Trade Liberalisation and Poverty - the examples of Britain, Vietnam and Nepal.

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  1. International Trade

Today there are so many issues which needs to be reformed, one of which is International Trade otherwise known as globalization.

International Trade is simply referred as the exchange of goods and services across national boundaries. International trade accounts for a significant share of gross domestic product (GDP) in most of the countries. The value of international trade in 2010 was $19 trillion which is 30% of the world GDP. It means about one third of the goods and services are exchanged globally around the world.

According to "Global Policy Forum", till 2030, 60% of the world economy will exchange their goods and services internationally.

Theories of International Trade

  1. Trade Liberalization

When countries are interested in International Trade they need to follow trade liberalization or free trade.

Over 200 years two opposing forces: the promotion of free trade and protectionism has been the main challenge of International Trade. Trade liberalization is the removal of the restriction or the reduction of barriers on the free movements of goods and services across countries. The main objective of trade liberalization is to remove tariff and non-tariff barriers. It includes the removal or reduction of both tariff and non tariff obstacles. The easing of such restrictions is often referred to as promoting "free trade." Trade liberalization encourages and facilitates countries to specialize and benefit from the principle of Comparative Advantage. Further, it has helped to increase the world output by which competition has increased and consumers are able to get products and services at lower prices.

The UK is an extremely open economy with a long history of promoting trade openness. By 2009, trade accounted for around 60% of the UK's national income. (Source:, 2009.)

  1. Poverty

Poverty simply means lack of income or consumption. According to World Bank, almost half the world, over three billion people lives on less than $2.50 a day and 0.88 billion people live under less than $1 a day (see Appendix). The World Bank’s World Development Report 2001, ‘Attacking Poverty’, provides another important description of poverty (World Bank, 2001). This call for a focus of anti-poverty efforts in three key areas: opportunity, security and empowerment.

  1. Links between Trade Liberalization and Poverty

Trade liberalization has a deep relationship with poverty. In general, trade liberalization is a supporter in the fight against poverty.  Trade liberalization tends to increase average incomes and supplying more resources to tackle or fight against poverty.  Trade liberalization mainly affects the income distribution.

Today poverty is the greatest challenge to public policy and reducing it is the most fundamental objective of every government and county. Here, trade liberalization is believed to be an important part of the policy package for prosperity and growth and potentially for poverty mitigation.

Mainly Trade Liberalization affects poverty through its effect on:

  •  Economic growth.
  • Factor markets (income and employment),
  • Product markets (prices and availability of commodities
  • Government capacities to implement pro-poor policies (government revenue and expenditure).

  1. Trade Liberalization and Poverty – The Case of Nepal

Before1980s, Nepal’s trade policies were mostly influenced by state-led development strategies. Government was providing protection to domestic industries, import substitution, state-led industrialization, and government monopolies in major industries and sectors. From 1984/ 85 Nepal has initiated economic reform through structural adjustment program. The key elements of the reform process were Liberal and market oriented trade policy. The reform process was intensified after the restoration of multi-party democracy in 1990. The credit for reform process in Nepal has been credited to multi- party restoration democracy. 

The main features of liberalization in Nepal due to the economic reform were  included as devaluation and introduction of flexibility in the exchange rate, rationalization of the tariff structure, reduction in the average level of tariffs, elimination of import license and quotas implementation of full convertibility of the rupee in the current account, liberalization of foreign investments, privatization and institutional reform of state-owned enterprises, market-based pricing of agricultural inputs and outputs, and reduction of subsidies on credit and irrigation.

  1. Implications of Trade liberalization on Poverty
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There has been some debate about whether or not trade liberalization has been in favor of poor people of Nepal. However, the relationship between poverty and trade liberalization is very complex. But we cannot disagree with the fact that trade liberalization has affected the poor in Nepal. Trade liberalization can affect poverty in a number of ways. Indirectly, trade liberalization has affected poverty through its effect on poverty. Directly it has affected poverty through effect on factor markets (income and employment), product markets (prices and availability of commodities) and government capacities to implement pro-poor policies (government revenue and expenditure) in ...

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