TRADE AND POVERTY REDUCTION IN AFRICA Fauzel S,

Transcript:TRADE AND POVERTY REDUCTION IN AFRICA Fauzel S,:
TRADE AND POVERTY REDUCTION IN AFRICA Fauzel S, Sannassee RV, Seetanah B University of Mauritius Introduction Background Trade has been identified as an important factor reducing poverty by most scholars. To further investigate into the subject, this study made a quantitative analysis between trade and poverty reduction for the case of Africa over the time period 1990-2014. Using a panel Vector Autoregressive framework, both the long run and the short run. Winters (2000) and McCulloch et al. (2001) put forth a conceptual framework for analysing the relationships between trade, trade liberalisation and poverty. The authors put forward three direct channels of influence which is required to have a clearer picture of the potential impact of liberalisation on poverty. The direct channels set forth are namely: the distribution channel which affects price transmission; the enterprise channel which affects wages and employment; and the government channel which affects taxes and government expenditure Price/Distribution Channel When country with barriers of protection opens up its trade, the prices of merchandised goods as well as import substitutes are changed. Due to lower tariffs, prices of imports are lowered. Consequently, it helps the poor by keeping prices of substitute’s low and increasing people’s real income. Accordingly, it may also result in higher export duties. Therefore the impact on the poor is dependent on households are predominantly consumers or producers. Nevertheless, some studies showed that in a number of economies, the poor are predominantly buyers of import goods, hence trade liberalization is expected to benefit the poor (PRUS, 2001). Wages and Employment Channel the second channel is the influence openness has on labor market and the resulting changes on wages affecting the poor. Labour markets are a key route out of poverty. The impact on labour market depends on elasticity of labour supply (Winters, 2000b:6). If above-mentioned market is perfectly inelastic, then any change in prices relates to change in wages with no change in employment. Winters suggested that in this case, opening trade should surge wages in developing economies and be a panacea to poverty. However, the theorem does not always hold in reality. This view is further supported by Hechscher-Ohlin trade theory that trade liberalisation shall help to alleviate poverty in countries having relatively an abundance of unskilled labour. For instance, trade liberalisation may be bringing skill-biased technical change, which can mean that skilled labour may benefit relative to unskilled labour. It is noteworthy that