Would Freeing Up World Trade Reduce Poverty and Inequality? The Vexed Role of Agricultural Distortions


  • This is a product of a World Bank research project on Distortions to Agricultural Incentives. The authors are grateful for helpful comments from workshop participants and referees, and for funding from World Bank Trust Funds provided by the governments of the Netherlands (BNPP) and the United Kingdom (DfID) and from the Australian Research Council. The views expressed are the authors’ alone and not necessarily those of the World Bank and its Executive Directors, nor the countries they represent, nor of the institutions providing funds for this research project.


Trade policy reforms in recent decades have sharply reduced the distortions that were harming agriculture in developing countries, yet global trade in farm products continues to be far more distorted than trade in non-farm goods. Those distortions reduce some forms of poverty and inequality but worsen others, so the net effects are unclear without empirical modelling. This article summarises a series of new economy-wide global and national empirical studies that focus on the net effects of the remaining distortions to world merchandise trade on poverty and inequality globally and in various developing countries. The global Linkage model results suggest that removing those remaining distortions would reduce international inequality, largely by boosting net farm incomes and raising real wages for unskilled workers in developing countries, and would reduce the number of poor people worldwide by 3 per cent. The analysis based on the Global Trade Analysis Project model for a sample of 15 countries, and nine stand-alone national case studies, all point to larger reductions in poverty, especially if only the non-poor are subjected to increased income taxation to compensate for the loss of trade tax revenue.