Trade and Poverty

Journal of International Trade & Commerce (J. Int. Trade Commer.
) ISSN 1738-8112 (Print)

Vol.14, No.2, April 2018 (pp.163-178) ISSN 2384-1958 (Online)
http://dx.doi.org/10.16980/jitc.14.2.201804.163
Does Trade Contribute to Poverty Reduction? If It Does,

Where the Benefit Go?
Sae-Ra Oha, Sang-Hyeon Leeb
a
Department of Global Cooperation Research, Korea Rural Economic Institute, South Korea
b
Department of Agricultural and Resource Economics, Kangwon National University, South Korea
Received 20 February 2018, Revised 05 April 2018, Accepted 23 April 2018
Abstract
World trade volume has been greatly increasing with the active flow of trade liberalization,
and the role of international trade in world economy became more substantial. Considering the
importance of trade in one’s economy it is necessary to think about whether the benefit is
proportionally distributed. Many empirical studies attempted to identify the trade and poverty
interaction, however, the linkage between trade and poverty reduction is a controversial topic.
This study aims to assess the effect of trade on the increase and decrease of poverty and find
whether there are differences by region (rural and urban) and continent (Asia and Central and
South America). The results indicate that 1) an increase in export share contributes to national
and urban poverty reduction, but the effect of exports on the rural poverty is vague; 2) an
increase in import share is found to be beneficial for poverty reduction in Central and South
America, but the opposite in Asian countries.
Keywords: Developing Country, Poverty Reduction, Rural Poverty, Trade, Urban Poverty
JEL Classifications: F69, I32
Ⅰ. Introduction population living on less than 1.90 USD a day,

has fallen from 35% in 1990 to 9.6% in 2015
World trade volume has been greatly in- (projection). Specifically, in developing coun-
creased from 8.8 trillion US dollars in 1990 tries, the absolute poverty rate fell from 42.2%
to 43.1 trillion US dollars in 2015 due to the in 1990 to 11.9% in 2015 (projection).
active flow of trade liberalization since the Looking over trade expansion and economic
1990s. The role of international trade in world growth with a poverty reduction trend, a ques-
economy has become more substantial in that tion about the trade and poverty relationship
the trade value share of world GDP increased arises: does trade contribute to poverty reduc-
from 39.1% to 58.3% in the respective year. tion? In regard to this question, many empiri-
According to World Bank (2017), the absolute cal studies have attempted to identify the
poverty rate, which is the percentage of world trade and poverty interaction, and still it is a
a
First Author, E-mail: aminail@krei.re.kr
b
Corresponding Author, E-mail: shl@kangwonn.ac.kr
Ⓒ 2018 The Korea International Trade Research Institute. All rights reserved.
Electronic copy available at: https://ssrn.com/abstract=3308913

