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Trade and Poverty Reduction: Theoretical concept and 5Nepalese Experience
Pushkar Bajracharya
Introduction
Types Domestic International Entrepot
Auxiliary to trade Infrastructure Services
Why trade occurs
Absolute advantage Comparative advantage Resource endowment
Importance
Generates benefit to all those who participate in trade
Promotes economic activities Generates employment opportunities Contributes to growth Reduces povertye.g. Japan, Korea, Taiwan, Singapore, Hong
Kong, China, SE Asia
International Perspective
Economic growth depends on the development of new capabilities, institutions and services
Capital accumulation and technological progress are the engine of growth and international trade is the fuel for the engine
Sustained economic growth requires strong investment-export nexsus
Lives and livelihoods of most people in most LDCs not linked to international economy
International Perspective contd.
An inclusive form of economic growth requires not simply export expansion but also an economy-wide expansion of income-earning opportunities, encompassing exports and import-competing activities as well as non-tradables and tradables, which occurs at a rate of that exceeds the rate at which the working-age population is growing.
Trade-poverty relationship
International trade cannot affect poverty reduction if export performance is weak.
3 types of relationship Virtuous trade effect, where private consumption per
capita is increasing along with export growth Immiserizing trade effect, where private consumption
per capita is falling along with export growth Ambiguous trade effect, where there is no clear trend
in average private consumption per capita along with export growth
Study results
Immiserizing trade effect in 18 out of 51 cases
Ambiguous and immiserizing effect occur more than virtuous effect
Virtuous effect occur in 22 out of 51 cases
Making international trade more effective for poverty reduction
Better national development strategies which integrate trade objectives as a central objective
Improvements in the international trade regime, including issues which go beyond the scope of WTO to reduce international constraints on the development in the LDCS
Increased and effective international financial and technical assistance for developing production and trade capacities.
Major exports of Nepal in 2004/05
Rs 10 m.
Overseas
Garment Rs 587
Carpet Rs 612
Pashmina Rs 104
Handicrafts Rs 101
Major exports of Nepal in 2004/05
India Jute goods Rs 270 Chou chou 37 Toothpaste 128 Polyster yarn 190 Veg. ghee 464 Thread 164 Plastic goods 136 Corrugated sheet 307 Textile 300 Juice and chemicals 250
Evidences in Poverty Reduction
Research show 83% of poverty reduced by growth
Trade a major contributor to growth
Role in Poverty Reduction
Have generated employment opportunities to almost 500,000 people ( direct and indirect ) in export oriented industries alone
Informal sector is estimated to generate some 2 million employment now ( 1.6 million in !998/99 ) of which trading is the main activity
Role in Poverty Reduction
Trade promotes auxiliary activities e.g. transportation, communication, tourism, support services,
Trade also encourages production activities Overall impact is on poverty reduction
Evidences in Poverty Reduction in Nepal
Poverty reduction by 3% points in between 1992-1996 mainly contributed by trade
Poverty reduction strategies mainly encompassing micro and small enterprises as by PAF, MEDEP that relate to trading or manufacturing for trading
Evidences in Poverty Reduction products and services
CARPET Generated more than 300,000 employment
through spinning, carding, weaving, finishing, washing, and trading
More than 150,000 households benefitted Even now some 60,000 people getting jobs Backward linkage would have substantially
contributed to generate more jobs
Evidences in Poverty Reduction products and services
Garment Generated up to 80,000 jobs at its peak with
local employment for 60% Current employment for 5000 only Non-export opportunities still significant
Evidences in Poverty Reduction products and services
Pashmina Generated up to 100,000 employment Significant reduction now
Evidences in Poverty Reduction products and services
Micro enterprises Generated 1 employment with an investment
of Rs 10,000 In small with rs 250,000 and large 1 to 2
million
Cautions
Trade in isolation not possible Trade cannot substitute production International market highly volatile Domestic cushion essential Must have a mechanism of standardisation and
monitoring Tariff and non-tariff barriers major issues Advantages to LDCs limited Cost, quality, margins, delivery, imposition of
conditions deterrents
Strategies
Promote linkages Tap outsourcing Develop institutions like export houses to promote
micro and small activities Enhance monitoring Fight for LDCs Fight for making global trading system more
equitable Make environment conducive
Conclusion
Balanced reporting and presentation needed Overall impact assessment and
consideration needed Trade really an important cog in development
particularly for a country like Nepal with small market.
THANKS