The impact of trade facilitation on poverty and inequality: Evidence from low- and middle-income countries

Abstract

Although there are numerous empirical studies on the effect of trade facilitation on international trade and gross domestic product (GDP), there have been no studies on the effect of trade facilitation on poverty and inequality. This study examines the effect of trade facilitation on poverty and inequality in low- and middle-income countries using generalized method of moments-type instrumental variable regression. In this study, trade facilitation is measured by the number of documents and the number of days needed for exports and imports. It is found that trade facilitation helps the low- and middle-income countries decrease poverty and inequality, and increase per capita GDP.

Keywords:

• trade facilitation
• poverty
• inequality
• international trade
• developing countries

JEL Classifications:

• F13
• F15
• I30

Acknowledgements

This study is funded by the United Nations Economic and Social Commission for Asia and the Pacific (UNESCAP), the United Nations. I would like to thank the anonymous reviewer of the Journal of International Trade & Economic Development for very useful comments on this paper. I would also like to express great thanks to participants in the workshop ‘Trade Facilitation for Poverty Reduction: Building Capacity for the Implementation of Pro-Poor Trade Facilitation Policies and Measures in Developing Asian Countries’ on 26 March 2013 for their helpful comments on this paper.

Notes

1. Horsewood and Voicu (2012) find that corruption can hinder international trade.

2. There are four countries including Croatia, Hungary, Poland and Slovak Republic reporting the poverty rate poverty line of $1.25 and $2 PPP/day below 1% in 2000.

3. Data are available at http://data.worldbank.org/.

4. The poverty measures are expressed as follows (Foster, Greer, and Thorbecke 1984):

where x_i is per capita expenditure for those individuals with weight w_i who are below the poverty line and zero for those above, z is the poverty line and ∑w_i is total population size. α takes a value of 0 for the poverty rate, 1 for the poverty gap index and 2 for the poverty severity index. In the World Development Indicator Database from the World Bank, there are only data on the poverty rate and poverty gap index. There are no data on poverty severity index.

5. The association between the poverty gap rates with the national poverty line and the poverty line of $2 PPP/day, the poverty gap index and trade-facilitation variables are presented in figures in Appendix.

6. Since we do not estimate the effect of trade facilitation on international trade, we do not use a gravity model.

7. For all regressions, we also performed the OLS regressions. Trade facilitation in these ordinary least squares (OLS) regressions has the same sign as trade facilitation in GMM regressions. We do not present the OLS estimates in this study, but the estimates can be provided on request.