While trade policy is given importance little has been asked about how trade liberalisation effects the poor of our country," said Dr Saman Kelegama, Executive Director, Institute of Policy Studies. "After opening up our economy in 1977 many reforms have taken place which have led to growth in trade, and today imports and exports add up to 70 percent of our GDP," he told the Island Financial Review. Does trade work for the poor? Can we make trade work for the poor? If there are links between imports and exports and poverty, what are these links? Does trade work for the poor? "Opinion is divided. The UN for example had a slogan that said, ‘Making Trade Work for the Poor’ and some economists and activists had a slogan that said, ‘Trading out of Poverty’. In-between them are those who say that trade will work for the poor only if certain conditions are met. But what exactly are these conditions," he asked. He pointed out that poverty in Sri Lanka had reduced from 22 percent in 2002 to 16 percent in 2007. "Is this a result of trade, or is it a result of government policies, or even worker remittances?" These questions are being asked by economists, academics and policy-makers world over. The Institute of Policy Studies and the Friedrich Ebert Stiftung, Colombo, organised a two day conference on Trade-Poverty Nexus in South Asia to try and find commonalities between the experiences of each country of the region, in relation to trade policy and poverty, in a bid to shed more light on the issue. South Asia is home to 46 percent of the world’s poor while being the second fastest growing region. Finding a link between trade liberalisation and poverty is all the more important in light of the Millennium Development Goals, where poverty is hoped to be halved by 2015. The oil and food crisis’s are a major setback to achieving this goal. Furthermore, the socio-economic consequences of poverty are a driving factor behind finding the elusive link as governments and global institutions strive to bring down poverty levels. In his introduction to the conference, Dr Kelegama said that the direct link between trade liberalisation and poverty is difficult to measure because trade liberalisation and poverty are themselves difficult to measure. Poverty is heterogeneous with many dimensions and with many reasons which contribute to poverty; it is difficult to measure such a complex and multidimensional concept. Trade liberalisation affects relative prices of goods, services and factors of production which in turn affect household, investment and saving decisions. It affects government income and expenditure. Rural infrastructure and market structures also determine the affects of trade liberalisation on an economy. "Because of all these complexities, there is debate over the trade-poverty link in literature. As reviewed by many authors, establishing the trade-poverty nexus is an even more difficult task," Dr Kelegama said. The delegates of Afghanistan, Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan and Sri Lanka presented preliminary drafts on trade-poverty nexus studies based on each country’s experience which are to be published later in the year. The elusive link Jayatilleke Bandara, Associate Professor, University of Griffith Department of Accounting, Finance and Economics, presented a paper on the evidence of previous studies on trade-poverty nexus in the South Asian region. He said that the studies showed contradictory results. While some studies showed that trade liberalisation reduced poverty, others showed that it had increased poverty. He pointed out for instance, that three global studies on poverty gave three different figures. One said 24 percent of the world’s population lived below the US$ 1 a day poverty line. Each of the other two studies claimed it was 6.7 percent and 32 percent respectively. The effect trade liberalisation had on poverty filtered down through many chanelles and it was difficult to capture the effect each channel had on poverty and contradictory theories floating around did not make things easy either. His study on previous works drew the following conclusions. The link between trade liberalisation and poverty was not clear and proved to be difficult to study due to complexities in assumptions and calculations. While some countries in the region had managed to reduce poverty as a result of trade liberalisation some segments among the poor were adversely affected. Trade liberalisation alone would not reduce poverty but would need to be complemented by other policies (such as safety nets for domestic segments, proper public service delivery in rural areas, investment in rural infrastructure and domestic commodity and factor market reforms) which will reduce poverty while implementing trade policy reforms. And importantly, "Good governance is important to spread the benefits of trade liberalisation across society and regions," Prof Bandara said. Conclusions Prof Premachandra Athukorala presented the conclusions derived from the conference. He reiterated the conclusions drawn by Prof Bandara that the link between trade liberalisation and poverty was difficult to establish and that trade liberalisation needed complementary policies in order to benefit the poor. "While trade liberalisation had a favourable impact on growth, employment and poverty reduction across the region, there is no unique relationship that can be identified. The degree that trade has impacted on poverty varies from country to country." "Macro economic policies, liberalising the role of foreign direct investments and labour market reforms are key areas that need to be looked at if trade liberalisation is to benefit the poor," Prof Athukorala said. |