164 Journal of International Trade & Commerce Vol. 14, No. 2, April 2018
contentious debate. The approaches of trade trade on national and regional (rural and ur-
and poverty studies can be classified into two ban) poverty and find whether there is a dif-
categories. First, the trade and poverty rela- ference by continent (Asia and Central and
tionship is strongly mediated by economic South America). This study is organized as fol-
growth (Berg and Krueger, 2003; Bhagwati lows: Section 2 reviews relevant literature
and Srinivasan, 2002; Dollar and Kraay, 2004). guided by a research question: what is the re-
Second, trade affects poverty through various lationship between trade and poverty, and are
channels, such as the impact on the market, benefits equal across region? Section 3 in-
wages, employment, and so on (Bacchetta, troduces the data, its descriptions, and the em-
Ernst and Bustamante, 2009; Goldberge and pirical method. This paper uses a two-way
Pavcnik, 2004; Winters, McCulloch and McKay, fixed effect model to detect the effect of trade
2004). One step further, some studies (Cain, on poverty at both the national and regional
Hasan and Mitra, 2010; Krishna, Mitra and levels. Section 4 describes the results of the
Sundaram, 2010) point out that benefits of regression, and Section 5 concludes.
trade may be different among regions or in-
dustry sectors because of the lack of a capacity
to capture advantages. Cain, Hasan and Mitra Ⅱ. Theoretical Framework
(2010) performed an Indian case study and
found that the gains from trade openness
largely goes to the region with a more flexible
1. Trade and Poverty Nexus
labor market, and Krishna, Mitra and
After reviewing previous literature, the per-
Sundaram (2010) found evidence that positive
spectives on the trade and poverty nexus can
effects of trade liberalization on poverty re-
be classified into two main branches.
duction are smaller in lagging regions in South
Asian countries. These studies bring to light
1.1. Trade-Growth-Poverty
thoughts that the benefit of trade may not al-
ways be identical depending on where poverty Berg and Krueger (2003), Bhagwati and
resides. Srinivasan (2002), Dollar and Kraay (2004)
According to the Heckscher-Ohlin theory, and many other subsequent studies assumed
the countries exports goods that use in- that trade powerfully or generally triggers
tensively abundant factors, and imports goods economic growth, and in turn, poverty
that use scarce factors intensively. Depending alleviation. In this perspective, the Trade-
on the region, for example, Asia or America, Growth and Growth-Poverty linkages should
rural or urban, abundant factors and scarce be defined. However, they are not yet decisive
factors may be different. Therefore, the goods and create many disputes in empirical
produced by each region will be different, and literature. In the case of the Trade-Growth
the increase or decrease in trade will have a ①
linkage < in Fig. 1>, previous studies domi-
different impact on the local economy depend- nantly support the positive effect of trade on
ing on the types of factors available in the growth (Busse and Königer, 2012; Dollar and
region. Kraay, 2004; Kang Hyun-Soo, 2013; Kim
Therefore, we aim to assess the impact of Sae-Young, 2016; Lee, Ricci and Rigobon,

Does Trade Contribute to Poverty Reduction? If It Does, Where the Benefit Go? 165
Fig. 1. Trade-Poverty Nexus
2004). 1.2. Various Channels

The other side of the studies are
conservative. They hold the view that the rela- Trade-Poverty link is expected to operate
tionship is conditional and hard to generalize ③
via various channels < in Fig. 1> (Winters,
(Mendoza, 2010; Rodríguez, 2007), or that McCulloch and McKay, 2004). OECD (2007)
trade is not the only contributor to growth clarifies the six main trade-poverty trans-
(USTR, 2016). The Growth-Poverty linkage mission mechanisms <Fig. 2>. According to
②
< in Fig. 1> has been documented, and the the OECD (2007), changes in trade and trade
majority, including various international de- policy bring changes to the poor through taxes
velopment agencies, take the view that eco- and transfer systems, prices, assets, employ-
nomic growth is the most effective way to de- ment, access to goods and services, and au-
liver a better life to the poor (DFID, 2008; thority (understandable as governance)
Roemer, 1997). However, there is remaining channels. Here, this section will briefly review
doubt that if growth gains are captured more literature related to price and employment
by the non-poor than the poor, the growth ef- channels which seem to have a direct effect
fect on poverty reduction might be attenuated on impoverished citizens income and expen-
(Ravaillion, 2006). ditures.

Fig. 2. Schematic Representation of Various Channels of Trade-poverty Linkages
Source: Author’s reconfiguration and modification using Vandemoortele, Harris and Bird (2010).
1.2.1. Price the Heckscher-Ohlin model and the Stolper-

