The Effect of Trade Liberalization on Chinese Rural Poverty

Shixin Li

doi:10.5539/ass.v5n5p23

Abstract

There has been much controversy over the impacts of trade liberalization on poverty. Some have argued that trade liberalizations are beneficial to the poor in developing countries, while others have argued that the gains will be captured more by the non-poor. The policies of trade liberalization in China have reduced the NPRs of some agricultural products, which cut down the welfare of its producers, but the expansion in foreign trade of agricultural products rapidly reduces rural poverty. The change in foreign-trade construction of agricultural products not only impacts the welfare level of different kinds of agricultural producers, but also makes the farmers in coastal areas be the greatest gainers. This paper applies SURE with simultaneous-equations to assess the link of trade-poverty in China, and its result shows that the link of trade-poverty in China is characterized by inverted U-shape. That is, before the mid 1990s, trade liberalization in China worsens the rural poverty; and after then it is beneficial to rural poverty reduction.

Highlights

China has made remarkable progress in poverty reduction since the launching of economic reform in the late 1970s
They found that trade liberalization makes cheaper skills-intensive import goods available and decrease in demand for skilled labor, which may reduce the rewards to education and lower the accumulation of human capita
At the initial stage of trade liberalization, poverty in rural China has increased with the constant expansion in foreign trade; and it has dropped after the trade growth reached some “threshold” value. Note that this estimated result is a net effect of trade liberalization on poverty, without considering the impacts of other factors, especially without considering the effect of economic growth resulted from non-foreign-trade factors

Summary

Introduction

China has made remarkable progress in poverty reduction since the launching of economic reform in the late 1970s. If China is not included, the absolute number of the population below the poverty line in developing countries has increased by 100 million in the 1990s (ESCAP, 2003), and the incidence of poverty in developing and transiting countries has declined only from 28% to 24% within 1978-1998(World Bank, 2001). Another remarkable success of China is the expansion of external trade due to the policy of opening-up. The last section gives a short policy application to the result of this paper

Debates about the issue

A descriptive analysis

An empirical analysis

Conclusion and policy application

Findings

Section II: with Section without