08 August 2023 • 9 min read
Empowering Nations Through International Trade
International trade has played a significant role in improving economic outcomes and reducing poverty across the globe. By facilitating the exchange of goods and services, trade opens avenues for employment growth and economic diversification, which in turn aid poverty reduction. However, there are several challenges that limit participation in international trade, especially for small and medium enterprises. This article explores the positive economic impact of international trade, existing challenges and how the recent growth of digital trade platforms can address these challenges.
Over the last seven years, 191 countries have agreed to end poverty, reduce inequalities, and tackle climate change through their commitment to the 17 Sustainable Development Goals. Number one among these goals is to ‘End poverty in all its forms everywhere.’ On July 11, 2023, the United Nations Development Programme released an update on the state of global multidimensional poverty, 'Unstacking Global Poverty: Data for High Impact Action.’ According to data tracked by the Multidimensional Poverty Index, India has made remarkable progress in reducing poverty, with the number of poor reducing from 24.85% in 2015-16 to 14.96% in 2019-21. This translates to more than 415 million people being lifted out of poverty in 15 years. During the same time, trade’s contribution to India’s GDP has nearly doubled (from 27% of GDP in 2000 to 49% in 2022). Twenty-five other countries, including Cambodia, China, Congo, Morocco, Indonesia, Vietnam, have also successfully halved their multidimensional poverty. Concerted effort on part of governments and civil society organizations through supportive policies, direct aid, livelihood assistance programs as well as a large-scale push for development, among others, have contributed to this significant decline in the number of poor.
The Role of International Trade in Economic Growth and Poverty Reduction:
Within this mix of enabling factors, international trade has been a critical driver of economic growth and poverty reduction across the globe. Trade generates income, employment opportunities and fosters technological advancements. Thus, participation in global trade, especially for developing countries can be an effective pathway to economic growth. Trade openness also has positive implications for poverty reduction. Research indicates that a percentage point increase in trade is associated with a 0.149% reduction in poverty. Specifically, trade can benefit the poor by reducing the price of the goods and service they consume while also increasing the price of goods and services they produce. More broadly, trade creates new job opportunities and leads to wage increases, especially for low-skilled labor. Trade allows export diversification, which reduces the impact of domestic shocks. Moreover, it attracts foreign investments and improves access to technology and knowledge which can improve productivity and spur economic growth. Increased trade also has implications for gender equality. For instance, cross-border trade in Africa has generated income for thousands of poor women. The growth of the export-oriented garment sector in Bangladesh has contributed to women’s economic empowerment while leading to a change in social attitudes towards girls and women.
However, not all poor are affected equally by international trade. Whether or not they gain depends on their individual characteristics, where they live and work and the type of change in trade policy. For instance, sometimes trade can lower incomes due to import competition. It is therefore important to mitigate trade-related risks that may affect specific groups of people.
Challenges to Global Trade:
Over the last few years, there has been a gradual movement away from trade openness. Moreover, an unstable macro-economic environment has adversely affected the global economy, and in turn, global trade. In addition, several challenges hinder internal trade’s potential to spur economic growth and alleviate poverty. These challenges can affect countries at a macro level as well as affect an individual firm’s ability to participate in international trade. Broadly, these relate to policy and infrastructure barriers, a lack of access to finance, and human and physical capital, and lack of access to information and data. Small and medium enterprises, especially, lack access to credit and working capital that can enable them to undertake cross-border transactions. There exist a plethora of complex trade regulations and procedures that make it cumbersome for firms to engage in trade. Further, unequal access to market intelligence and timely information exacerbates already exiting asymmetries and affects a firm’s ability undertake imports and exports.
Digital Trade Platforms:
Globally, there have been several large-scale efforts to improve trade openness. Within the spectrum of actors working to dismantle barriers to trade and improve trade openness, digital trade platforms are revolutionizing how trade is conducted and have the potential to transform trade participation. These platforms leverage technology to streamline processes and provide access to information, making it easier for firms to undertake cross-border trade. Many provide innovate financing options, especially for small and medium enterprises to access funds required to address working capital requirements. Digital platforms can simplify access to information on regulations, tariffs, and customs procedures, and reduce the complexity of trade documentation, thereby enabling businesses to operate more efficiently. By providing market insights as well as by aggregating real-time information on things like shipping schedules and container availability, trade platforms allow businesses to make better business decisions and in turn reduce costs. Digital platforms also connect businesses on the supply and demand side, leveling the playing field for smaller firms.
Thus, enabling the growth of an ecosystem that facilitates the development of such trade platforms can work to improve trade participation and therefore improve the economic well-being of the world.
Policies and interventions that foster better trade integration and support the development of innovative solutions such as those provided by global trade platforms can significantly impact the growth of international trade. Moreover, by leveraging technology and designing fair and equitable trade practices, the world can harness the power of international trade for economic empowerment and poverty reduction.
Multidimensional poverty is a measure of poverty that reflects the multiple deprivations (beyond economic ones) that poor people experience simultaneously beyond , such as poor health, lack of education, and lack of a decent standard of living.
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