Income Distribution Impact of Trade Facillitation in Developing Countries

Working and discussion papers
April 2003
Adrian Hewitt and Ian Gillson

This Background Paper for the Second International Forum on Trade Facilitation, (May 2003) investigates the income distribution impact of trade facilitation in developing countries and makes a number of findings. Among them:

• Trade facilitation has an impact on income distribution and poverty in developing countries through its effects on international trade, economic growth and government revenue.

• Small and medium sized enterprises (SMEs), the dominant actors in developing countries, are the main beneficiaries of trade facilitation, since trade transactions costs fall disproportionately on small firms.

• While trade facilitation may or may not reduce income inequalities within developing countries, trade facilitation can enhance trade-induced growth, which increases average incomes providing more resources with which to tackle poverty. Trade facilitation measures applied within a closed (or at least less liberal) trade environment can still have a positive impact on exports and foreign investment.

• Trade facilitation may increase employment which may help some move out of poverty.

• Improvements in infrastructure allow the poor to trade more easily and profitably in domestic as well as in international markets.

• Trade facilitation can increase government revenue which can benefit the poor if used to finance social expenditures

3. A number of policy recommendations can be made if trade facilitation measures are to benefit the poor. In particular:

• To reduce income inequalities in developing countries trade facilitation measures should be targeted at lowering trade transactions costs in those sectors where employment of the poor is concentrated.

• The provision of effective safety-nets may be necessary if alternative forms of employment are not rapidly available for any displaced workers.

• Increases in government resources brought about by trade facilitation should be used to support pro-poor or social expenditures.

• SMEs need access to capital, trade information systems and capacity-building to comply with international standards under trade facilitation programmes if they are to trade efficiently.

• Infrastructure can be particularly beneficial for the poor if they are actively employed in its development.

Read the research
Documentpdf413.09k