Poverty Impacts of the Doha Development Agenda

1
Poverty Impacts of the Doha Development Agenda

• Thomas W. Hertel
• and
• L. Alan Winters
• Purdue University and Development Research Group,
  The World Bank

2
Motivation

• One of key goals of the Doha Development Agenda
  is poverty reduction
• Trade reform is also one of the avenues for
  reaching the Millennium Development Goals
• Largest trade distortions remain in agriculture,
  which is also critical for the poor
• Poorest households are heavily dependent on agr
• Poor spend large share of income on food
• Yet credible assessments have proven difficult

3
Methodology

• Establish new policy benchmark
• Post-UR, including ATC quota elimination
• Post-WTO accession for China and others
• Post-EU enlargement
• Quantify the DDA scenario
• Assess implications for world markets
• Communicate them to national models
• Implications for poverty in individual countries
  13 case studies in Latin America, Africa and Asia
  
• 3 described by authors today
• Supplement with 2 global studies draw conclusions

4
Elements of the DDA Scenariobased on July
Framework Agreement

• Agriculture (Anderson and Martin, chp. 2)
• Extensive binding overhang
• Nearly 2 for industrial, 2.4 for developing, 5
  for LDCs
• Tariff cuts must be deep to have impact on trade
  flows
• Use non-linear (tiered) formula (as with
  progressive) income tax
• For developed marginal rates (45, 70 and 75)
  change at 10, 90 tariffs
• For developing marg rates (35, 40, 50, 60)
  change at 20, 60, 120 tariffs
• LDCs no cuts
• By varying marginal rates across tiers, avoid
  tariff discontinuities
• Definition of AMS leaves lots of wiggle room on
  domestic support, apply tiered formula cuts of
  60 and 75 developed, 40 developing, 0 LDC
• Export subsidies abolished
• NAMA 50 cuts in tariffs (33 developing, 0 LDC)

5
Variants on the DDA Scenario

• Doha-All fully reciprocal cuts in tariffs by
  developing and least developed countries
• Special and sensitive products
• 2 of tariff lines permitted (4 developing)
• Chosen based on tariff/trade flow combination
  (tariff revenue at HS-6 digit level)
• Subjected to minimal (15) tariff cuts
• Erodes two-thirds of the cuts in developed
  country agriculture protection

6
Assessing Global Impacts

• GTAP data base, supplemented by CEPII/ITC
  protection data base MAcMap
• Comprehensive treatment of preferences
• Estimation of a.v. equivalent of specific tariffs
• Build up tariff cuts from HS-6 level
• Bound vs. applied rates
• Assess impact in modified version of GTAP model
  GTAP-AGR (Keeney and Hertel)

7
Impact Of Trade Reforms On World
Exports(percentage change in volume)
8
Impact Of Trade Reforms On World Prices
(percentage change in average price)
9
Communicating Global Results to National Models

• More complicated than appears at first glance
• Global model has its own representation of the
  national economies dont want to do domestic
  reforms twice!
• Two views of focus country supply of products to
  world mkt
• We live with inherent inconsistency national
  model has preferred representation of export
  supply curve
• Communicate changes in international markets as
  changes in cif import prices and vertical export
  demand shifts
• Omits national reforms when eliciting global
  market effects, but includes them, along with
  world price/demand shifts, when national model is
  simulated

10
Conceptual Framework for Country Case Studies
(Winters)
World pricesand quantities
Tariffs,QRs
Exchangerate
Tariff revenue
Pass through, competition
Border price
Taxes, regulation,distributors, procurement
Enterprises
Taxes
Wholesale price
Distribution, taxes,regulation, co-ops
Spending
Profits Wages Employment
Retail price
Co-operatives, technology, random shocks
Household welfare
elderly
males
Prices, wages, endowments, profits, other income
females
young
11
Country Case Studies

• Price Transmission
• Mexico Nicita
• Mozambique Arndt
• Vietnam Roland-Holst
• Disaggregated HHld Incidence
• Brazil Ferreira-Filho and Horridge
• Zambia Balat and Porto
• China Kuiper and van Tongeren
• Labor Markets
• Brazil Bussolo et al.
• China Zhai and Hertel
• Indonesia Robilliard and Robinson

• Tax Replacement
• Cameroon Emini et al.
• Philippines Cororaton et al.
• Trade, Growth and Poverty
• Russia Tarr et al.
• Bangladesh Annabi et al.
• van der Mensbrugghe et al. (global)
• Cross-country Comparison
• Ivanic (15 countries)
• Green discussed
• Red presented today

12
Conceptual Framework Price Transmission to HHlds
World pricesand quantities
Tariffs,QRs
Exchangerate
Tariff revenue
Pass through, competition
Border price
Taxes, regulation,distributors, procurement
Enterprises
Taxes
Wholesale price
Distribution, taxes,regulation, co-ops
Spending
Profits Wages Employment
Retail price
Co-operatives, technology, random shocks
Household welfare
elderly
males
Prices, wages, endowments, profits, other income
females
young
13
Incomplete price transmission yielded unequal
gains from Mexican trade reforms in 1990s
Source Nicita, 2004.
14
Doha impacts on poorest rural households in
Mexico also influenced by price transmission
(Nicita, 2005)
change real income
Doha Doha and Productivity enhancement Doha
Doha and enhanced price transmission
15
Focus on Household Impacts
Trade Policy and Poverty Causal Connections
World pricesand quantities
Tariffs,QRs
Exchangerate
Tariff revenue
Pass through, competition
Border price
Taxes, regulation,distributors, procurement
Enterprises
Taxes
Wholesale price
Distribution, taxes,regulation, co-ops
Spending
Profits Wages Employment
Retail price
Co-operatives, technology, random shocks
Household welfare
elderly
males
Prices, wages, endowments, profits, other income
females
young
16
Disaggregated Household Impacts of Doha on
Poverty in Brazil (Ferreiro-Filho and Horridge)

