2009-09: Trade and Poverty in South Asia: An Interpretive Survey (Working paper)

Abstract

The link between trade liberalisation and poverty has become one of the most debated topics in international trade and development in recent years. Despite theoretical predictions to the contrary, there is persistent concern among policy analysts and policy makers that trade liberalisation may have an adverse impact on poverty in developing countries. The purpose of this paper is to conduct an interpretive survey of the relevant literature, with an emphasis on the South Asian experience. The key finding is that there is no unique answer to the question of whether trade liberalisation reduces poverty or otherwise in the South Asian region. Empirical studies have provided contradictory results, with some studies concluding that trade liberalisation reduces poverty and others finding that trade liberalisation increases poverty. Trade liberalisation produces some winners in some countries, but there are also losers, especially where labour regulations are inflexible. All in all, trade liberalisation is not a "magic bullet" in reducing poverty; indeed, it could potentially contribute to poverty. Thus, as advocated by a number of authors, in implementing trade policy changes, it is essential to maintain complementary policies to combat poverty.