GTAP Research: Poverty and Trade Liberalization
The book "Poverty and the WTO: Impacts of the Doha Development Agenda", edited by Thomas W. Hertel and L. Alan Winters, a co-publication of the World Bank and Palgrave Macmillan (available immediately, with a 2006 publication date), reports on the findings from a major international research project investigating the poverty impacts of a potential Doha Development Agenda. It combines in a novel way the results from several strands of research. Firstly, it draws on an intensive analysis of the DDA Framework Agreement, with particularly close attention paid to potential reforms in agriculture. The scenarios are built up using newly available tariff line data and their implications for world markets are established using the GTAP global modeling framework. These world trade impacts, in turn, form the basis for thirteen country case studies of the national poverty impacts of these DDA scenarios. The focus countries include: Bangladesh, Brazil (2 studies), Cameroon, China (2 studies), Indonesia, Mexico, Mozambique, Philippines, Russia, Vietnam and Zambia. While the diversity of approaches taken in these studies limits the ability to draw broader conclusions, an additional study which provides a 15 country cross-section analysis is aimed at this objective. Finally, a global analysis provides estimates for the world as a whole.
A few of the main findings of the project are:
- The liberalization targets under the DDA have to quite ambitious if the round is to have a measurable impact on world markets and hence poverty.
- Assuming an ambitious DDA, the near-term poverty impacts are mixed; some countries experience small poverty rises and others more substantial poverty declines. On balance, poverty is reduced under this DDA, and this reduction is more pronounced in the longer run.
- Allowing minimal tariff cuts for just a small percentage of special and sensitive products reverses the results, with the ensuing DDA raising, rather than lowering, global poverty.
- Deeper cuts in developing country tariffs would make the DDA more poverty friendly.
- Key determinants of the national poverty impacts include: the incomplete transmission of world prices to rural households, barriers to the mobility of workers between sectors of the economy, as well as the incidence of national tax instruments used to replace lost tariff revenue.
- In order to generate significant poverty reductions in the near term, complementary domestic reforms are required to enable households to take advantage of new market opportunities made available through the DDA.
- Sustained long term poverty reductions depend on stimulating economic growth. Here, the impact of the DDA (and trade policy more generally) on productivity is critical. In order to fully realize their growth potential, trade reforms need to be far reaching, addressing barriers to services trade and investment in addition to merchandise tariffs.
Thomas Hertel and Roman Keeney developed a poverty module for the GTAP Model documented in: Why Isn't the Doha Development Agenda More Poverty Friendly? by Hertel, Thomas W., Roman Keeney, Maros Ivanic, and L. Alan Winters, GTAP Working Paper No. 37.
The breakdown of the WTO negotiations under the Doha Development Agenda has inspired critics to highlight the lack of effort on the part of rich countries to reform their agricultural policies. In this paper, we focus instead the poverty impacts of developing country tariff cuts - particularly those in agriculture. We argue that the Doha Development Agenda is fundamentally less poverty-friendly than it could be -- in large part due to the absence of tariff cuts on staple food products in developing countries. Such cuts would give the poor access to food at world prices, thereby reducing the cost of living at the poverty line. We also explore the contention that such tariff cuts will hurt the poor working in agriculture. Based on our analysis of the impacts of multilateral trade policy reforms on a sample of fifteen developing countries, we find there is some evidence of poverty increases in agriculture. However, such effects are minimized by ensuring that agricultural tariffs are cut in all developing countries. Overall, the poverty-reducing impact of lower food prices dominates; we conclude that the Doha Development Agenda would be more poverty friendly if it were to include deeper cuts in developing country agricultural tariffs. This contrasts sharply with calls for special products exemptions by many developing country advocates.
- Hertel, T., Verma, M., Ivanic, M., Magalhaes, E., Ludena, C., & Rios, A. (2011). GTAP-POV: A Framework for Assessing the National Poverty Impacts of Global Economic and Environmental Policies (GTAP Technical Paper No. 31). Purdue University, West Lafayette, IN: Global Trade Analysis Project (GTAP). Retrieved from https://www.gtap.agecon.purdue.edu/resources/res_display.asp?RecordID=3731
- Hussein, Z., T. Hertel and A. Golub. (2013). Climate Change Mitigation Policies and Global Poverty. Environmental Research Letters doi:10.1088/1748-9326/8/3/035009