The Challenge of Reducing Subsidies and Trade Barriers

Abstract

This is one of 10 studies for the Copenhagen Consensus Project that sought to evaluate the most feasible opportunities to improve welfare globally and alleviate poverty in developing countries. Anderson argues that phasing out distortionary government subsidies and barriers to international trade will yield an extraordinarily high benefit-cost ratio. A survey is provided of recent estimates using global economywide simulation models of the benefits of doing that by way of the current Doha round of multilateral trade negotiations. Even if adjustment costs are several times as large as suggested by available estimates, the benefit-cost ratio from seizing this opportunity exceeds 20. That is much higher than the rewards from regional or bilateral trade agreements or from providing preferential access for least-developed countries' exports to high-income countries. Such reform would simultaneously contribute to alleviating several of the other key challenges reflected in the United Nation's Millennium Development Goals.

This paper - a product of the Trade Team, Development Research Group - is part of a larger effort in the group to better understand the likely consequences of further trade liberalization for global economic welfare and its distributional effects, particularly for the poor in developing countries.

Keywords: trade policy reform, subsidy reduction, Doha Development Agenda

JEL Classification: F02, F13, F15, F17