Samuelson theorem. Some empirical studies
Price channels include changes in consumer
are inconsistent with the traditional frame-
price, input price and also changes in interest
work because of reasons such as the
rates. The shift in relative price in an economy
skill-biased wage premium accompanied by
induced by trade affects households or in-
trade liberalization, or employment creation
dividual income, and consumption and real
which requires new skills (Nicita, 2006;
price change, in particular in staples or inputs,
Winters, McCulloch and McKay, 2004). In addi-
directly affect the poor (Vandemoortele,
tion, Cain, Hasan and Mitra (2010) inves-
Harris and Bird, 2010).
tigated the impact of trade openness on pov-
erty in India and found that tariff reduction
1.2.2. Wage and Employment
is beneficial for the poor, but it depends on
Previous studies note that trade can affect labor market flexibility. The type of employ-
poverty via the impact it has on employment ment (formal, informal, and self-employment)
(and wage). For the wage aspect, traditional is also considered. Goldberge and Pavcnik
trade theory suggests that trade liberalization (2004) explained that when imports increase,
is associated with poverty and inequality re- unemployment and informality are likely to
duction in developing countries via increasing rise in import competitive sectors, and this is
the of wages of unskilled workers based on associated with a high incidence of poverty

increases. Export increases operate in the op- that one country’s development strategy has
posite way. Popli (2010) studied the impact disproportionally focused on resources in the
of liberalization on income inequality and pov- urban sector, and this increased the develop-
erty among Mexican self-employed workers, ment gap between rural and urban areas.
and found regional differences. <Table 1> is the Multidimensional Poverty
Price, wage, and employment are also close- Index (MPI) developed by the Oxford Poverty
ly connected. According to Krivonos and and Human Development Institute (OPHI) and
Olarreaga (2006), who simulated the impact UN Development Program. MPI assesses pov-
of sugar liberalization in OECD countries on erty via health, education, and living stand-
Brazilians, workers in the sugar industry and ards, which are non-monetary measures, and
living in main production regions have a to some extent, it shows the deprivation of ba-
chance of wage increase when sugar prices sic principles in the region or country. Every
increase. In particular, poor households gain continent group in <Table 1> has a greater
income due to the change from unemployment number of poor in rural rather than urban
to employment. areas, and the share of rural poor among the
rural population is over 60%. Fewer chances
2. Poverty in Rural and Urban of improving labor productivity and income
per capita are expected in rural areas and con-
Many studies in the field of poverty call at- sequently, it increases the concentration of
tention to regional difference. Accumulated poverty among the rural population (Fan,
evidence at this point states that poverty is Chen-Kang and Mukherjee, 2005).
a predominant phenomenon in rural areas. In this regard, the effect of trade may ap-
Fan, Chen-Kang and Mukherjee (2005) notes pear dissimilar in rural and urban areas, and
Table 1. MPI Poverty by Region

(Unit: Thousand, %)
MPI Poor
Living
Number of Total Number of Number of Number of
in Rural
Countries Population MPI Poor Rural Poor Urban Poor
Areas
(Rural Share)
All 105 4,001,345 1,433,456 1,214,322 219,134 84.7
East Asia & Pacific 9 514,360 64,663 46,863 17,800 72.5
Europe & Central Asia 17 233,731 8,820 5,543 3,277 62.8
Latin America & Caribbean 15 469,739 28,697 19,953 8,744 69.5
Middle East & North Africa 9 206,909 25,345 19,074 6,271 75.3
South Asia 8 1,606,945 833,946 719,496 114,450 86.3
Sub-Saharan Africa 38 789,187 469,342 402,637 66,705 85.8
High Income Countries 9 180,474 2,643 756 1,887 28.6
Source: Alkire et al. (2014).

in many cases, the poor in rural areas have pressed as follows.

