Does Trade Contribute to Poverty Reduction? If It Does, Where the Benefit Go?

Abstract

World trade volume has been greatly increasing with the active flow of trade liberalization, and the role of international trade in world economy became more substantial. Considering the importance of trade in one’s economy it is necessary to think about whether the benefit is proportionally distributed. Many empirical studies attempted to identify the trade and poverty interaction, however, the linkage between trade and poverty reduction is a controversial topic. This study aims to assess the effect of trade on the increase and decrease of poverty and find whether there are differences by region (rural and urban) and continent (Asia and Central and South America).

The results indicate that:

1) an increase in export share contributes to national and urban poverty reduction, but the effect of exports on the rural poverty is vague;

2) an increase in import share is found to be beneficial for poverty reduction in Central and South America, but the opposite in Asian countries.

Keywords: Developing Country, Poverty Reduction, Rural Poverty, Trade, Urban Poverty

JEL Classification: F69, I32