Why Isn't the Doha Development Agenda more Poverty Friendly?

• Author: Thomas W. Hertel,L. Alan Winters,Maros Ivanic,Roman Keeney
• Published date: 01 November 2009
• Date: 01 November 2009
• DOI: http://doi.org/10.1111/j.1467-9361.2008.00483.x

Why Isn’t the Doha Development Agenda more

Poverty Friendly?

Thomas W. Hertel, Roman Keeney, Maros Ivanic, and L. Alan Winters*

Abstract

Critics of the Doha Development Agenda rightly point to the lack of aggressive reform in wealthy countries

for its role in dampening developing country gains.The authors find that the absence of tariff cuts on staple

food products in developing countries also critically limits poverty reduction in those countries. Based on

their analysis of the impacts of multilateral trade policy reforms in a sample of 15 developing countries,they

find there is some evidence of poverty increases amongst the poor who work in agriculture when they lose

protection for their earnings. However, these effects are minimized when agricultural tariffs are cut in all

developing countries, and when the impact of lower food prices on low income consumers is taken into

account in their 15 country sample.

1. Introduction and Motivation

The troubled progress of the World Trade Organization’s Doha Development Agenda

(DDA) has largely revolved around agricultural negotiations and the implications for

developing country gains associated with these potential reforms. It is the connection

between agricultural reforms and development that has arisen as the most contentious

issue in the negotiations. For the current analysis,we adopt an operational definition of

development—reduction in the extreme poverty headcount—and ask how different

elements of trade liberalization contribute towards this goal.We find that a likely Doha

package will be less poverty-friendly than it could have been when considering reforms

already removed from the negotiating table. Previous analyses have identified the

misplaced attention on industrial countries’ agricultural subsidies as not particularly

poverty-friendly (Hoekman et al., 2004; Anderson et al., 2006; Hertel et al., 2007). In

the current analysis, we concur with this result and note additionally that the limited

reform requirements placed on developing countries curtails the ability of the nego-

tiations to reduce poverty in these same nations.

Based on the patterns of protection involved, our analysis suggests that developing

country poverty reduction is enhanced both by liberalizing industrial countries’ agri-

cultural trade (and rising agricultural prices) and by liberalizing developing countries’

trade (which reduces agricultural prices).We are able to resolve the paradoxical nature

of these two results by decomposing poverty level income into changes in earnings,

taxation, and cost of living effects in order to identify the sources of poverty reduction

across a sample of 15 developed countries.

We follow previous simulation analyses of the DDA, such as Hertel and Winters

(2006) and Hertel et al. (2007), by constructing plausible Doha round outcomes and

* Hertel and Keeney: Center for Global Trade Analysis, Purdue University, 403 West State Street,

W. Lafayette, IN 47907, USA. Tel: 765-494-4199; Fax: 765-496-1224; E-mail: hertel@purdue.edu,

rkeeney@purdue.edu. Ivanic:The World Bank 1818 H Street, NW, Washington, DC 20433, USA.Winters:

University of Sussex Falmer, Brighton BN1 9SN, UK. Tel: 44 1273 877273; Fax: 44 1273 673563; E-mail:

L.A.Winters@sussex.ac.uk.

Review of Development Economics, 13(4), 543–559, 2009

DOI:10.1111/j.1467-9361.2008.00483.x

© 2009 The Authors

Journalcompilation © 2009 Blackwell Publishing Ltd, 9600 Garsington Road, Oxford, OX42DQ, UK and 350 Main St, Malden, MA,02148, USA

translating them into reductions in agricultural support. Using these reforms,we employ

a general equilibrium model (GTAP) to estimate the impacts on factor and commodity

prices and government revenue in 34 countries and regions. In 15 of the developing

countries we use detailed household data on factor earnings and consumption to

calculate the effects on poverty across seven strata of households in those countries.

These 15 developing countries span the continents of Africa,Asia, and Latin America,

accounting for nearly 1 billion people and more than 150 million poor (evaluated at the

$1/day poverty line). The basic scenarios and modeling approach in this paper are the

same as in Hertel et al. (2007). Whereas that article looked at rich-country income

distribution as well as poor, and only at the net effects on developing country poverty,

here we focus on the decomposition of the effects of different policies and the contrast

between developed and developing country liberalization. We believe it is the first

systematic attempt to look at the poverty impacts of omitted developing country

liberalization in the Doha round. We turn now to our analytical framework, which

features a novel approach to decomposing the poverty impacts of trade reform.

2. Analytical Framework

The Poverty Model

There are many alternative approaches to estimating the change in poverty headcount

due to trade reforms (Winters et al., 2004;Hertel and Reimer, 2005). Theapproach here

builds on Hertel et al. (2004) using a sequential modeling strategy with results from a

global trade model passed to a series of micro-simulation models. Beginning with a

consumer demand system and the associated utility function, the poverty level of utility

is defined. Evaluation of poverty changes is thus simplified to calculating the percent-

age of the population below this poverty level of utility.

In this study, we use Rimmer and Powell’s (1996) AIDADS demand system to

represent consumer preferences.AIDADS is particularly useful for poverty analysis as

it devotes two-thirds of its parameters to consumption behavior in the neighborhood of

the poverty line (Cranfield et al., 2003). Estimation of this demand system is under-

taken using the 80 country, per capita consumption dataset offered by GTAP version

6.1, with the demand system estimates then calibrated to reproduce base year, per

capita demands in each country.

A key finding in the work of Hertel et al. (2004) is the importance of stratifying

households by primary source of income. Farm households in developing countries

often rely on the farm enterprise for virtually all of their income.And national poverty

tends to be concentrated in agriculture-specialized households in the poorest countries

in our sample. In these cases, the poor are more likely to benefit from producer price

increases. In other countries, the national poverty headcount is dominated by wage

earners who will be more susceptible to food price rises. To delineate the patterns of

earnings specialization we follow Hertel et al. (2004) in identifying five household

groups that rely almost exclusively (95% or more) on one source of income: agricul-

tural self-employment, non-agricultural self-employment, rural wagelabor, urban wage

labor, or transfer payments. The remaining households are grouped into rural and

urban diversified strata.1

Given our emphasis on the poverty headcount, we focus on households in the

neighborhood of the poverty line using a highly disaggregated poverty elasticity.2Our

analysis begins with the cumulative density function of per capita income in region rfor

the population stratum s:Frs(y). Thus Fy

rs r

p

()

computes the poverty headcount ratio

544 Thomas W. Hertel, Roman Keeney, Maros Ivanic, and L. Alan Winters

© 2009 The Authors

Journal compilation © 2009 Blackwell Publishing Ltd