Predicting the poverty impacts of trade reform

Quantifying how international trade affects poverty in developing countries is currently an area of intense research activity. This paper surveys the developments taking place, identifies four major methodological groupings, and summarizes preliminary findings from this literature. Methodologies currently used include 'bottom-up' approaches based on detailed household expenditure data, and 'top-down' approaches based on national accounts data. The survey's general conclusion is that any analysis of trade and poverty needs to be informed by both perspectives, and indeed, an increasing number of studies do so in what can be labelled 'micro-macro' synthesis. Future work should be directed towards improving the treatment of factor markets, domestic marketing costs, taxes and transfer payments, as well as devoting more attention to the reconciliation of household survey with national accounts data.