Trade and Poverty Reduction: Theoretical concept and 5Nepalese Experience

1. Trade and Poverty Reduction: Theoretical concept and 5Nepalese Experience Pushkar Bajracharya

2. Introduction Types • Domestic • International • Entrepot Auxiliary to trade • Infrastructure • Services

3. Why trade occurs • Absolute advantage • Comparative advantage • Resource endowment

4. Importance • Generates benefit to all those who participate in trade • Promotes economic activities • Generates employment opportunities • Contributes to growth • Reduces poverty e.g. Japan, Korea, Taiwan, Singapore, Hong Kong, China, SE Asia

5. International Perspective • Economic growth depends on the development of new capabilities, institutions and services • Capital accumulation and technological progress are the engine of growth and international trade is the fuel for the engine • Sustained economic growth requires strong investment-export nexsus • Lives and livelihoods of most people in most LDCs not linked to international economy

6. International Perspective contd. An inclusive form of economic growth requires not simply export expansion but also an economy-wide expansion of income-earning opportunities, encompassing exports and import-competing activities as well as non-tradables and tradables, which occurs at a rate of that exceeds the rate at which the working-age population is growing.

7. Trade-poverty relationship • International trade cannot affect poverty reduction if export performance is weak. • 3 types of relationship • Virtuous trade effect, where private consumption per capita is increasing along with export growth • Immiserizing trade effect, where private consumption per capita is falling along with export growth • Ambiguous trade effect, where there is no clear trend in average private consumption per capita along with export growth

8. Study results • Immiserizing trade effect in 18 out of 51 cases • Ambiguous and immiserizing effect occur more than virtuous effect • Virtuous effect occur in 22 out of 51 cases

9. Making international trade more effective for poverty reduction • Better national development strategies which integrate trade objectives as a central objective • Improvements in the international trade regime, including issues which go beyond the scope of WTO to reduce international constraints on the development in the LDCS • Increased and effective international financial and technical assistance for developing production and trade capacities.

10. Major exports of Nepal in 2004/05 Rs 10 m. Overseas Garment Rs 587 Carpet Rs 612 Pashmina Rs 104 Handicrafts Rs 101

11. Major exports of Nepal in 2004/05 India • Jute goods Rs 270 • Chou chou 37 • Toothpaste 128 • Polyster yarn 190 • Veg. ghee 464 • Thread 164 • Plastic goods 136 • Corrugated sheet 307 • Textile 300 • Juice and chemicals 250

12. Evidences in Poverty Reduction • Research show 83% of poverty reduced by growth • Trade a major contributor to growth

13. Role in Poverty Reduction • Have generated employment opportunities to almost 500,000 people ( direct and indirect ) in export oriented industries alone • Informal sector is estimated to generate some 2 million employment now ( 1.6 million in !998/99 ) of which trading is the main activity

14. Role in Poverty Reduction • Trade promotes auxiliary activities e.g. transportation, communication, tourism, support services, • Trade also encourages production activities • Overall impact is on poverty reduction

15. Evidences in Poverty Reduction in Nepal • Poverty reduction by 3% points in between 1992-1996 mainly contributed by trade • Poverty reduction strategies mainly encompassing micro and small enterprises as by PAF, MEDEP that relate to trading or manufacturing for trading

16. Evidences in Poverty Reduction products and services CARPET • Generated more than 300,000 employment through spinning, carding, weaving, finishing, washing, and trading • More than 150,000 households benefitted • Even now some 60,000 people getting jobs • Backward linkage would have substantially contributed to generate more jobs

17. Evidences in Poverty Reduction products and services Garment • Generated up to 80,000 jobs at its peak with local employment for 60% • Current employment for 5000 only • Non-export opportunities still significant

18. Evidences in Poverty Reduction products and services • Pashmina • Generated up to 100,000 employment • Significant reduction now

19. Evidences in Poverty Reduction products and services • Micro enterprises • Generated 1 employment with an investment of Rs 10,000 • In small with rs 250,000 and large 1 to 2 million

20. Cautions • Trade in isolation not possible • Trade cannot substitute production • International market highly volatile • Domestic cushion essential • Must have a mechanism of standardisation and monitoring • Tariff and non-tariff barriers major issues • Advantages to LDCs limited • Cost, quality, margins, delivery, imposition of conditions deterrents

21. Strategies • Promote linkages • Tap outsourcing • Develop institutions like export houses to promote micro and small activities • Enhance monitoring • Fight for LDCs • Fight for making global trading system more equitable • Make environment conducive

22. Conclusion • Balanced reporting and presentation needed • Overall impact assessment and consideration needed • Trade really an important cog in development particularly for a country like Nepal with small market.

23. THANKS