fewer advantages than the urban poor.
Topalova (2007/2010) examined the effects of       
India’s trade reform on the poverty rate and
        (1)
concluded that rural areas in which employ-
ment was concentrated in sectors exposed to
larger tariff reductions experienced sub- This framework is supposed to capture the
stantially less poverty reduction than un- effects of macroeconomic factors on poverty.
exposed areas, while the relationship between The macroeconomic factors include economic
trade and poverty in urban India was not sig- environments (  ), governance indicator
nificant or weak. In short, Topalova suggested ( ), and human resource quality ( ).
that the poor in rural areas do not gain from Factors related to the economic environment
trade openness as much as the poor in urban are classified into external environment (tra-
areas. Similarly, Krishna, Mitra and Sundaram de) and internal environment, and the internal
(2010) found that the positive relationship be- environment includes inflation, GDP per capita,
tween trade and poverty reduction is weaker and financial depth.
in lagging states in India. Cockburn (2005) To determine the optimal one between
used a CGE model to analyze the impact of fixed effect model and random model, the
trade liberalization on the poor and found that hausman test was conducted and the chi-
a price reduction on agricultural products square value was 123.28. Therefore random
caused by liberalization benefits the urban effect model rejected in favor of the fixed effect
poor, but harms the rural poor. model. The equation for estimating the effect
of trade on poverty is basically defined as (2).
Considering heterogeneity, a two-way fixed ef-
Ⅲ. Data and Methods fect model was performed to control for both
country-specific and time-specific effects. It is
In order to examine the effect of trade on simply generated by the addition of year dum-
overall national and regional (rural and ur- mies in the general fixed effect model. As al-
ban) poverty and observe whether the effect ready stated, an empirical objective of this
of trade is different depending on continent, study is investigating how differently trade in-
this study composes the macro level dataset fluences the poor living in rural and urban
using various World Bank databases. The data- areas. We conducted separate regressions on
set consists of cross-country and annual national, rural, and urban poverty using equa-
time-series data for 20 countries from 1990 tion (2).
to 2015. The selected 20 countries (see
Appendix) are developing nations according to         
the IMF’s World Economic Outlook (2015),
      
which has national, rural, and urban poverty
data for at least a 5 year period. Due to limited          (2)
data availability, the dataset is unbalanced.
The determinant of poverty ratio can be ex- Dependent variable(     ) is the

poverty rate in each country  in year  and poverty rate data is obtained from the World
the superscript  denotes the region (overall, Bank’s World Development Indicator (WDI)
rural and urban). The RHS of equation (2) are database. The measure of poverty rate is the
the fixed effect term (  ), independent vari- population ratio below the country-specific
ables (     ,    ,    ,     , poverty line estimated from household
   ,   ,   ), year dummies ( ) and surveys. Overall, the national poverty head-
error term (   ). Independent variables are count ratio is the percentage of the national
selected based on lessons from previous stud- population living below the national threshold.
ies (Dollar and Kraay, 2004; Le Goff and Singh, Rural and urban poverty headcount ratios are
2014; Thelle et al., 2015), also known as fac- the percentage of the rural and urban pop-
tors affecting poverty. Additionally, as seen in ulation living below the national threshold.
<Table 1>, national and regional poverty lev- The summary statistics of all observations are
els vary across the continents. Therefore, sam- listed in <Table 2> and <Table 3> shows
ples were divided into continent groups, Asia summary of country groups.
and Central and South America, and then re- Independent variables include two trade
gressions were repeated. Africa countries variables, export share (   ) and import
were excluded from the analysis due to miss- share (  ), and other control variables
ing key variables. As the study relies on secon- such as GDP per capita (  ), inflation
dary data, the limitation of this study is that (  ), financial depth ( ), rule of law ( ),
African countries with many poverty pop- and primary education completion ratio
ulations are excluded from the analysis. (). Trade variables are export and import

Dependent variables (   ) are the shares (of GDP), obtained from World Bank’s
national, rural, and urban poverty rate. All WDI database. There are two types of open-
Table 2. Summary Statistics for Estimation Samples (No. of Observation=158)