• The controversy Brazil has been shown to be a
  big winner from OECD agricultural reform Will
  all of these benefits accrue to the big
  commercial farms thereby worsening Brazils
  income distribution?
• This study examines impact on 263,938 adult
  members of 112,055 hhlds spread over 27 regions
• Economic activity, employment and poverty vary
  widely by region
• Households diversified in earners and employment
  account for impact of job gains/losses on
  poverty

17
Poverty Headcount by Region in Brazil
18
Doha boosts employment in relatively poorer
regions thereby reducing poverty
National headcnt falls by 236,000
(Proportion of pop.)
(Percentage change)
19
Poverty impact across 27 regions in Brazil
20
Brazil summary

• Gainers/losers
• Households with lowest skill level workers gain
  most due to the job creation effect
• Followed by commercial farmers growing export
  products
• Small farmers also gain
• Households relying on higher skill workers in Sao
  Paolo Rio are hurt due to job loss in heavy
  industry
• Inequality falls in wake of trade reforms

21
Focus on Labor Markets
Trade Policy and Poverty Causal Connections
World pricesand quantities
Tariffs,QRs
Exchangerate
Tariff revenue
Pass through, competition
Border price
Taxes, regulation,distributors, procurement
Enterprises
Taxes
Wholesale price
Distribution, taxes,regulation, co-ops
Spending
Profits Wages Employment
Retail price
Co-operatives, technology, random shocks
Household welfare
elderly
males
Prices, wages, endowments, profits, other income
females
young
22
Educational attainment influences functioning of
labor market and enhances poverty reduction

• Intersectoral labor mobility is key to poverty
  reduction, and education is key to farm-nonfarm
  mobility in China (Zhai and Hertel)
• One addl year of schooling boosts probability of
  obtaining non-farm job by 14
• Education also boosts productivity particularly
  off-farm
• Yet rural ed expenditures lag urban areas by 16
  per capita
• Consider impact of equalizing edl spending at
  same time as Doha implemented (paid for from
  combination of taxes and private spending)
• Doha alone 5 million poverty reduction
• Doha Rural Education 50 million reduction in
  poverty

23
Focus on Growth
Trade Policy and Poverty Causal Connections
World pricesand quantities
Tariffs,QRs
Exchangerate
Tariff revenue
Pass through, competition
Border price
Taxes, regulation,distributors, procurement
Enterprises
Taxes
Wholesale price
Distribution, taxes,regulation, co-ops
Spending
Profits Wages Employment
Retail price
Co-operatives, technology, random shocks
Household welfare
elderly
males
Prices, wages, endowments, profits, other income
females
young
24
Bangladesh Case Study (Annabi et al.)

• Expected to lose from Doha scenario
• Although not from preference erosion
• Due to net agr importer status (cotton, grains
  oils)
• Apparel a key industry
• Accounts for more than 2/3s exports
• Employs many low income workers (esp. women)
• Global trade remains quite distorted
• Bracing for fallout from abolition of quotas
• Examine SR vs. LR effects
• Contrast with impact of own-liberalization

25
Long term impacts of trade reform in Bangladesh
aggregate welfare
26
Country Studies Summary Near Term Poverty
Impacts of Trade Reform are Mixed
Percentage change in headcount
27
Long Term Poverty Impacts of Trade Reform are
Uniformly Favorable(LR studies incorporate
impact on investment)
Percentage change in headcount
Note LR results only available for 4 countries
and world
28
Insights from Cross-Country Analysis

• Maros Ivanics cross-country study (chapter 15)
• Brazil, Chile, Colombia, Mexico, Peru, Venezuela,
  Uganda, Malawi, Mozambique, Zambia, Bangladesh,
  Thailand Indonesia, Philippines, Vietnam
• Single global model with households disaggregated
  (7 strata 20 vingtiles 140 hhlds/country)

29
Impacts of Doha and Full-Lib Compared

• Doha is less poverty friendly than Full-Lib
• Operate on same instruments, but differing
  degrees
• We assume Doha will eliminate export subsidies,
  and developing country applied tariffs will be
  barely reduced
• But while export subsidy reforms lower poverty
  amongst agricultural hhlds, they raise poverty
  amongst other groups so national poverty rises
  in many cases
• On the other hand, fully reciprocal cuts in
  developing country tariffs (Doha-All) would lower
  poverty in most of the sample
• Conclusion Engagement by developing countries in
  liberalizing their trade regimes would make Doha
  more poverty friendly

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Conclusions I

• DDA must be ambitious to affect development
• Near-term poverty impacts mixed on balance
  poverty reduced under DDA more so in LR
• Admitting special and sensitive products in
  agriculture (2) would effectively eliminate any
  poverty reducing potential from the DDA
• Poverty impacts could be enhanced with deeper
  cuts in developing country bound tariffs

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Conclusions II

• To have a significant near term poverty impact,
  complementary domestic reforms are required --
  enabling hhlds to take advantage of new market
  opportunities
• Sustained long term poverty reduction depends on
  economic growth
• Impact of the DDA on investment is critical
• Trade reforms need to be far reaching -- reducing
  barriers to services trade and investment, in
  addition to merchandise tariffs
• For more information www.worldbank.org/trade
• go to International Trade, then click on
  Topics gt Poverty and Trade