The free trade panacea

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Reason‘s Ron Bailey reports:

Trade is THE solution to poverty. Throw in international labor mobility, and we’re well on the way to remedying any of the problems that money can fix—like controlling infectious diseases, providing electricity, clean water and sanitation, feeding people, educating women, and so forth. Or at least that’s what Kym Anderson, an economics professor at the University of Adelaide in Australia more or less asserted in his presentation on trade and migration on the third day of the Copenhagen Consensus 2008 Conference.

Anderson looked at a number of econometric modeling scenarios and calculated the cost and benefits that would obtain from full trade liberalization under realistic assumptions derived from the current World Trade Organization’s Doha Development Agenda negotiations. Anderson estimated that liberalization of global merchandise trade would mean an annual increase of $287 billion per year in global GDP, of which $86 billion would go to developing countries.

No.

Assume there are one billion poor people in developing countries. If all of the estimated benefits of liberalisation for developing countries accrue to them, their average gain is less than 30 cents per day. Unless almost all of the world’s poor are sitting right below the dollar per day poverty line, this won’t eliminate poverty. Moreover, Anderson and Alan Winters estimate that $70b of that $86b gain goes to middle-income countries like Brazil and Mexico, leaving only $16b for low-income contries, including India, which has a couple poor people (page 60 of their paper).

Anderson and Winters never say “THE solution to poverty” in their report. They use phrases like “contribute to reducing poverty” and “helpful in the fight against poverty.” I doubt that Kym Anderson was so careless as to say that the Doha round is “THE solution,” in which case Ron Bailey’s summary of what the economist “more or less asserted” is pretty inapt.

There’s a dangerous tendency amongst libertarians to believe that free trade is a cure-all. Not only does it never do harm, but it can fix any problem! Some seem to think that a bit more trade openness on the part of the United States and Europe would solve African development and make failed states rich. This is nonsense. But unless Kym Anderson horribly misrepresented his own research, Ron Bailey either believes nonsense or didn’t listen very carefully.

[Previous installments of bad Reason reporting on trade liberalisation available here.]

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2 Responses to “The free trade panacea”

  1. Emmanuel Says:

    LOL, JD. You are starting to sound like the rest of us. I worry that no one will be left to champion Doha instead of just being indifferent to it. Maybe we can convince Ben Muse to become a Doha booster or we’ll all be parroting the Rodrik line.

    One of the saving graces of the author though is that he also favours freer migration–not exactly a popular stance, either. As we’ll often find in geopolitics, there are many strange bedfellows.

  2. ivan janssens Says:

    I agree that Baily goes a little bit overboard here. But we should cut him some slack. It’s trade cum international labour mobility he’s writing about as THE solution, and I think that even Dani Rodrik (see also Pritchett) will agree that we can go a long way in battling poverty with trade ánd free migration. Also, I think he is comparing trade with aid (“that money can fix”), and in that comparison trade comes out pretty good I would think. But he should have emphasised international labour mobility more.

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