Trade and the MDGs: How Trade Can Help Developing Countries Eradicate Poverty
Cordoba, Santiago Fernandez de, Bouhey, Antoine, UN Chronicle
Developing countries depend on national and global economic growth to achieve the Millennium Development Goals (MDGs) by 2015. In this regard, international trade is recognized as a powerful instrument to stimulate economic progress and alleviate poverty. Trade contributes to eradicating extreme hunger and poverty (MDG 1), by reducing by half the proportion of people suffering from hunger and those living on less than one dollar a day, and to developing a global partnership for development (MDG 8), which includes addressing the least developed countries' needs, by reducing trade barriers, improving debt relief and increasing official development assistance from developed countries.
Poverty is the most crucial plague of our times. It is commonly agreed that in order to reduce the proportion of people living on less than $1 a day, developing countries need to substantially accelerate their economic growth by carefully opening their markets. The standard rationale is that trade liberalization improves efficiency in the allocation of scarce resources, enhances economic welfare and contributes to long-term economic growth. However, while there might well be long-term gains from opening their markets, liberalizing economies are likely to face some short-term adjustment costs. This is because, as economies open up, a country's imports use existing channels, while its new exports opportunities often come from different sectors that have yet to sufficiently develop production capacity.
The international community recognizes the importance of trade for development through initiatives, such as Aid for Trade, Financing for Development and, most importantly, the World Trade Organization (WTO) Doha Round of trade negotiations. It is estimated that the global annual welfare gains from trade liberalization would be in the order of $90 billion to $200 billion, of which two thirds would accrue to developing countries.(1) This could help lift 140 million people out of poverty by 2015.(2)
Trade and economic growth. In the last decade, trade has helped trigger strong growth in developing countries, whose share in the global trade has increased from 29 per cent in 1996 to 37 per cent in 2006 and whose exports have consistently been growing at a faster rate than those of developed countries. This has stimulated growth in export revenues of developing countries. At the same time, gross domestic product (GDP) per capita, one of the most relevant indicators of MDG progress, has increased by more than 16 per cent over the past five years in Africa, West Asia and Latin America (see table on page 16). This has led to significant increases in employment and investment levels. The strong growth in exports from developing countries has, to a large extent, been due to the steady reduction of global tariffs as barriers to trade. On average, world tariffs have declined from 11 per cent in 2000 to 7 per cent in 2006 (see Figure 1). However, there is still evidence that developing countries face disproportionately high tariffs and trade barriers on products of export interest for them (see Figure 2 on page 18). For example, in 2005, developing countries' agricultural exports faced, on average, a tariff of 8.9 per cent. Developed countries still impose tariffs on imports from developing countries that are twice as high as those from developed countries.(1)
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Figure 2. Evolution of Developed Countries' Tariffs on Developing Countries' exports (Per cent-Including preference) 1996 2000 2005 Developing countries Agriculture 10.6 9.4 8.9 Textile 7.3 6.6 5.3 Clothing 11.4 10.8 8.9 LDCs Agriculture 4 3.7 3.1 Textile 4.5 4 3.2 Clothing 8.1 7.8 6.6 Note: Table made from bar graph Per capita GDP growth by region and economic groupings, 1981-2007 (Per cent) Average annual growth Overall growth 1981-1989 1990-2002 2003-2007 1981-2007 World 1. …