More trade, less poverty

July 12, 2006

Free Market Foundation

Economists have determined over and over again that the more ambitious the opening of trade flows, the greater the results. The data also make it clear that the most effective way for developed countries to assist developing countries through trade is to lower agricultural tariffs, says U.S. trade representative Susan Schwab.

Consider:

A 50 per cent cut in tariffs, agricultural export subsidies and domestic support programmes of Organisation for Economic Co-operation and Development (OECD) countries would account for 59 per cent of the total potential global economic gains from expanded trade in all types of goods.

Eliminating trade barriers between developing countries in goods alone (not including trade in the rapidly growing services sector), could boost developing country incomes by at least $142 billion a year.

In the 1990s, per capita real income grew three times faster for developing countries that significantly lowered trade barriers (5 per cent) than for other developing countries that lowered barriers less (1.4 per cent).

It’s also important to note, says Schwab, that the benefits of liberalising trade would exceed the combined total of $80 billion in foreign economic assistance by G-7 countries last year and a current G-7 proposal for $42 billion for developing country debt relief.

Source: Susan Schwab, More Trade, Less Poverty, Wall Street Journal, June 29, 2006

For text (subscription required): http://online.wsj.com/article/SB115154575286293835.html

For more on Trade: http://www.ncpa.org/pd/trade/trade.html

FMF Policy Bulletin/ 04 July 2006