Global Trade And Poverty: Examining The Economic Impact And Opportunities For Growth – OpEd

Since the inception of globalization in economics in 1870, with its three distinct eras, the integration of national economies into a global economic system has become increasingly prevalent. This has resulted in a notable increase in trade openness among countries, fostering greater interaction in economic relations. The effects of this increased trade can be both positive and negative, impacting countries’ economic growth in various ways. 

On the positive side, it can lead to a rise in national income as nations capitalize on their comparative advantages in specific products and services, gain access to global markets, benefit from the transfer of technology and expertise, and create new job opportunities.

However, there are also negative consequences to consider, such as the increased vulnerability of less capital-intensive and unskilled economies, the exploitation of workers in developing countries, the instability and risks associated with global markets, and, in some instances, the weakening of local industries (Agusalim, 2017). 

Focusing on the Ricardian theory of comparative advantage, which posits that trade liberalization enhances opportunities for specialization based on technologies and market production types (capital or labor), it becomes clear that this specialization lowers production costs and grants countries the ability to produce goods at higher quality and lower costs than other producers (Chau, 2022).

Thus, international trade is generally viewed as a key driver in reducing poverty by contributing to economic growth, increasing national income, expanding employment opportunities, and boosting production. This perspective has led the United Nations to advocate for the acceleration of economic growth in poorer countries through market liberalization. 

While global estimates of trade liberalization gains range from $250 billion to $680 billion annually, with 66.6% of these benefits accruing to industrialized nations, developing countries stand to gain disproportionately in relation to their GDP, as their economies are typically more protected and face greater barriers (IMF, 2001).

Data from the World Bank demonstrates a clear relationship between trade, measured by global goods exports, and poverty reduction, as indicated by World GDP per Capita, particularly since the early 2000s. The data reveal that trade is positively correlated with income levels, contributing to poverty reduction when combined with other factors. 

This relationship was particularly evident during the global financial crisis of 2007-2010, when a decline in world trade transactions, driven by economic instability, falling prices, and disruptions to the supply chain, was mirrored by a decrease in global GDP per capita. A similar trend was observed during the COVID-19 pandemic in 2020, as trade slowed and poverty reduction efforts were hindered.