Standard
Variable Unit Mean Minimum Maximum
Deviation
National Poverty Headcount Ratio % 31.1 16.9 0.6 66.5
Rural Poverty Headcount Ratio % 40.4 21.6 1.6 87.0
Urban Poverty Headcount Ratio % 24.8 15.6 0.3 63.6
Export Share (of GDP) % 37.4 17.7 14.8 115.4
Import Share (of GDP) % 41.6 19.9 17.8 95.3
GDP Per Capita $ 4,938 3,148 504 14,364
Inflation 6.8 8.9 -0.9 96.1
Financial Depth 36.0 21.9 7.2 121.8
Rule of Law -0.6 0.6 -1.4 1.4
Primary Education Completion Ratio % 98.9 8.2 66.4 124.1

Table 3. Summary Statistics for Estimation Samples by Continent

Asian Countries (observation=65, countries=9)
Standard
Deviation
GDP Per Capita $ 4,938 3,148 504 14,364
Inflation 6.8 8.9 -0.9 96.1
Financial Depth 36.0 21.9 7.2 121.8
Rule of Law -0.6 0.6 -1.4 1.4
Central and South American Countries (observation=93, countries=11)
Standard
Deviation
GDP Per Capita $ 4,896 2,757 1,616 14,364
Inflation 6.5 10.9 0.2 96.1
Financial Depth 34.4 15.7 14.7 106.0
Rule of Law -0.6 0.6 -1.2 1.4
ness measures broadly used (Ahmed, 2012). Thornquist, 2015) and import share of GDP
One is the sum of export and import shares as trade variables (Thelle et al., 2015).
of GDP, or its log form (Dollar and Kraay, According to Harrison (2007), export share
2004; Ravallion, 2006), which is trade volume, tends to be associated with poverty reduction
or tariffs or non-tariff barriers (Cain, Hasan while an increase in import share or import
and Mitra, 2010; Topalova, 2007) reflecting tariff reduction tends to be associated with in-
trade policy. However, many studies have creasing poverty.
criticized the reasonability of the proxy of GDP per capita ( ) is in constant 2010
trade openness or protection measures when US dollars, and it represents the economic
using cross-country data (Hayashikawa, 2009; growth level of countries. The inflation (  )
Rodriguez and Rodrik, 2000). This paper fo- indicator reflects the annual percentage
cuses on the nature of trade performance, so change in the consumer price index. The con-
we use export share (Santos-Paulino and nection between inflation and the poor is still

controversial, but many studies and logical (Early and Scott, 2010). As for the education
frames demonstrate that the poor suffer more factor (), this study uses the primary edu-
from inflation than the rich, and high inflation cation completion ratio as a well-known pov-
rates tend to increase the poverty rate erty determinant. This can be explained as
(Easterly and Fischer, 2001). The source of gross intake rate to the last grade of primary
GDP per capita and the inflation rate was also education according to the definition. In some
the World Bank’s WDI database. Financial countries, this value exceeds 100% due to
depth ( ) is one of the indicators for assess- those who entered primary school late, early,
ing the financial environment, measured by or repeated a grade. It was obtained from the
domestic credit in the private sector as a share World Bank’s Education Statistic database.
of GDP, and this is the growth opportunity of
the private sector. It was obtained from World
Bank’s Global Financial Development
database. Although attempts to figure out the Ⅳ. Results
relationship between financial development
and income distribution (inequality and pov- The results of regression using the full sam-
erty etc.) are quiet nascent (Naceur and Zhang, ple are listed in <Table 4>. First, see Column
2016), there are several studies focused on fi- 1, National Poverty; the estimation obtained
nancial depth and poverty reduction. Beck, indicates that an increase in export share con-
Demirgüç-Kunt and Levine (2007) and Rajan tributes to a poverty reduction as
and Luigi (2003) suggested that improve- Santos-Paulino and Thornquist (2015) and
ments in financial depth contributes to pov- Thelle et al. (2015) suggested. When GDP per
erty reduction by stimulating the income capita and level of financial depth increase, the
growth of the poor. Rule of law ( ) is one poverty rate is reduced. This are in line with
of the governance indicators from the the results of Le Goff and Singh (2014) and
Worldwide Governance Indicator in the World Talukdar (2012). Thus, it implies that econom-
Bank database. It captures the judicial di- ic growth and private sector activation can ef-
mension (for example, the protection of prop- fectively alleviate poverty in developing
erty rights) of governance, and generally rang- countries. Further, if the inflation rate be-
es from -2.5 to 2.5. Good governance is empha- comes higher, more people leave the poverty
sized as a prerequisite for poverty reduction, line behind. This is consistent with the results
especially in developing countries (United of Naceur and Zhang (2016). Next, in case of
Nation, 2005). Khan (2009) showed that there regional poverty, an increase of exports con-
was a negative correlation between the level tributes to poverty reduction both in rural and
of rule of law and poverty. Kwon and Kim urban areas. The effect of imports is not sig-
(2014) tested this correlation by continent nificantly observed in these regressions, but
and found a negative correlation in East Asia, the result of other variables holds the same
Latin America, and the Middle East, but the as the national poverty regression. In summa-
marginal effect shows an adverse effect on tion, results of the full sample regression do
poverty reduction. The impact of rule of law not show any differences between national
on poverty reduction is an unsettled point and regional level poverty with regard to the

