Over the past two decades, global integration strategies for Latin America and the Caribbean have been at the center of an impassionate debate: critics of globalization often blame economic integration as the root of all development problems, while excessive enthusiasm for the benefits of trade liberalization generated unwarranted expectations.
The book Trade and Poverty in Latin America, recently published by the Inter-American Bank (IDB), is the first comprehensive review of the empirical evidence for the region on this widely debated topic.
The book analyses the impact of trade liberalization on income distribution and poverty in the region. It also identifies measures that ensure that trade works for development and poverty reduction.
The study finds that the effects of trade liberalization on poverty reduction have been positive, even if quite small. It refutes arguments that trade integration is harmful to the poor, as well as the contrary notion that trade is a panacea for development.
The book recommends that policymakers focus on using trade for development and poverty reduction. For example, many jobs created by trade liberalization may require skilled labor, making it necessary to provide better education and technical training to ensure low-income people can access new employment opportunities.
On the policy front, the book makes four recommendations:
- The positive effects of trade on poverty materialize in the long term, while the costs are paid up front; it is crucial to sustain momentum for integration to overcome this time lag.
- The capacity of trade to improve social welfare depends not only on trade performance but also on a wide set of non-trade policies, such as investments in social safety nets, education, technology and infrastructure.
- Some segments of society may not be able to bear short-term transition costs without public support in the form of compensatory trade adjustment policy packages.
- The effects of trade are highly dependent on local conditions, making it essential to go beyond one-size-fits-all solutions, designing, implementing and funding ambitious global integration strategies.
The publication is part of an initiative on pro-poor trade integration financed by the Trade and Poverty Trust Fund of the Department for International Development (DFID) of the United Kingdom. The IDB Trade and Integration Sector of the Vice Presidency of Sectors and Knowledge coordinated the research and publication of the book.