Ever wondered how much multilateral tariff reduction reduce poverty globally? or whether a simple unilateral reduction in their own tariffs would be beneficial for developing countries?
One day, when I’m not preparing a talk in Tok Pijin for later this afternoon and a seminar for tomorrow I plan to blog more on trade and try to clarify my own thoughts properly, but for now:
- ACM find that multilateral reductions and unilateral reductions would, on average, benefit the poor in the countries modeled. Yet, while the overall benefit is not to be sniffed at (approx 3% global reduction in poverty) and well worth realising, it remains small in comparison to global poverty levels. Trade policy is important but, despite all the sound and fury expended over it in the 1990s, it doesn’t come anywhere near explaining the totality of global poverty (although see next point).
- As I understand it (without having read the actual paper) the article details static benefits associated with changes in relative prices. Therefore someone like Ha Jun Chang could counter and defend developing country tariffs by claiming that even if there are static benefits for developing countries from lowering their own tariffs, what really matters in the long run is the potential positive benefits of such tariffs on economic growth (the industrial policy argument).
- Note that the impacts of the different tariff cuts ACM model vary quite significantly from country to country (context matters!) and that the impacts will vary within countries too. What might be good for the poor on aggregate will still hurt some who are poor. In response to this ACM call for compensatory policies. Good idea and I agree. Noting though that such policies are much easier to implement in Sweden than Sierra Leone.
- Also note that in the article developing country government revenue losses are modeled as significant. ACM’s solution is Aid for Trade.
* These are modeled answers of course. Usual disclaimer applies.