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Executive SummaryThe Global Poverty Report considers the effects of globalizing markets on poverty in developing countries. It outlines the channels through which increased trade openness can affect poverty and examines the evidence from four regions: Sub-Saharan Africa, Asia and the Pacific, Eastern Europe and Central Asia, and Latin America and the Caribbean. Written at the request of the G8, the report is the result of a joint effort of the regional development banks, the World Bank, and the International Monetary Fund. Increased openness can affect an economy in various ways, creating opportunities for the poor as well as risks. First, it can affect the prices of goods and services that the poor consume and produce, benefiting those who are net consumers of goods that become cheaper and those who can obtain higher prices for their products on international markets. Second, it can affect the demand for and returns to factors of production that the poor have to offer, such as labor. Third, it can affect government revenue and the resources available for antipoverty programs. Fourth, it can influence the potential for economic growth, which in turn affects poverty. Fifth, the short-term costs of transition, as well as the possible increased volatility of growth stemming from the opening up of markets, may increase the need for social protection mechanisms. Comprehensive trade reform can help reduce poverty when it is part of a set of reforms that improve the domestic macroeconomic and investment climate, enhance infrastructure and technology, and contribute to the provision of knowledge and skills. However, these effects vary significantly across countries, regions, and groups within countries, which makes it difficult to generalize about the effects of trade liberalization on poverty. In spite of the varied experience across regions, comprehensive trade reform can be helpful in reducing poverty provided it is accompanied by appropriate enabling policies. In many countries in Africa, trade liberalization has been partial (e.g., tariffs remain high) and has not always spurred investment and growth because of weaknesses in the macroeconomic environment and in complementary policies for regulation, infrastructure, and human capital. Compared with other developing countries, most of the emerging economies of East and Southeast Asia have pursued comprehensive trade reforms and stable macroeconomic policies, and as a result have significantly reduced poverty over the last three decades. In Eastern Europe and the transition economies of the former Soviet Union, where extensive trade reforms went hand in hand with the freeing of domestic prices and privatization, the results have been mixed. In Eastern Europe, the short-term negative effects of reform on employment and poverty were largely overcome by the growth in private sector activity. In countries of the former Soviet Union, however, poor governance and weak legal and regulatory institutions have greatly hindered the transition to new competitive activities and jobs, resulting in increased poverty. In Latin America the link between trade and poverty is not well established. For some countries, trade liberalization has increased the returns to skilled relative to unskilled labor, contributing to higher income inequality. Its impact on absolute poverty, however, cannot be established on the basis of existing studies. This report proposes actions by developed countries, developing countries, and international institutions to help the poor in developing countries benefit from an increasingly global market. For all parties, reforming and revitalizing the multilateral trading system, including the launch of a new trade round, is important to steer more benefits from trade toward those most in need.
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