Trade and Poverty Reduction: Theoretical concept and 5Nepalese Experience

Pushkar Bajracharya

Introduction

Types Domestic International Entrepot

Auxiliary to trade Infrastructure Services

Why trade occurs

Absolute advantage Comparative advantage Resource endowment

Importance

Generates benefit to all those who participate in trade

Promotes economic activities Generates employment opportunities Contributes to growth Reduces povertye.g. Japan, Korea, Taiwan, Singapore, Hong

Kong, China, SE Asia

International Perspective

Economic growth depends on the development of new capabilities, institutions and services

Capital accumulation and technological progress are the engine of growth and international trade is the fuel for the engine

Sustained economic growth requires strong investment-export nexsus

Lives and livelihoods of most people in most LDCs not linked to international economy

International Perspective contd.

An inclusive form of economic growth requires not simply export expansion but also an economy-wide expansion of income-earning opportunities, encompassing exports and import-competing activities as well as non-tradables and tradables, which occurs at a rate of that exceeds the rate at which the working-age population is growing.

Trade-poverty relationship

International trade cannot affect poverty reduction if export performance is weak.

3 types of relationship Virtuous trade effect, where private consumption per

capita is increasing along with export growth Immiserizing trade effect, where private consumption

per capita is falling along with export growth Ambiguous trade effect, where there is no clear trend

in average private consumption per capita along with export growth

Study results

Immiserizing trade effect in 18 out of 51 cases

Ambiguous and immiserizing effect occur more than virtuous effect

Virtuous effect occur in 22 out of 51 cases

Making international trade more effective for poverty reduction

Better national development strategies which integrate trade objectives as a central objective

Improvements in the international trade regime, including issues which go beyond the scope of WTO to reduce international constraints on the development in the LDCS

Increased and effective international financial and technical assistance for developing production and trade capacities.

Major exports of Nepal in 2004/05

Rs 10 m.

Overseas

Garment Rs 587

Carpet Rs 612

Pashmina Rs 104

Handicrafts Rs 101

Major exports of Nepal in 2004/05

India Jute goods Rs 270 Chou chou 37 Toothpaste 128 Polyster yarn 190 Veg. ghee 464 Thread 164 Plastic goods 136 Corrugated sheet 307 Textile 300 Juice and chemicals 250

Evidences in Poverty Reduction

Research show 83% of poverty reduced by growth

Trade a major contributor to growth

Role in Poverty Reduction

Have generated employment opportunities to almost 500,000 people ( direct and indirect ) in export oriented industries alone

Informal sector is estimated to generate some 2 million employment now ( 1.6 million in !998/99 ) of which trading is the main activity

Role in Poverty Reduction

Trade promotes auxiliary activities e.g. transportation, communication, tourism, support services,

Trade also encourages production activities Overall impact is on poverty reduction

Evidences in Poverty Reduction in Nepal

Poverty reduction by 3% points in between 1992-1996 mainly contributed by trade

Poverty reduction strategies mainly encompassing micro and small enterprises as by PAF, MEDEP that relate to trading or manufacturing for trading

Evidences in Poverty Reduction products and services

CARPET Generated more than 300,000 employment

through spinning, carding, weaving, finishing, washing, and trading

More than 150,000 households benefitted Even now some 60,000 people getting jobs Backward linkage would have substantially

contributed to generate more jobs

Evidences in Poverty Reduction products and services

Garment Generated up to 80,000 jobs at its peak with

local employment for 60% Current employment for 5000 only Non-export opportunities still significant

Evidences in Poverty Reduction products and services

Pashmina Generated up to 100,000 employment Significant reduction now

Evidences in Poverty Reduction products and services

Micro enterprises Generated 1 employment with an investment

of Rs 10,000 In small with rs 250,000 and large 1 to 2

million

Cautions

Trade in isolation not possible Trade cannot substitute production International market highly volatile Domestic cushion essential Must have a mechanism of standardisation and

monitoring Tariff and non-tariff barriers major issues Advantages to LDCs limited Cost, quality, margins, delivery, imposition of

conditions deterrents

Strategies

Promote linkages Tap outsourcing Develop institutions like export houses to promote

micro and small activities Enhance monitoring Fight for LDCs Fight for making global trading system more

equitable Make environment conducive

Conclusion

Balanced reporting and presentation needed Overall impact assessment and

consideration needed Trade really an important cog in development

particularly for a country like Nepal with small market.

THANKS