Table 4. Impacts of Trade on Poverty Rate

Dependent Variables
Independent Variables Total Poverty Rural Poverty Urban Poverty
Headcount Ratio Headcount Ratio Headcount Ratio
-0.45 *** -0.41 *** -0.43 ***
Export Share
(0.10) (0.13) (0.09)
0.09 0.20 -0.03
Import Share
(0.12) (0.15) (0.11)
-0.01 *** -0.01 *** -0.01 ***
GDP Per Capita
(0.00) (0.00) (0.00)
0.27 *** 0.20 *** 0.30 ***
Inflation
(0.05) (0.06) (0.05)
-0.27 *** -0.31 *** -0.23 ***
Financial Depth
(0.07) (0.08) (0.06)
-2.77 -2.57 -2.21
Rule of Law
(3.45) (4.18) (3.14)
0.13 0.09 0.11
Education
(0.09) (0.10) (0.08)
76.51 *** 89.47 *** 72.00 ***
Constant
(13.74) (16.64) (12.52)
Observations 158 158 158

Countries 20 20 20
R-square 0.33 0.28 0.24
F(19, 117) 59.70 67.12 72.48
Prob > F 0.00 0.00 0.00
Notes 1. All regression equations include year dummies.
2. *significant at 10% level; ** significant at 5% level; *** significant at 1% level; absolute value in parenthesis
is the standard error.
effect of trade. Export share does not affect national poverty,

This study conducted analyses for Asian, but at regional level, an increase contributes
Central, and South American countries sepa- to urban poverty reduction. In contrast, the re-
rately, and the results are presented in <Table sults show that an increase in import share
5>. Above all, the results imply that trade fac- worsens national and urban poverty.
tors affect the poverty rate differently across However, no trade variables show an apparent
the region and, interestingly, the impact of im- effect on rural poverty. GDP per capita growth,
port share is significantly observed, and sev- improvement in the level of financial depth,
eral differences are found between country and the rule of law index are found to be favor-
groups. able for both national and regional poverty
Columns 1, 3, and 5 of <Table 5> are the reduction. The marginal effect of rule of law
regression results of the Asian countries. on poverty is different from Kwon and Kim

