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)
0
20
40
60
80
100
120
140
rice beef sugar oil/fats apparel autos
Full-Lib DDA
8
Impact Of Trade Reforms On World Prices
(percentage change in average price)
-5
0
5
10
15
20
25
cotton oseeds cgrns dairy apparel autos
Full-Lib DDA
9
Communicating Global Results to National Models
• More complicated than appears at first glance:– Global model has its own representation of the national
economies – don’t 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)
Pass through, competition
Taxes, regulation,distributors, procurement
Distribution, taxes,regulation, co-ops
Co-operatives, technology, random shocks
World pricesand quantities
Border price
Wholesale price
Tariffs,QRs
Retail price
Exchangerate
Household welfarePrices, wages,endowments,
profits, other income
elderly
young
males
females
Enterprises
ProfitsWages
Employment
Tariff revenue
Taxes
Spending
11
Country Case StudiesPrice 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
Pass through, competition
Taxes, regulation,distributors, procurement
Distribution, taxes,regulation, co-ops
Co-operatives, technology, random shocks
World pricesand quantities
Border price
Wholesale price
Tariffs,QRs
Retail price
Exchangerate
Household welfarePrices, wages,endowments,
profits, other income
elderly
young
males
females
Enterprises
ProfitsWages
Employment
Tariff revenue
Taxes
Spending
13
Incomplete price transmission yielded unequal gains from Mexican trade reforms in 1990’s
Source: Nicita, 2004.
14
Doha impacts on poorest rural households in Mexico also influenced by price transmission (Nicita, 2005)
0
0.5
1
1.5
2
2.5
Doha Doha+ Doha++
BorderNorthCenter South
Doha+ = Doha and Productivity enhancementDoha++ = Doha+ and enhanced price transmission
% c
hang
e re
al in
com
e
15
Focus on Household ImpactsTrade Policy and Poverty – Causal Connections
Pass through, competition
Taxes, regulation,distributors, procurement
Distribution, taxes,regulation, co-ops
Co-operatives, technology, random shocks
World pricesand quantities
Border price
Wholesale price
Tariffs,QRs
Retail price
Exchangerate
Household welfarePrices, wages,endowments,
profits, other income
elderly
young
males
females
Enterprises
ProfitsWages
Employment
Tariff revenue
Taxes
Spending
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 Brazil’s 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
Amazonas Para
MtGrosso
MinasG
Bahia
MtGrSul
Goias
Maranhao
RGSul
Tocantins
SaoPaulo
Piaui
Rondonia
Roraima
Parana
Acre
Ceara
Amapa
StaCatari
Pernambuco
Paraiba
RGNorte
EspSanto
RioJaneiro
Alagoas
Sergipe
DF
0.14 (minimum)
0.24
0.35 (median)
0.51
0.58 (maximum)
Proportion below poverty line
18
Doha boosts employment in relatively poorer regions thereby reducing poverty
-1.5
-1
-0.5
0
0.5
1
1.5
2
2.5
Current Headct delEmply delPvty
SaoPaoloRioBrazilTocantinsMaranhao
National headcnt falls by 236,000(Proportion
of pop.)(Percentage change)
19
Number of households leaving poverty, by region. Different scenarios.
-100000
-50000
0
50000
100000
150000
1 Rondonia
2 Acre
3 Amazonas
4 Roraim
a
5 Para
6 Amapa
7 Tocantins
8 Maranhao
9 Piaui
10 Ceara
11 RG
Norte
12 Paraiba
13 Pernambuco
14 Alagoas
15 Sergipe
16 Bahia
17 MinasG
18 EspSanto
19 RioJaneiro
20 SaoPaulo
21 Parana
22 StaCatari
23 RG
Sul
24 MtG
rSul
25 MtG
rosso
26 Goias
27 DF
Doha Fullib
Doha1 = 235,886 persons
Fullib = 481,988 persons
N
NE
SES
CW
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 MarketsTrade Policy and Poverty – Causal Connections
Pass through, competition
Taxes, regulation,distributors, procurement
Distribution, taxes,regulation, co-ops
Co-operatives, technology, random shocks
World pricesand quantities
Border price
Wholesale price
Tariffs,QRs
Retail price
Exchangerate
Household welfarePrices, wages,endowments,
profits, other income
elderly
young
males
females
Enterprises
ProfitsWages
Employment
Tariff revenue
Taxes
Spending
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 add’l 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 ed’l 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 GrowthTrade Policy and Poverty – Causal Connections
Pass through, competition
Taxes, regulation,distributors, procurement
Distribution, taxes,regulation, co-ops
Co-operatives, technology, random shocks
World pricesand quantities
Border price
Wholesale price
Tariffs,QRs
Retail price
Exchangerate
Household welfarePrices, wages,endowments,
profits, other income
elderly
young
males
females
Enterprises
ProfitsWages
Employment
Tariff revenue
Taxes
Spending
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 2/3’s 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
-0.6
-0.4
-0.2
0.0
0.2
0.4
0.6
0.8
2005 2010 2015 2020
Per
cen
tag
e va
riat
ion
fro
m B
aU
Doha_SDT Full-Lib
26
Country Studies Summary: Near Term Poverty Impacts of Trade Reform are Mixed
-4
-3
-2
-1
0
1
2
BangladeshBrazilCam
eroonChinaIndonesiaM
exicoM
ozambique
PhilippinesRussiaW
orld
DohaFull-Lib
Perc
enta
ge c
hang
e in
hea
dcou
nt
27
Long Term Poverty Impacts of Trade Reform are Uniformly Favorable:
(LR studies incorporate impact on investment)
-25
-20
-15
-10
-5
0
Bdsh Brazil China Vietnam World
DohaFull-Lib
Perc
enta
ge c
hang
e in
hea
dcou
nt
Note: LR results only available for 4 countries and world
28
Insights from Cross-Country Analysis
• Maros Ivanic’s 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
30
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
31
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 >
Poverty and Trade