Lessons from other developing countries are considered in Section 4 to examine whether there is a general agreement on the topic. The final section of the chapter provides concluding remarks.