Table 5. Impact of Trade on Poverty Rate by Country Group

Dependent Variables
Total Poverty Headcount Ratio Rural Poverty Headcount Ratio Urban Poverty Headcount Ratio
Independent
Variable Central and Central and Central and
Asia South Asia South Asia South
America America America
-0.22 -0.47 *** -0.16 -0.10 -0.24 ** -0.61 ***
Export Share
(0.15) (0.17) (0.18) (0.21) (0.11) (0.16)
0.44 ** -0.53 *** 0.35 -0.75 *** 0.33 ** -0.43 **
Import Share
(0.19) (0.19) (0.22) (0.25) (0.13) (0.18)
-0.00 ** -0.01 *** -0.01 *** -0.01 *** -0.00 *** -0.01 ***
GDP Per Capita
(0.00) (0.00) (0.00) (0.00) (0.00) (0.00)
0.08 0.28 *** -0.00 0.17 ** 0.11 0.33 ***
Inflation
(0.20) (0.05) (0.24) (0.07) (0.15) (0.05)
-0.38 *** -0.25 ** -0.44 *** -0.04 -0.28 *** -0.36 ***
Financial Depth
(0.08) (0.11) (0.10) (0.15) (0.06) (0.11)
-16.00 ** 0.52 -18.77 ** 1.43 -10.89 * -0.91
Rule of Law
(7.60) (4.10) (9.02) (5.25) (5.43) (3.85)
-0.13 0.11 -0.09 0.00 -0.22 0.15 *
Education
(0.19) (0.09) (0.22) (0.12) (0.13) (0.09)
59.68 ** 103.49 *** 80.91 *** 115.69 *** 60.07 *** 93.60 ***
Constant
(24.18) (14.54) (28.70) (18.63) (17.29) (13.65)
Observations 65 93 65 93 65 93
Countries 9 11 9 11 9 11
R-square 0.61 0.28 0.42 0.55 0.57 0.12
F(8, 36)=10.52 F(10, 62)=32.05 F(8, 36) =9.25 F(10, 62)=32.05 F(8, 36) =10.75 F(10, 62)=42.65
F-test
Prob > F=0.0 Prob > F=0.0 Prob > F=0.0 Prob > F=0.0 Prob > F=0.0 Prob>F=0.0
Notes 1. All regression equations include year dummies.
2. *significant at 10% level; ** significant at 5% level; *** significant at 1% level; absolute value in parenthesis
is the standard error.
(2014) and Thelle et al. (2015). Higher rule American countries. An increase in export
of law means that personal and civil liberties share has an effect on national poverty
are more protected, gender equity is greater, reduction. At a regional level, it significantly
public safety is more secure, and access to jus- contributes to urban poverty reduction. An in-
tice is ensured (United Nations, 2004). In this crease in import share contributes to both na-
regard, the result is in compliance with tional and regional (rural and urban) poverty
expectations. Inflation rate and education have reduction in Central and South American
no effect on Asian countries’ poverty. countries, and this result is a distinguishing
Columns 2, 4, and 6 of <Table 5> are re- point compared to Asian countries. In both na-
gression results for Central and South tional and regional level, GDP per capita

