World Bank Reconsiders Trade's Benefits to Poor

Questions about the impact of free trade on poverty are especially important because the Doha round, named for the Qatari capital where it was launched in 2001, was supposed to give developing countries a greater share of the benefits from world trade.

Agriculture tends to dominate the poorest economies of Africa, Latin America and Asia. So much of the negotiations have revolved around proposals for lowering barriers to trade in farm products, and curtailing the subsidies that rich nations pay their farmers to grow cotton, corn and other crops. Such subsidies can lead to gluts and depressed world prices that put farmers in poor lands at a disadvantage.

Trouble is, not all developing countries have identical interests. For agricultural powerhouses such as Brazil and Argentina, sweeping reforms of global farm policies could prove a bonanza. But that isn't necessarily the case for poor countries that import a lot of food; cutting rich-country subsidies could raise the cost of feeding their populations.

Moreover, some developing countries already enjoy virtually unrestricted access to U.S. and European markets under special trading arrangements. One example is Mexico, which ships goods duty-free to the United States under NAFTA. The lower Washington drops its barriers to all WTO member countries, the more Mexico's competitors could gain sales in the U.S. market at Mexico's expense.

The new World Bank estimates consider those factors more than the old ones did, and they are also based on more recent information. The old projections, based on a 1997 model of the global economy, did not take account some important developments, notably China's entry into the WTO in 2001.

The bank is also using more conservative assumptions than it used previously about how additional trade enhances a country's economic growth.

Furthermore, bank officials note, their projections are for the year 2015, and they assume that for a variety of reasons unrelated to trade, the number of people below the poverty line will have shrunk by then -- leaving fewer people who might be lifted over the line because of trade. Calculating the effects of a trade deal using the current number of impoverished people rather than the number forecast for 2015, the estimated poverty reduction is much larger.

"To some extent, these are just thought experiments," Winters said.

Even so, the contrast with the previous thought experiments is stark.

The bank now projects that eliminating government interference in trade flows would add about $287 billion to the global economy by 2015 (or $461 billion, using more generous growth assumptions), with a bit less than one-third of that going to developing countries. That translates into a 0.7 percent gain in economic output for rich countries, and a 1.5 percent boost for poor countries. Some countries -- Mexico, Bangladesh, Cameroon and Mozambique among them -- would come out losers, at least in early years, a problem the bank contends could be addressed through aid aimed at helping them improve their export capacity.

The $287 billion figure pales beside the $832 billion global gain that the bank was projecting as recently as 2003. "What a difference two years makes," wrote Frank Ackerman, a Tufts colleague of Wise, in a recently published paper.