Can Trade Help Lift People out of Poverty?

 

Introduction

 

Trade is the center of eliminating global poverty. Countries that open up international trade tend to develop faster, innovate, increase productivity, and provide their people with higher incomes and more opportunities. Open trade also benefits low-income households by providing consumers with more affordable goods and services. Integration with the world economy through trade and global value chains can help promote economic growth and reduce poverty both locally and globally.

This is essential to better balance the benefits of trade and growth with sustainable development. Paying close attention to the different effects of trade on the employment of different groups (Import and export competition), gender (male and female poverty) and geography (including rural areas and the urban poor). For export trade policy interventions to produce greater poverty alleviation effects, it is necessary to consider the situation of the poor in a particular country and their many roles as consumers, workers and producers. It will be better for countries to interlock aid and trade policy/measures, the coherent strategy for raising standard of living and reducing poverty. The poverty reduction in different developing and least developed countries will help in achieving the very first Sustainable development goal – No Poverty.

 

Causes

In the war against poverty, it is important to understand the underlying causes. However, it is pertinent to mention here that the causes of poverty vary with respect to nations, regions and in comparison with other countries at global level.

Here are some of the main cause of poverty faced around the world:

·       Inadequate access to clean water and nutritious food

Currently, around 2 billion people globally lack clean drinking water at home and around 800 million people suffer from hunger. Water insecurity and hunger are the biggest causes of poverty. It’s that simple, if people don’t get enough food, they will not have strength and energy needed to work. The lack of access of food and clean water also lead to illness like diarrhea that shifts people from poverty to extreme poverty.

·       Warfare/Conflict

The war has forced millions of people to flee their homes. They lost their jobs, homes and even families, so now lives in poverty. During a war, the country's productivity falls and its GDP falls. Political and social unrest and general unrest prevented foreign and domestic entrepreneurs from investing in the country. In addition, access to basic services (such as health care, education, and even drinking water) is also hampered, reducing the quality of life of local residents.

Example- Due to civil war in Syria, around 70% of the total population now lives below poverty line – this is the country where extreme poverty was once very rare.

 

·       Backward Agriculture

In developed countries, agricultural modernization has created a smaller and more efficient agricultural sector. This led to the transformation of the economy into industry and services. This increases the wages of urban and rural workers; the latter will have to make more money in order to sustain higher food prices. However, in developing countries the agricultural sector continues to make up a significant part of the economy. As a result, agricultural prices are still low enough to attract people living in cities. This keeps farmers below the poverty line and can destabilize the country over time.

 

·       Discrimination and Social Inequality

 

According to the United Nations Social Policy and Development Division, “Inequalities in income distribution and access to productive resources, basic social services, opportunities, markets and information have been on the rise worldwide, often causing and exacerbating poverty.” 

In India and many other parts of the world, several groups of people suffer discrimination and inequality because of their age, race, religion and gender. This stems from the belief that some people are less valuable than others. This prejudice has led to the creation of a two-tier society in which the opportunities for people facing discrimination are different from those for privileged people.

 

·       Poor Education

Not everyone without education lives in extreme poverty. However, most of the extremely poor are uneducated. why is it so? There are many obstacles preventing children from going to school. Many families cannot send their children to school and must work. More importantly, girls' education continues to fail. Education is often referred to as a great balancer because education can open the door to jobs and other resources and skills that families need not only to survive, but also to thrive.

 

·       Natural Disasters

 

Less developed and developing countries are systematically less prepared for the impact of natural disasters (such as hurricanes, earthquakes, droughts and floods) than developed countries; therefore, it takes them longer to recover from these events. And it often turns out that this is impossible. In addition, the limited resources of these countries prevent them from making plans in the face of crises. Finally, the same lack of resources prevents them from repairing the damage.

 

Recently, COVID-19 has adversely affected poverty around the globe. The table below shows the comparison of estimated global poverty pre-COVID-19 and post COVID-19.

 

Table – Changes in Global Poverty due to COVID-19

 

 

·       Lack of Infrastructure

Lack of infrastructure, from roads, bridges and wells to cables, mobile phones and the Internet, can isolate rural communities. Living "Isolated life" means not being able to go to school, work, buy or sell goods in the market. Providing basic services remotely requires not only time but also money, thus, keeps families in poverty. 

 

·       Centralization of power and corruption

 

As a society develops and gets bigger, the need for more political representatives in all levels arises. Centralization comes when political leaders fail to delegate power at regional and local levels; thus having a small group of people often ruling over places they are not familiar with. This results in neglect of vital duties and corruption, when leaders take money meant to ameliorate the quality of life of their citizens and use it for personal matters.

 

Causes of Poverty in Pakistan

Like other countries, poverty is also a growing concern for our country - Pakistan. Some of the major causes of poverty in Pakistan are: poor governance, corruption, highest population growth rate, largely uneducated population, trade deficit, melting economic growth etc. It is important for our country to focus on poverty alleviation strategies otherwise it may result devastating consequences.