growth reduces the poverty rate, and inflation Ⅴ. Conclusion

increases increase the poverty rate. Lastly, the
impact of the primary education completion
Considering the importance of trade in the
rate on the poverty rate is only statistically
economy, it is necessary to think about wheth-
associated with urban poverty in a negative
er the benefits are proportionally distributed.
way for poverty reduction.
The World Bank and World Trade
The results of regression using country lev-
Organization (WTO) emphasize the role of
el data for 20 developing countries shows that
trade in ending poverty through spurring eco-
an increase in export share in one’s economy
nomic growth, technology development, em-
contributes to poverty reduction at both na-
ployment, and other various channels in the
tional and regional levels. Santos-Paulino and
WTO report “The Role of Trade in Ending
Thornquist (2015) supports our results, say-
Poverty“ (John et al., 2015). Also, the WTO has
ing that the positive effect of exports has a po-
led an international development initiative
tential for enhancing a country’s economic ca-
called ‘Aid for Trade’ to build the concept of
pacity and, in doing so, reducing poverty.
the trade as leverage to overcome poverty
This study demonstrates that trade factors
differently affect poverty rate across regions since 2005.
via continent group regression. In the case of There are various studies trying to identify
national poverty, an increase in export share the connection between trade and poverty.
benefits the poor in moving out of poverty in One perspective is that trade leads to poverty
Central and South America countries, but reduction through growth, but the systemic
there was no effect in Asian countries. relationship of trade and growth is still con-
Interestingly, an import share increase tends troversial in much literature. Another is a fo-
to reduce the poverty rate in Asian countries, cus on contextual factors engaged in the trans-
whereas it tends to reduce the poverty rate mission of trade benefits to the poor. Trade
in Central and South American countries. is somewhat beneficial for poverty reduction,
These results are expected to be due to differ- but it may not be an overriding factor
ences in labor market characteristics, espe- (Hayashikawa, 2009).
cially in import competitive sectors and in- Despite the ambiguous causality between
dustry structure. The effects of other variables trade and poverty transmission and in-
on poverty are mostly in line with previous sufficient data availability, this paper makes an
studies and meet our expectations. There are attempt to find how the effect of trade could
two thought-provoking points for the results be different by region and continent in the
of the regression by continent. One is that in- context of poverty reduction. As a result, an
flation is significant in Central and South increase in export share contributes to na-
American countries. This result is understood tional and urban poverty reduction in Asia,
as the poor in Central and South American Central, and South America, but the effect of
countries are more vulnerable to consumer exports were not beneficial for poor in rural
price volatility than in Asian countries. The areas. An increase in import share was asso-
second is on the effect of rule of law. It is only ciated with poverty reduction in Central and
effective in Asian countries’ poverty reduction. South America.

This is probably due to that the products countries in Asia, Central, and South America.
traded and products produced by the workers However, the reason why the effect of trade
of poverty groups differ between urban, rural on poverty rates differs from rural to urban
areas, and continents. In other hand, it may is not well understood in this paper. Further
be due to the structural causes of the income research is needed to help find the correct in-
system or labour market, where the benefits terpretation of the effects of trade, especially
of trade can not be transferred to the poor import shares in this study, with an under-
group. Based on our empirical results, this can standing of countries’ industry structures, em-
gently suggest that an export-oriented strat- ployment, and wage systems.
egy or policy can help the poor in developing
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Appendix
Table A. List of Countries in Dataset
Asia Central and south America

1 Armenia Bolivia
2 Cambodia Chile
3 Georgia Colombia
4 Indonesia Costa Rica
5 Kazakhstan Dominican Republic

6 Kyrgyz Republic Ecuador
7 Malaysia El Salvador
8 Thailand Honduras
9 Turkey Paraguay
10 Peru
11 Uruguay

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Journal of International Trade & Commerce (J. Int. Trade Commer.

) ISSN 1738-8112 (Print)

Does Trade Contribute to Poverty Reduction? If It Does,

Received 20 February 2018, Revised 05 April 2018, Accepted 23 April 2018

Ⅰ. Introduction population living on less than 1.90 USD a day,

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Fig. 1. Trade-Poverty Nexus

2004). 1.2. Various Channels

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Fig. 2. Schematic Representation of Various Channels of Trade-poverty Linkages

1.2.1. Price the Heckscher-Ohlin model and the Stolper-

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Table 1. MPI Poverty by Region

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in many cases, the poor in rural areas have pressed as follows.

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Table 2. Summary Statistics for Estimation Samples (No. of Observation=158)

Primary Education Completion Ratio % 98.9 8.2 66.4 124.1

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Table 3. Summary Statistics for Estimation Samples by Continent

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Table 4. Impacts of Trade on Poverty Rate

Observations 158 158 158

effect of trade. Export share does not affect national poverty,

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Table 5. Impact of Trade on Poverty Rate by Country Group

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growth reduces the poverty rate, and inflation Ⅴ. Conclusion

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Developing Countries, London: Author, 1-25.

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Table A. List of Countries in Dataset

Asia Central and south America

4 Indonesia Costa Rica

5 Kazakhstan Dominican Republic

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