Poverty

Like gender, poverty impacts of trade reforms—including the TFA—need to be analyzed at a micro level. Poverty impacts can be highly localized, and can be positive or negative, even when the global impact on a country is strongly positive. Indeed, the available empirical evidence strongly suggests that measures to reduce trade costs—including trade facilitation, although the TFA has not been specifically modeled for its poverty effects—can reduce a country’s overall poverty headcount ratio. There is therefore a strong global rationale for implementing such policies. Nonetheless, local effects matter in terms of the economic and social lives of the poor, so it is important to examine the main mechanisms through which the TFA could affect poverty.

In essence, the question of whether or not a particular household benefits or not from implementation of measures like those in the TFA depends on its exact pattern of production and consumption. For example, net producers of export products benefit from improved trade facilitation, because it reduces the gap between farm gate prices and world prices, and thus increases their income. However, net consumers of exported goods can be worse off: as export production ramps up, the price on the domestic market increases, which reduces their consumption possibilities.

A similar dichotomy is evident in the case of import-competing goods, although the perspectives are reversed. This time, it is net consumers who benefit from improved trade facilitation, which lowers prices. Net producers, on the other hand, suffer.

To see the overall effect on a given household, it is necessary to analyze the sum of all of these micro effects across its full production and consumption baskets. The overall lesson to take away is that even though trade facilitation is typically good for poverty reduction in a local sense, patterns of consumption and production—driven by comparative advantage—differ across regions within countries, so micro-level effects can still sometimes be negative. There is a strong argument to undertake careful analysis of these effects before reforms are undertaken, and to ensure that protections are in place—even basic ones—to ensure that vulnerable households do not see their economic positions worsen.