Food Price and Trade Policy Biases - The Oxford Topic of Food, Politics, and Society - page 373

farm and nonfarm trade reform, and for own-country as well as rest-of-world reform.
Since the rural poor are much poorer on average than the urban poor, this would lead
one to expect trade reform to also reduce inequality. That is indeed what the results show
for this sample of countries: inequality declines in all three developing country regions
following full trade liberalization of either all goods or just agricultural products, and
for both own-country and rest-of-world reforms. The effect of nonfarm trade reform on
its own is more mixed, providing another reason to urge trade negotiators not to neglect
agricultural reform in trade negotiations. Inequality within rural or urban household
groupings are not altered very much by trade reform compared with overall national
inequality, which underlines the point that trade reform would tend to mainly reduce
urban-rural inequality rather than inequality within regions.
In summary, the benefits for the world's poor from the full liberalization of global
merchandise trade would come more from agricultural than nonagricultural reform;
and, within agriculture, more from the removal of substantial support provided to farm-
ers in developed countries than from developing country policy reform. According to
the economy-wide model used in Anderson, Cockburn, and Martin (2010, 2011), such
reform would raise the real earnings of unskilled workers in developing countries, most
of whom work in agriculture. Their earnings would rise relative to both unskilled work-
ers in developed countries and other income earners in developing countries. This
would thus reduce inequality both within developing countries and between develop-
ing and developed countries, in addition to reducing poverty. The studies all find global
trade liberalization to be poverty alleviating, regardless of whether the reform involves
only agricultural goods or all goods, with the benefit to developing countries coming
roughly equally from reform at home and abroad. They also find that rural poverty
would be cut much more than urban poverty in all cases.
Policy Implications
These empirical findings have a number of important policy implications. First and
foremost, the attractive poverty- and inequality-alleviating effects of unilateral and
multilateral trade policy reforms provide yet another argument for countries to seek
further liberalization of national and world markets. The potential benefits are gener-
ally much greater for global reform than from just own-country reform. The results of
this set of studies also show that the winners from trade reform would overwhelmingly
be found among the poorer countries and the poorest individuals within these coun-
tries. However, even among the extreme poor, some will lose out. Hence the merit of
compensatory policies, ideally ones that focus not on private goods but rather on public
goods that reduce underinvestment in pro-growth areas such as rural human capital
formation.
Second, the strongest prospective benefits come from agricultural reform. This under-
scores the economic and social importance of securing reforms for the agricultural