Seeking Shared Prosperity through Trade

Increasing the trade integration of developing countries can make a vital contribution to boosting shared prosperity, but it also exposes producers and consumers to exogenous shocks that alter relative prices, sometimes positively and sometimes neg...

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Bibliographic Details
Main Authors:	Cali, Massimiliano, Hollweg, Claire H., Ruppert Bulmer, Elizabeth
Format:	Working Paper
Language:	English en_US
Published:	World Bank, Washington, DC 2015
Subjects:	NEW MARKET MARKET STRUCTURE ECONOMIC GROWTH CLOSED ECONOMIES PRODUCTION REMOTE REGIONS PRICE INCREASES SKILLED WORKERS BARRIER EXPORT SECTORS GLOBAL MARKETS INCOME PERFECT COMPETITION EMERGING ECONOMIES EXCHANGE EXPORTS DEVELOPING COUNTRIES ELASTICITY DEVELOPING ECONOMIES POLITICAL ECONOMY SUSTAINABLE ECONOMIC GROWTH INTERNATIONAL LABOUR ORGANIZATION WORLD DEVELOPMENT INDICATORS WELFARE INCENTIVES DISTRIBUTION TRADE REFORMS DOMESTIC PRICE SUBSIDY PRICE REAL INCOME INPUTS MARKET ACCESS DEVELOPING COUNTRY SAFETY NETS DEVELOPMENT COMMUNICATIONS LABOR MARKET INFLUENCE FOREIGN TRADE PRODUCTION STRUCTURE ENTRY POINTS COSTS DEVELOPMENT ECONOMICS EXPORT GROWTH LOW-INCOME COUNTRIES TRADE BLOCS REGIONAL TRADE FOOD PRICE PRODUCTIVITY GLOBALIZATION BARRIERS TO ENTRY MARKETS CONNECTIVITY CAPITAL ASSETS TOTAL COSTS SOCIAL PROTECTION INCOME LEVELS MIDDLE-INCOME COUNTRIES PRICE ELASTICITY TRADE POLICY INTERNATIONAL COMPETITION GLOBAL EXPORTS PRICE SUBSIDIES TRADE COMPETITIVENESS ECONOMIC REFORM SUBSIDIES COMMODITY PRICE TRADE POLICIES LIBERALIZATION TAXES UNEMPLOYMENT EQUITY POINT OF SALE AGRICULTURAL SHOCKS CONSUMPTION WAGES INTERNATIONAL TRADE BARRIERS STATE CAPTURE VALUE COMPETITIVENESS MACROECONOMICS PURCHASING POWER DEMAND SAFETY NET ECONOMY AGRICULTURE CONSUMERS INCOMES JOB CREATION MEASUREMENT SHARES OPPORTUNITY COSTS TRADE LIBERALIZATION ADVERSE CONSEQUENCES OUTPUT INSURANCE ECONOMIC DEVELOPMENT TRADE FOREIGN COMPETITION RETAIL SERVICES GDP DOMESTIC PRICES GOODS MARKET SHARE SECURITY DOMESTIC ECONOMY BILATERAL TRADE INVESTMENT EXTREME POVERTY DOMESTIC COMPETITION SHARE COMPARATIVE ADVANTAGE ADVERSE IMPACT BUSINESS ENVIRONMENT REMOTE LOCATIONS COMMODITIES ECONOMIC GEOGRAPHY PRIVATE SECTOR GROWTH FOOD PRICES LABOR MARKETS COMMODITY PRICES OUTCOMES REMOTE AREAS COMMODITY INTERNATIONAL MARKETS POSITIVE EFFECTS PRICES BENEFITS DEVELOPMENT POLICY INCOME GROUPS COMPETITION
Online Access:	http://documents.worldbank.org/curated/en/2015/06/24649967/seeking-shared-prosperity-through-trade http://hdl.handle.net/10986/22200

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Summary:	Increasing the trade integration of developing countries can make a vital contribution to boosting shared prosperity, but it also exposes producers and consumers to exogenous shocks that alter relative prices, sometimes positively and sometimes negatively. This paper discusses the short-run effects of trade-related shocks on households to capture the potential welfare impact on the poor. The discussion explores the channels through which trade shocks are transmitted to households in the bottom of the income distribution, namely through consumption, household production, and market-based labor activities. The degree to which price shocks are passed through from borders to point of sale is a key determinant of the gains from trade and the ultimate welfare impact. Trade changes in agriculture directly affect households through their consumption basket. Lower agricultural prices reduce the cost of consumables, but these welfare gains may be offset by lower earnings for households that produce these same goods. Poorer households tend to be net consumers of agricultural products, suggesting a net welfare gain, but agricultural wage workers could suffer from wage cuts. Because poorer households tend to consume relatively fewer nonagricultural products, that is nonessentials, any trade-related shocks to prices of nonagricultural product are likely to be transmitted via labor channels. Despite significant evidence that nonagricultural trade reform ultimately leads to job creation and enhanced productivity, the short-run effects can be mixed. The costs incurred by workers to transition to new jobs slow the adjustment of the economy to a new steady state. Labor mobility costs, which tend to be higher in developing countries and for unskilled workers, reduce the potential gains to trade by diverting labor market adjustment from its most efficient path.

Seeking Shared Prosperity through Trade

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