Short‐ versus Long‐Run Implications of Trade Liberalization for Poverty in Three Developing Countries

Abstract

The impacts of global trade reform on poverty are a key concern in the current trade negotiations under the Doha Development Agenda. The aggregate poverty impacts of trade reform are, in turn, strongly linked to the impacts of such reforms on the rural population as they constitute the overwhelming majority of the poor in almost all developing countries. This paper uses a new micro-simulation methodology designed to analyze this critical issue. The methodology is first explained, and then applied to three developing countries of particular interest-Chile, Malawi, and Vietnam. A key feature is the distinction between the short-run impacts of reform, where many factors-most importantly selfemployed labor of the poor-tend to be immobile between sectors, and the longer-run impacts when factors find their highest return, regardless of the sector of employment. This distinction makes an enormous difference and