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It provides a comprehensive set of complementary policies and economy-wide approaches to implementation that are necessary for trade to reduce poverty and inequality.
This report advances the policy maker’s ability to analyze trade policy retrospectively, and it provides new methods for short- and long-term analysis of the impact of prospective trade shocks on communities and countries. The Household Impacts of Tariff (HIT) approach incorporates detailed consumption patterns at the household level and estimates short-term impacts of tariff line changes on consumption in lowincome countries. The extension of the Global Income Distribution Dynamics (GIDD) approach provides greater granularity in the analysis of future trade policy changes, so that policy makers can assess the impact of reductions of tariffs, changes to nontariff measures, and improvements in trade facilitation at the subnational level. Reduced-form and structural approaches using detailed country-specific micro data allow for the study of impacts on local labor markets across time, regions, and demographic characteristics. Through a combination of methodologies, we can assess the impact of trade on a much larger set of outcomes affecting welfare, including income and wages, levels of formal and informal sector employment, consumption, poverty, and inequality at both national and subnational levels. Analysis conducted using these different approaches could help policy makers understand how to craft a reform agenda that distributes the gains from trade more widely. This report provides new evidence that trade brings overall gains to households and is critical for lowering poverty, but it also shows that labor market and consumption gains tend to concentrate in some regions and worker categories. The persistence of these concentrated impacts has until recently been underappreciated and varies considerably across countries, suggesting that individual country studies are necessary. Impacts also differ over time, depending on the speed of the adjustment process. The informal economy in some emerging economies serves as a buffer, expanding after a trade shock to help workers adjust to changes in the labor market. Benefits such as lower consumer prices do not fully pass through to consumers, though, largely because of barriers related to geography, the market power of intermediaries, and the structure of domestic markets. The report further deepens our knowledge about localized effects of trade through five empirical country studies. These describe (a) the impacts of apparel-led export growth on local labor market outcomes in Bangladesh, (b) labor mobility costs and their distributional consequences for welfare in Brazil, (c) the long-term effects of trade liberalization and their consequences on poverty in South Africa, (d) the impact of trade liberalization reforms on poverty and inequality in Mexican municipalities, and (e) the impact of trade policy reforms on employment at the subnational level in Sri Lanka.
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Executive Summary
