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DP9947 | Trade Liberalisation and Poverty: What have we learned in a decade?

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This paper reviews key recent literature on the effects of trade liberalisation on poverty in developing countries and asks whether our knowledge has changed significantly over a decade. The conclusion that liberalisation generally boosts income and thus reduces poverty has not changed; some suggest that this is not true for very poor countries, but this is not an established finding. On microeconomics, recent literature again confirms that liberalisation has very heterogeneous effects on poor households, depending, inter alia, on what trade policies are liberalised and how the household earns its living. Working in the export predicts gains and in the import-competing sector losses, a finding that is re-inforced by studies of the effects of liberalisation on wages. New research has suggested several ways in which intra-sectoral wage inequality is increased by trade, but this does not generally indicate that the poor actually lose. A fairly common finding is that female workers gain from trade liberalisation.