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  June 4th, 2016 | Written by

Trade’s Central Role in Alleviating Poverty

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  • Vietnam enacted trade reforms and experienced a significant reduction in poverty.
  • Rural Cambodians earn greater incomes from rice production by selling in international markets.
  • Future work to bring developing countries into the trading system will involve further lowering trade costs.

Trade has a central role in achieving the goal of ending poverty—but more needs to be done to take full advantage of the opportunities presented by trade.

That was the central message of a recent report jointly released by the World Bank and the World Trade Organization.

Commenting on the implications of the report, Anabel Gonzalez, senior director of the World Bank’s trade and competitiveness practice, in a speech before WTO/World Bank Trade and Poverty Forum in Geneva in late May, noted that “remarkable progress has been made in integrating developing countries into international trade.”

Since 2000, she added, the share of world trade attributable to developing countries has grown from one-third to one-half. That growth has contributed to the halving of the proportion of the world’s population living in extreme poverty between 1990 and 2010.

Trade will be just as important in achieving the the World Bank Group’s goal of ending poverty by 2030, said Gonzalez.

Among countries that have connected the poor to the benefits of trade, Vietnam has experienced a significant reduction in poverty and increasing involvement in manufacturing and services. The country enacted trade and other reforms in the 1980s that helped Vietnam become a top exporter of rice, coffee, and tea over the intervening 30 years.

“Vietnam’s success was not just about lowering trade barriers,” said Gonzalez. “It was part of a wider process of economic reform, which transformed the climate for private sector-led development, and facilitated a strong impact on poverty of Vietnam’s integration into trade.” Since the 1980s, Vietnam has been able to cut poverty from 57 percent to 5 percent.

Cambodia has seen poverty fall from 52 percent to 24 percent between 2004 and 2011. Reforms have helped rural Cambodians earn greater incomes from rice production by selling in international markets. Trade also led to new jobs in the garment sector in urban areas of Cambodia. “This all took place in the context of improvements in health and education, and significant government investment in infrastructure,” said Gonzalez, “which provided a more favorable environment for the poor.”

China has tripled its share of world trade since joining the WTO in 2001 and has cut poverty from 36 percent in the late 1990s to 6 percent in 2011.

Future work must be done to bring developing countries into the trading system, Gonzalez said, especially in the area of lowering trade costs.

A second area is about addressing the trade-related costs faced by the poor within borders. “These costs,” said Gonzalez, “are generated by constraints like living in remote, rural areas, gender inequality, fragility and conflict, and being in the informal sector.”