Trade and Poverty in the Poor Countries

While freer trade, or “openness” in trade, is now widely regarded as economically benign, in the sense that it increases the size of the pie, the recent anti-globalization critics have suggested that it is socially malign on several dimensions, among them the question of poverty. Their contention is that trade accentuates not ameliorates, deepens not diminishes, poverty in both the rich and the poor countries. The theoretical and empirical analysis of the impact of freer trade on poverty in the rich and in the poor countries is not symmetric, of course. We focus here therefore only on the latter. But in doing so, we distinguish between two different strands of argumentation: static and dynamic. In the former case, we treat the resources and technology to be given and then ask: how does freer trade affect poverty in this static framework. In the latter case, we admit growth effects that impact on the state of poverty over time.