Global Income Distribution and Poverty in the Absence of Agricultural Distortions

1. Global Income Distribution and Poverty in the Absence of Agricultural Distortions Maurizio Bussolo, Rafael E. De Hoyos, and Denis Medvedev The World Bank Paper prepared for the 11th annual GTAP conference 12-14 June 2008, Helsinki, Finland

2. State of the Debate Agriculture is the sector with highest distortions: tariffs, export taxes, and production subsidies Disputes over the reduction of agriculture markets distortions have stalled the whole multilateral trade negotiation Three out of every four poor people are agriculture-dependent

3. Research Questions What would happen to global poverty and inequality if agricultural tariffs, export taxes/subsidies, and producer/output subsidies were removed? Are there important differences in poverty/inequality impacts across regions and countries?

4. Outline The importance of farmers in global poverty Methodology: Global Income Distribution Dynamics (GIDD) Results: A Global and Within-Country View Conclusions

5. A New Dataset on Global Income Distribution • 73 household surveys for low and middle income countries (1.2 million HH and 5.1 million individuals) • Grouped income data for 25 high-income and 22 developing countries • These 120 countries cover more than 90 percent of the global population

6. Global Income Distribution

7. The Importance of Farmers for Global Poverty and Inequality

9. For most countries, incomes in the agricultural sector are better distributed

10. Methodology: GIDD

11. The Expected Effects of Global Trade Reform • The global welfare effects of the removal of agricultural trade distortions depend on: • Proportion of the world population whose income dependent on agricultural activities • Initial position of farmers in the global income distribution • Dispersion of incomes within agricultural sectors

12. Growth in Agriculture is more Pro-Poor

14. Although there is more growth, global poverty increases

15. There are large regional variation in the incidence of the trade reform

16. Given its large contribution to global poverty, the negative effect in South Asia dominates

17. The contribution to the increase in global poverty is concentrated in India

18. Nevertheless, the story is very different if we set the poverty line at 2 dollars a day, PPP

19. Changes in the non-agricultural income gap reshape within-country inequality

20. Conclusions • Small changes in global poverty and inequality • Significant variation at the regional and country level • Latin America reaps large gains, while South Asia may lose • Some convergence of within-country inequality • Caveats: • Poverty reduction potential is not the only measure of trade policy success • Static gains only • Only analyze changes in return to labor