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8/9/2019 GRANITENS-1

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Globalisation and Poor

Wide Agreement on trade contributes to

growth but there is a need to assess the

extent to which poor are being affected bytrade.

Basic economic theory suggests that trade

expansion should have positive impact on

poverty reduction but there is limited

evidence on this.


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Expected Impact of Globalisation

on poor Creation of new employment opportunities

Higher wages for poor as demand for labour

intensive products rise. Cheaper imports of food and essential consumer

goods

Lowering of domestic costs and prices due tocompetition

Increase in government revenue needed tprovide poor with basic human services

Resource allocation efficiencies and higherproductivity


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Gains may not necessarily come

through Trade and growth - growth and poverty

trade, growth, income distribution, and poverty islikely to evolve as an economy changes instructure.

The changes in product and factor prices

triggered by opening up of an economyinevitably produce both winners and losers inthe short term.


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Varying Experiences

Countries differ significantly with respect to theirexperiences regarding trade, growth and poverty

nexus.

Sri Lanka and Maldives, have high trade ratios;

on the other hand, there are countries like India,

Nepal and Bangladesh have low trade ratios but

interestingly, almost all the countries

experienced growth in the 1990s.

However, growth in many of these countries did

not lead to corresponding reduction in poverty

and improvement in human development.


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External Factors

But the extent to which openness affectspoverty and has a bearing on where andhow these gains and losses occurdepends on a number of external factors,

stage of development of the country;

the timing, scale, and sequencing of policy

reforms;as well as pre-existing domestic and

international conditions.


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Significance of domestic policies

international trade dynamics needcorresponding domestic reforms for thegains to percolate to poor.

Measured liberalisation is required so thatcompetitiveness in domestic sectors maynot occur more quickly than industries

learning curves. Proactive role of government in developingsafety nets and meeting adjustment costs


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Removal of Green Box Subsidy GeneratesGains for Developing Countries

In a recent study by UNCTAD, Green Box

subsidies have been shown to be production

enhancing and trade distorting.

Removal of removal of green box subsidies

would increase Indias Agri Output by 1.22%,reduce imports by 6% and increase exports by

about 20%.


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Limited market access limit

opportunities to gain for poor

Barriers such as tariff escalation and

peaks, domestic support, export subsidies

and non-tariff barriers such as SPS

measures restrict market access.

Limited opportunities of gains for poor

from trade.


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Ultimately, trades effect on povertydepends on the extent to which the poorare able to participate in the expanding

sectors.

Sufficient national policy space to

favourably guide trade liberalisationprocess towards development is required.


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Globalisation in India and Poor

30 of Indias GDP is traded many employmentintensive sector depend on trade, e.g., textileand clothing (20 million)

created additional employment opportunities forwomen in sectors like outsourcing and textileand clothing.

It has led to improved access to technology andincreased labour productivity.

But it has also led to massive restructuring withinand across the sectors, especially in theagricultural sector.


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Poverty-Trade Linkage for India

Agriculture is the mainstay of the economywith more than 60% of total employment.

Growth rate of agriculture is slow: avg

1.5% since 1997. But share of agriculture in total trade is

small. India is net exporter.

Major items of imports: Edible oils (50%)

and pulses due to rising per capitaconsumption.

Need to balance consumer and producerinterests.


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Export Basket India (2004)

Ot ers

4

eat4

Bo ine eat prods

e eta e ois and ats

2

e eta es r it n ts

2rops n e

2

ro essed ri e

ood prod ts n e

2


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Exports show erratic growth with

exception of Horticulture and Tobacco

0

500

1,000

1,500

2,000

2,500

1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

Processedrice

Wheat

Vegetables,fruit, nuts

Crops n.e.c.

Vegetableoils and fats

Foodproductsn.e.c.Beveragesand tobaccoproduct


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Effective Policies needed

Ensure remunerative prices to farmers.

Control inflation especially on products of

mass consumption of the poor. Palm il Tariffs Classic Example

Bound Tariff at 300 whereas Applied

at 70 (80 in case of crude oil).


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Export Growth & Domestic

Productionndi 's Domestic Production in orExports ectors

Year

Production

in

D

ii

exties

ndustri

chemic s

exties

ron nd

stee

ootw e r

e ther

products


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Trade liberalisation and

employment generation

The growth in export oriented sector has

not necessarily led to employment

generation*, subject to some important

caveats Exception to this trend: textiles and clothing

Growth of informal sector could answer for

this anomaly ( see next chart)______________________________________

______

*The employment elasticity of output growth has

fallen from0.52 to 0.16 during 1993-2000.


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Share of formal/ informal employment

in key sectors

Share of em ploym ent

ron an s teel

eather

e tile

therman fact rin

ric lt re

sector

Share of employment

ormal

nformal


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Trade liberalisation and impact

on wages Wages as a proportion of total value addedhave gone down for all manufacturing

Due to increased casualisation of labour

The counterfactual in terms of reduction in head

count ratio of poverty suggests that the informal

sector absorbed unemployed labour thus

contributing to a reduction in poverty, eventhough inequalities may have increased.


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Trade and GenderEmpowerment

Employment opportunities for women haveincreased in textiles and clothing sector

But gender wage gap persists

In all South Asian countries, exception being Sri

Lanka, females earn less than 50 per income ascompared to males.

Vulnerabilities of women have increased.

Women, in particular, are more affected in the

race to cut labour cost and increase productionlevels by increasing the number of workinghours.


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Key Inferences from India s Trade

Reforms

Soft landing of trade reforms so far

Further tariff liberalisation could result in adverse effects

for output and employment, particularly skilled

employment

Need for safety net for unemployed

Competitiveness of industrial products in selected

sectors remains a major challenge

Trade policy must go hand in hand with domesticreforms.

Consultative procedures and micro studies- need of

the hour to identify sectors and sections affected

and develop strategies accordingly

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