How May International Trade affect Poverty in a Developing Country Setup? The Inequality Channel

Purpose: Recently there has been an influx of literature which tries to find out relationship between trade and poverty. Methodology: Right is of the view that more international trade is good for the poor whereas left is quite skeptical of pro poor effects of trade. The paper provides a comprehensive review of recent literature on the topic in order to reach some neutral grounds. Findings: The paper finds out that though trade might carry positive affects for the poor in developing countries through growth, such gains are not equally distributed among the rich and the poor. The paper identifies at least 8 different effects of international trade which result in unequal outcomes and thus defies Heckscher-Ohlin-Samuelson theorem in a developing country set up. Since per decomposition, poverty is affected by growth or inequality, evidence of unequal gains from trade does imply that the relationship between trade and poverty is not as simple as the right seems to suggest. Recommendations: To this effect, the paper calls for more empirical work on trade and inequality especially as single country case studies