Food Price and Trade Policy Biases - The Oxford Topic of Food, Politics, and Society - page 372

would fall by 15 percent on average, compared with a slight rise for real nonfarm value
added. That means inequality between farm households in developing countries and
those in high-income countries would fall substantially. If only agricultural policies were
removed, these results do not change much, which underscores the large magnitude of
the distortions from agricultural, as compared with nonagricultural, trade-related poli-
cies. True, agricultural protection policies may lower the gap between average urban and
rural household incomes, but the gains tend to get capitalized into the value of land, and
thus they benefit farm households in proportion to their farm output and land holding—
a highly inequitable outcome within rural areas (Johnson 1973, Ch. 9).
That study also reports that unskilled workers in developing countries—the majority
of whom work on farms—would benefit most from reform (followed by skilled workers
and then capital owners). The average change in the real unskilled wage across develop-
ing countries would rise by 3.5 percent. However, the most relevant consumer prices for
poor people relate to food and clothing. This includes those many poor farm and other
rural households who earn most of their income from their labor and are net buyers of
food. Hence deflating by a food and clothing price index rather than the aggregate CPI
provides a better indication of the welfare change for those workers. The real unskilled
wage across developing countries would rise by 5.9 percent with that deflator. That is,
inequality between unskilled wage earners and the much wealthier owners of capital
(human or physical) within developing countries would fall with full trade reform. So
too would the incidence of poverty: under the full merchandise trade reform scenario,
there would be 2.7 percent fewer people living on less than US$1 a day in developing
countries. Using the more moderate definition of poverty—people living on no more
than US$2 per day—the number of poor in developing countries would fall by nearly
90 million compared to an aggregate baseline level of just under 2.5 billion in 2004, or by
3.4 percent.
Anderson, Cockburn, and Martin (2010, 2011) report results from ten more-detailed
individual country case studies and compare these with the above results from a global
model. As with the global modeling, these individual country case studies focus on
price-distorting policies as of 2004, but they include more sectoral and product disag-
gregation than the global models, and they are able to consider multiple types of house-
holds and types of labor. The national results for real GDP and household consumption
suggest that GDP would increase from full global trade reform in all ten countries, but
only by 1 or 2 percent. Given falling consumer prices, real household consumption
would increase by considerably more in most cases. Generally, these numbers are some-
what larger than those generated by the global Linkage model. When all merchandise
trade is liberalized, the poverty reduction ranges from close to zero to about 3.5 per-
centage points, except for Pakistan, where it is more than 6 points. On average, nearly
two-thirds of the alleviation is due to nonfarm trade reform, and the contribution of
own-country reforms to the reduction in poverty appears to be equally important as
rest-of-world reform.
The estimated poverty alleviation is also subdivided into rural and urban sources. In
every case, rural poverty is reduced much more than urban poverty. This is true for both