Trade reforms and poverty: Are the impacts discernable?

The impacts of trade policy reform on poverty have been a subject of heated debate. Some have argued that multilateral trade reform could make substantial inroads into global poverty, while others assert that the price changes associated with global trade reform are minimal and may not be distinguishable from price fluctuations induced by annual shocks to the global economy. This paper formally addresses the issue by developing an approach to assess whether poverty changes induced by trade reform are statistically discernable from the average annual random fluctuations in poverty due to inherent commodity market volatility. We focus specifically on the staple grains sector. Volatility in the grains markets is implemented via stochastic supply shocks introduced into a CGE model of the global economy. The resulting price distributions are inputted into a micro-simulation model built upon national household surveys in order to evaluate the likely poverty impacts. Conclusions are drawn based on comparison of the resulting poverty distributions from the weather-induced variability only, versus the combined effect of the latter with trade reform as well. Hypothesis tests permit us to determine whether the two distributions are statistically distinct. Results indicate that, when only grains markets are considered, the short-run impacts on poverty of trade liberalization can not be distinguished from market volatility in six of the fifteen focus countries.Ernesto Valenzuela and Thomas W. Herte