Theoretical Approaches to the Analysis of Trade and Poverty and a Review of Related Literature on South Africa

Abstract

This paper considers a variety of theoretical approaches to the analysis of trade and poverty, from conventional trade theory to a livelihoods approach towards the poverty impact of trade reform. The conclusion is reached that further development and integration of alternative frameworks that move beyond traditional trade theory is important for the evolution of pro-poor trade policy reform. The paper uses the methodological framework put forward by Winters (2000a,b) and McCulloch et al. (2001) to review existing research, prior to the SALDRU Trade and Poverty Project, relevant to the relationship between trade and poverty in South Africa. Important avenues for future research are identified. In concluding, the paper comments on appropriate policies that may be inferred from the theoretical discussion and South African research surveyed that could accompany trade reform to ameliorate potential adverse poverty outcomes.

Notes

1 The discussion in Sections 2.1-2.4 draws on Cattaneo and Fryer (2002: 7-11; 15-18).

2 Increased skilled-to-unskilled wage inequality has been apparent across a broad range of industrial economies, and especially in the US and UK (Cline, 1997). While wage inequality has reportedly fallen in some developing countries (especially in East Asia), it has risen in others (such as in Latin America) (Wood, 1997, 2000; Sen, 2001; Jenkins and Sen, 2003).

3 The more similar the relative factor endowments of the two countries and the greater the extent of product differentiation, the more important intra-industry trade will be relative to (net) comparative advantage trade in a given sector (see Krugman, 1982: 203-204).

4 Note that although both factors could gain in absolute terms, the relative distribution of income would obviously still change in favour of the abundant factor (Krugman, 1981: 968). Further, a very specific set of assumptions about utility and production functions is used in order to model the underlying monopolistically competitive market structure. The models have thus been criticised for their lack of generality, although Krugman (1981: 198-199) points to the intuitive appeal of the results.

5 Numerous empirical studies in labour economics offer evidence that relocating workers between rather than within industries is more costly (for the US, see Fallick, 1993; Neal, 1995 and Kletzer, 1996; for the UK, Greenaway et al., 1999, and Elliot and Lindley, 2001).

6 Lloyd's (2000) generalisation of the Stolper-Samuelson theorem and specific factors model to allow households to have diversified ownership of factors of production is an extension to consider further in this regard.

7 For the 1990s, McCulloch et al. (2001:73-74) discuss the Zambian experience with respect to the former, and Zimbabwe's cotton industry in the case of the latter.

8 The latter has prevented maize prices from falling to export parity levels, despite export surpluses. More recently, drought has significantly increased domestic maize prices (Groenewald, 2007: 13).

9 For a sample of the literature discussing the structural shift to more capital- and skill-intensive production and away from labour-intensive (especially ultra-labour-intensive) production, see Kaplinsky (1995), Bell and Cattaneo (1997), Nattrass (1998), Roberts (1998, 2000), Edwards (2000, 2001a,b, 2003a,b), and Hayter et al. (1999).

10 Attempts to infer trends in employment from the October Household Survey data for 1995 and 1999 are questionable. They yield implausible spikes, and the results tend to contradict other sources (see Simkins, 1994).

11 They conclude, however, that due to an insignificant coefficient on their tariff reform dummy variable “liberalization policies have not been able to significantly affect trade tax revenue, at least not in the short run”. Although it is explained that the dummy is set to one “for periods of liberalization”, it is not specified which period(s) these are, nor how broadly or narrowly “liberalization” is defined.