Poor numbers: The impact of trade liberalization on World Poverty

Executive Summary

Many economists and policy analysts have promoted trade liberalization in rich countries as the most effective way to reduce poverty in the developing world. Cline (2004), one of the leading references on this topic, projected that rich country trade liberalization would lift 540 million people out of poverty. This paper analyzes and corrects this projection. It notes that:

1. Most of the people lifted out poverty in these projections have their incomes raised from just below the international poverty level of $2 per day to just above this level. While this gain may correspond to a meaningful improvement in these people's lives, most are not being advanced very far from an impoverished living standard, if at all.

2. The Cline projections are overstated by approximately 20 percent due to an error in calculation. Once this error is corrected the projected reduction in poverty is just under 440 million.

3. The Cline projections rely on the use of the Gini coefficient as the basis for fitting the income distribution. This is an arbitrary method that produces very poor fits in many instances