Countries that trade more grow quicker, according to evidence emerging from case studies from trade liberalization and from large cross-country and time-series econometric analyses. Although the links from specific trade policy instruments to trade outcomes and economic growth is less apparent, yet the basic association between enhanced trade and economic expansion is clear.

Even when trade raises average incomes, its effects on poverty will depend on whether poverty in a given country is sensitive to growth in average incomes, and on how the increase in trade affects the distribution of income in that country. The sensitivity of poverty to growth in average incomes depends in an essential way on initial inequalities in a country. When incomes and opportunities are distributed relatively equally, the effect of growth on poverty is larger than when initial inequality is high. Thus, growth associated with amplified trade is likely to have larger proportional effects on poverty in countries where initial inequality is low. Most interesting and potentially more important are the effects of increased trade on the distribution of income. Almost by definition, if increased trade unduly benefits the poor, poverty will fall faster than if trade disproportionately benefits the non-poor. Understanding the likely distributional consequences of trade liberalization is therefore crucial to understanding the overall effects of trade on poverty.

In numerous cases, there are very direct channels through which trade liberalization is likely to disproportionately benefit the poor. For instance, agricultural trade liberalization that allows formerly suppressed prices of agricultural goods to rise to world levels will benefit farmers, who are net producers, but will harm regulars. If farmers are more likely to be poor, the liberalization will be, on average, pro-poor. Similarly, reductions in tariffs on manufacturers will hurt previously protected urban workers, who in many developing countries are likely to be relatively well off, but will benefit poorer consumers of their products by lowering prices.

Simultaneously, however, the distributional effects of trade liberalization can also work against poor people. For example, reductions in tariffs entail reductions in trade tax revenues that can be imperative in developing countries that rely disproportionately on this source of revenue. To the extent that public spending disproportionately benefits poor people, reductions in tax revenues that accompany trade liberalization can have undesirable distributional consequences. The likely distributional consequences of trade liberalization are complex and country-specific. Determining whether a given action would be pro or anti-poor requires a cautious analysis.

On average, trade can be a powerful force for poverty reduction, particularly over longer horizons where the cumulative effects of growth on incomes of the poor are large. But this will not be true for all countries at all times, underscoring the significance of complementary pro-poor policies at the country level to ensure maximum positive effects in every situation.

<B>Nitish BENIMADHU

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