Systematic literature review on trade liberalization and sustainable development

Abstract

This paper compiles a systematic review of research papers that identify the effect of international trade and trade liberalization policies on socio-economic targets linked to the sustainable development goals (SDGs). A comprehensive overview of the existing literature is provided, focusing on papers that identify causality and covering topics that have not been systematically analyzed previously. While existing literature reviews have focused on the effects of trade openness on economic growth, its consequences for other social- and sustainable-related goals have received much less attention. We restrict the review to social- and sustainability-related SDGs and classify the empirical findings in four categories. First, we analyze the extent to which trade affects poverty (SDGs-1, 2, 8). The findings indicate that trade increases average incomes in most cases and that trade reforms that include the agricultural sector generally reduce poverty. Second, we examine labor market outcomes and analyze how international trade affects wages, unemployment, and informality (SDGs-1, 5, 8). We find that with more trade, employment and wages increase in the most dynamic sectors, but decrease in others with increases in informality in some developing countries. The third bloc documents papers that evaluate whether trade is good or bad for environmental quality, evaluating how trade reforms and increases in openness affect the environment at the macro and micro level (SDGs-3, 7, 11, 12, 15). The reviewed research indicates that the effects of trade on environmental quality are complex and depend on the sectors that liberalize and the existence of environmental standards linked to trade agreements. The fourth category concerns the effect of trade flows on food security, hence questioning whether opening the economies could contribute to better performance in SDG-2 and SDG-9. In this area, the literature is still incipient and deals mainly with correlations. More research is needed to better define the concept of food security and related indicators and to collect better data. In summary, this systematic review should guide policymakers in developing countries in the decision-making process related to trade and industrial policies. The main recommendation is to consider the main findings when designing new trade policy strategies concerning both unilateral trade liberalization and free trade agreements negotiations.