 

Consequences

Regardless of its causes, poverty has devastating consequences for the people living in it. Following are some of the major consequences of poverty adversely effecting nations, regions and countries globally.

 

·       Poverty results in negative economic growth of the country.

·       The people living in poverty are at greater risk of family problems such as divorce and domestic violence. One of the major reasons of family problem is stress. The poor families have stress due to their poverty. Usually the ordinary stress in poor families even become intensified, thus results in mental health problems in young individuals globally.

·       Childhood poverty effects the children in a way that they are more likely to become poor as adults, more likely to drop out of school, more likely to become teenage parents and more likely to be unemployed.

·       Poor people are face health problems, such as infant death, early adult death and mental illness, and are available with inadequate health care.

·       Poor children usually go to dilapidated schools with low levels of education and poor conditions. Compared to wealthy kids, poor children are less likely to graduate from high school or go to college. Lack of education also plunges them and their children into poverty and once again perpetuates the cycle of poverty for generations.

·       People living in poverty have to face homelessness.

 

It is clear from the above discussion that as a consequence of poverty around 1.89 billion people, or nearly 36% of the world's population, people globally are deprived of even basic necessities of life - bread, clothing and shelter. As basic necessities are not available, therefore, non-availability of health care, education etc. is already known.

 

 

 

Analysis / Discussion

 

Trade can be a powerful engine of economic growth and poverty reduction, but without trade openness many developing countries and LDCs find it difficult to harness the power of trade. According to research from the World Trade Organization and World Bank Group, “Trade has played a critical role in poverty reduction...the further integration of developing countries into an open global economy will be essential for achieving the goal of ending extreme poverty by 2030.”

 

Many developing countries, especially the smaller and poorer ones, continue to be on the edge of the world market. For them, the implementation of trade facilitation measures is an excellent opportunity to promote economic growth, and this opportunity has not been fully utilized. Trade Facilitation is an attempt to facilitate world trade by reducing bureaucracy and simplifying customs. In short: make it easier for countries to trade internationally. For ending poverty, economic growth, innovation and job creation in the developing and LDCs, trade facilitation is an essential factor.

 

Most of the countries around the world already realized the importance of trade openness for ending poverty at national as well as international level. Here are few examples of trade policy measures implemented by various countries globally:

·       Free trade agreements are agreements reached between two or more countries with the aim of lowering import and export barriers. Under free trade policies, goods and services can be bought and sold across international borders with little or no government tariffs, quotas, subsidies or restrictions prohibiting trade or trade exchanges.

Pakistan is also a developing country and know the importance of trade policy measure, thus it had already signed Free Trade Agreement with Sri Lanka, Malaysia and China.

·       The EU's Generalized System of Preferences has eliminated import duties on goods entering the EU market from vulnerable developing countries. It helps developing countries to reduce poverty and create jobs based on international values ​​and principles, including labor and human rights.

Pakistan is also member of EU’s Generalized Preference Scheme.

 

Currently, with the exception of a few products, tariffs in most countries are relatively low. But trade-related costs still exist, such as buying goods through customs at international borders, that are estimated to be one-tenth of the total value of international trade.

 

For reducing trade related cost, member countries of the World Trade Organization (WTO) decided to implement the Trade Facilitation Agreement (TFA) in 2014, they took an important step to reduce those costs, which was agreed in Bali a year ago. The TFA includes provisions for expediting the movement, release and customs clearance of goods (including goods in transit). It also provides measures for effective cooperation between customs and other relevant authorities on trade facilitation and customs compliance.

 

Even World trade Organization is playing its part in reducing cost of trade and enabling developing and LDCs in poverty alleviation. It is important to share the examples of China, by enabling trade and implementing favorable trade policies China has pulled millions of people out of poverty.

 

Conclusion

 

Trade stimulates economic growth that ultimately results in ending poverty globally through:

·       Creation of new job opportunities

·       Raising the wages of unskilled labor

·       Lowering prices of products consumed by the poor

·       Improving access to external world markets for the good that the poor produce

 

While concluding the research, I think it’s important to share the example of our own country Pakistan. The new government came into power in 2018 and started implementing favorable trade policies for facilitating local exporter. As a result, Pakistan trade deficit for 11 months (July to May) of the current fiscal year decreased by 27.77%. According to the latest figures from the Pakistani Bureau of Statistics (PBS), the country's trade deficit from July to May in FY20 was $ 21.058 billion, up from $ 29.154 billion in the same period last year.

Our Government knows that ‘by enable trade they will achieve economic growth that will ultimately result in ending poverty in Pakistan’.

 

Ending lines of my research paper will be:

 

Can trade help lift people out of poverty? In my opinion, it can and it has.

 

Links

https://www.flexport.com/blog/does-trade-reduce-poverty-an-analysis-from-our-chief-economist/

https://borgenproject.org/worst-consequences-of-poverty/

http://gsdrc.org/docs/open/hdq1118.pdf

The Reporter, Trade deficit surges 19.5pc in September, Dawn News

https://www.oecd.org/site/tadpd/41231150.pdf