Free Trade and Poverty

Poverty is defined as the state of being without, often associated with need, hardship and lack of resources across a wide range of circumstances. Some of the main uses of the term include description of material need, including deprivation of essential goods and services, and multiple deprivations. Another main uses of the term includes economic circumstances describing a lack of wealth or inequality, social relationships including social exclusion, dependency, and the ability to live what is understood in a society as a normal life (wikipedia).

In the economics, two kind of poverty are considered: the absolute and relative. A measure of absolute poverty quantifies the number of people below a poverty line, and this poverty line is thought to be independent of time and place (Wikipedia). A measure of relative poverty defines Ñ"ПpovertyÑ"П as being below some relative poverty line (Wikipedia). An example is when poverty is defined as households who earn less than 25% of the median income is a measure of relative poverty. The Copenhagen Declaration describes absolute poverty as a condition characterized by severe deprivation of basic human needs, including food, safe drinking water, sanitation facilities, health, shelter, education and information. The World Bank identifies ÐŽ§extreme povertyЎЁ as being people who live on less than $1 a day, and ÐŽ§povertyЎЁ as less than $2 a day. On that standard, 21% of the worldÐŽ¦s population was in extreme poverty, and more than half the worldÐŽ¦s population was poor in 2001.

Causes of poverty has been attributed to different factors that includes: individual or pathological causes; familiar causes; subcultural causes such as common pattern of life, learned or shared within a community; agency causes, actions causes by others including war, government, and economics; structural causes (Wikipedia). Other related causes includes land right and ownership, diversion of land use to nonproductive use, increasing emphasis on export oriented agriculture, famine, drought, over fishing, poor crop yield, lack of democracy and right.

To alleviate poverty, developing economies need to grow faster and the poor need to benefit from this growth. One of the policies toward the reduction of poverty can be free trade. Increased trade is the best way to relieve extreme poverty throughout the world, because it boosts economic growth, and the poor tend to benefit from that growth. Expert judged said that free trade could yield large benefits for poor nations such as very good opportunity for fighting misery along with cheap measures against HIV infections, micro nutrients distribution, and antimalarial programs (Wikipedia). In a study done by the World Trade Organization secretariat finds that trade liberalization help poor countries to catch up with rich ones and that this faster economic growth helps to alleviate poverty. The WTO give an example of a former poor country, 30 year ago, South Korea was poor as Ghana. Today, thanks to the free trade policy, it is as rich as Portugal (WTO).

The WTO study finds that countries that are catching up with rich ones are those with free trade. The study also finds that poor people within a country generally gain from trade liberalization. It concludes that trade liberalization is generally a strongly positive contributor to poverty alleviation it allows people to exploit their productive potential, assists economic growth, curtails arbitrary policy interventions and helps to insulate against shocks.

The Secretary for Economic, Business, and Agricultural Affairs of the U.S. Department of State, Alan Larson said:

Trade liberalization can be a powerful tool in fostering development and reducing global poverty. Free trade, he says, lowers the cost of basic necessities like food and clothing, discourages corruption, and allows democracy to develop and grow, leading to a better quality of life, especially for the poor.

One way developed countries can help emerging economies is to provide more access to their markets, Larson says. However, with trade among developing country partners now accounting for 40 percent of total developing country trade, the Doha Development Round of global trade negotiations will give developing countries an opportunity to lower their trade barriers at the same time as their neighbors, allowing them to more fully participate in the global economy.

Between 1993 and 1998, the number of people living in absolute poverty in developing countries that opened themselves to trade declined by 14 percent. By contrast, poverty in developing countries that did not open themselves to trade rose by 4 percent between 1993 and 1998. Poverty in countries with free trade has reduced, while school enrollment and life expectancy has increased (U.S. State Department).

Free trade works at reducing global poverty because it lowers the cost of basic necessities and increases government revenue and foreign investments. The trade capacity must be expand in order to benefit most from free trade. As mentioned before, there is research that clearly shows that free trade reduces global poverty. The U.S. State Department asserts that developing countries that reduced barriers to trade during the 1980s and 1990s grew an average of 3.5 percent and 5 percent on a per capital basis. Income inequality did not increase in those countries. The incomes of the poor tended to correlate very highly with overall growth in gross domestic product. (Larson)

Due to this evidence United and Australia are implementing strategies to help the developing world shift to free trade. A study done of 24 countries, including Mali, Haiti, Brazil, and Thailand, that have globalize since 1980s found that poverty had definitely been reduced in those countries (Dollar and Kray). The GDP in these countries has increased. This growth has helped the poor. For example in Malaysia where the average income of the poorest fifth of the population grew at 5.4 percent annually. Also, the population earning less than $1/day decreased sharply during the 1980s and 1990s. In Bangladesh, it dropped from 46 percent to 36 percent (Dollar and Kray).

Free trade reduces global poverty by lowering tariffs, which lowers the cost of necessities, increases government revenue, and increases investment. The main effect of free trade is lower tariffs. Tariffs reduce the amount of the product sold and the amount of money producers receive. By removing the tariffs, a poor farmer is able to get more for his product and is able to sell more, meaning that his profit rise dramatically. Another