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INTERAMERICAN DEVELOPMENT BANK Integration and Trade Sector

INTERAMERICAN DEVELOPMENT BANK Integration and Trade Sector. The trade and poverty nexus in Latin America. PAOLO GIORDANO. LATN Plenary Meeting Buenos Aires - November 17, 2008. In Latin America anxiety is eroding the consensus for trade integration.

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INTERAMERICAN DEVELOPMENT BANK Integration and Trade Sector

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  1. INTERAMERICAN DEVELOPMENT BANKIntegration and Trade Sector The trade and poverty nexus in Latin America PAOLO GIORDANO LATN Plenary Meeting Buenos Aires - November 17, 2008

  2. In Latin America anxiety is eroding the consensus for trade integration... LAC: ATTITUDES TOWARD TRADE INTEGRATION (% Population in Favor) Source: Latinobarometro (different years)

  3. 72% Agree to provide assistance to poor countries 75% Agree to promote free trade with poor countries 75% 77% 70% Believe that poor countries benefit from free trade 56% 0% 20% 40% 60% 80% 100% USA Europe Source: The German Marshall Fund (2006) ... and in the developed economies there is a perception that free trade should be more pro-poor

  4. Outline • Trade and Poverty: an elusive question ? • Transmission Channels • Empirical Evidence in LAC • Toward a Policy Agenda • The LATN proposal

  5. The trade and poverty debate: a dialogue of the deaf when terms are not well defined Trade: Free trade vs. globalization Technological change, FDI, capital flows, migrations, etc. Trade policy measures vs. trade outcomes Poverty: Poverty vs. inequality Relative vs. absolute measures (national and global) Monetary measures vs. basic needs Measurement issues Necessary to clearly define the variables under analysis

  6. Outline • Trade and Poverty: an elusive question ? • Transmission Channels • Empirical Evidence in LAC • Toward a Policy Agenda • The LATN proposal

  7. Transmission channels of standard trade theory do not work as expected in LAC Consumer or producer? Weight in consumption basket Market structure (comp, olig, mono) Are markets integrated? Consumption/ Income Prices Labor mobility? Skills of households Full employment or unemployment? Levels of informality Private sector competitiveness Wages/ Salaries Employment Fiscal dependence on trade tariffs Is tax reform progressive or regressive? Are social safety nets in place? Government/ Fiscal Policy Consumption

  8. Overall, standard theory does not tell the whole story Initial conditions: Labor-intensive sectors enjoyed past protection > adjustment costs are significant Skill biased technological change: Technological change (often embodied in FDI) favored high-skilled labor > wage inequality increased Shifting comparative advantages: LAC opened-up parallel to the global integration of labor-intensive economies (eg. India,China) > LAC comp. advantage is no longer in labor-intensive goods

  9. Outline • Trade and Poverty: an elusive question ? • Transmission Channels • Empirical Evidence in LAC • Toward a Policy Agenda • The LATN proposal

  10. An IDB – DFID partnership for Trade and Poverty The Trade and Poverty Trust Fund is financed by

  11. Ex-post evidence Trade, Growth & Poverty: positive but small link > but protectionism is certainly anti-poor Trade & Inequality: mixed results > tech. change, FDI and capital acc.t opening may be regressive Need of flanking measures: > compensatory and complementary policies Source: Giordano and Florez (2008)

  12. Ex-ante simulations Andean - US FTAs (%) ECU IMPACT ON POVERTY (%) MEX CRI URU SAL 0.6% ARG 0.4% VEN 0.2% BRA 0.0% PER CAFTA (%) HON -0.2% DOM -0.4% BOL -0.6% PAR Colombia Peru Bolivia CHI GDP Poverty COL -8.00 -7.00 -6.00 -5.00 -4.00 -3.00 -2.00 -1.00 0.00 1.00 Unilateral FTAA WTO Source: Ganuza, Morley, Robinson and Vos (2004) Source: Giordano and Watanuki (2008)

  13. Outline • Trade and Poverty: an elusive question ? • Transmission Channels • Empirical Evidence in LAC • Toward a Policy Agenda • The LATN proposal

  14. Sustain momentum Long-termed Support to negotiations & implementation Research & dialogue Indirect y specific Knowledge generation Regional policy dialogue Contingent on internal conditions Complementary policies Aid for Trade Potential negative short-term effects Compensatory policies Lessons learned for policymaking The effects of Trade on Poverty are:

  15. Outline • Trade and Poverty: an elusive question ? • Transmission Channels • Empirical Evidence in LAC • Toward a Policy Agenda • The LATN proposal

  16. The LATN proposal: a prioritization Micro-econometrics: marginal returns (Andean, C. America) CGE: IDB-INT multi-region model w. micro-simulations (Andean, C. America) Price transmission: a daunting task (country / product specific) Value chains governance cases studies: generalization issues Compensatory / complementary policies: effectiveness evaluation >> identification of operational proposals / quick wins >> policy dialogue

  17. Food for thoughts Trade and poverty: is it the appropriate question ? The debate is launched: how to maintain momentum ? Aid for Trade: how to contribute to its implementation ? LATN network: which is the comparative advantage ?

  18. INTERAMERICAN DEVELOPMENT BANKIntegration and Trade Sector Thank you LATN Plenary Meeting Buenos Aires - November 17, 2008

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