From: Yona Maro
There is a general consensus in the economic literature that strong links exist between trade, economic growth and poverty reduction. Countries that have embraced an outward-oriented development strategy, with trade liberalisation at its heart, have not only outperformed inward-looking economies in terms of long-term aggregate growth rates, but have also succeeded in lowering poverty rates and registering improvements in other social indicators.
There are many channels through which trade-induced growth leads to poverty reduction. Indeed, exports act as the conduit through which countries exploit their comparative advantage, improve their overall efficiency and productivity, and enable industries to employ their resources more efficiently and profitably. These factors expand demand, spur consumption, and reduce risks associated with reliance on the domestic market. They also increase employment in labour-intensive sectors and raise wages and standards of living. Imports permit countries to gain access to a wider range of goods and services and allow local firms to benefit from more, cheaper and newer technologies that increase productivity and competitiveness.
The 2013 report Aid for Trade at a Glance: Connecting to Value Chains analyses the strategies, priorities, and programmes from the public and private sectors in developing and developed countries to connect developing country suppliers to value chains. The report suggests that the increasing fragmentation of production processes offers developing countries new trading opportunities, but also present risks. Value chains reinforce the rationale for keeping markets open and highlight the costs of burdensome procedures that create “thick borders”.
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