WTO publication highlights trade’s role in narrowing income gap

WTO publication highlights trade’s role in narrowing income gap

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WTO publication highlights trade’s role in supporting inclusiveness
Image by Horst Müller from Pixabay
  • The WTO World Trade Report 2024 highlighted trade’s role in narrowing  the income gap 
  • The report also revealed challenges, noting many economies with weak trade participation and high commodity dependence have been left behind
  • Open trade and supportive domestic policies ensure the benefits of international trade are more evenly distributed

The World Trade Organization’s (WTO) World Trade Report 2024 edition highlighted the role of trade in narrowing the income gap between economies since the WTO was established 30 years ago.

The WTO flagship publication also analyzes trends in the distribution of the gains of trade among people within economies and emphasizes the need for a comprehensive strategy that integrates open trade with supportive domestic policies.

WTO officials led the report’s launch at the 2024 WTO Public Forum on September 10 in Geneva.

“Perhaps the biggest takeaway from the report is its reaffirmation of trade’s transformative role in reducing poverty and creating shared prosperity — contrary to the currently fashionable notion that trade, and institutions like the WTO, have not been good for poverty or for poor countries, and are creating a more unequal world,” WTO director-general Ngozi Okonjo-Iweala said in her foreword to the report.

“But the second biggest takeaway is that there is much more we can do to make trade and the WTO work better for economies and people left behind during the past 30 years of globalization,” she added.

Examining how international trade has contributed to making the global economy more inclusive, the report showcases data establishing a strong link between trade participation and the narrowing of income disparities among economies.

From 1996 to 2021, a high trade share in gross domestic product is significantly correlated to faster growth in low- and middle-income economies, converging to the level of GDP per capita in high-income economies.

Moreover, membership in the WTO (and its predecessor, the General Agreement on Tariffs and Trade) has boosted trade between members by an average of 140%, while economies that undergo rigorous WTO accession negotiations are shown to grow 1.5 percentage points faster during their accession period.

Analysis further suggests that trade cost reductions between 1995 and 2020 led to a 20% to 35% faster income convergence of low- and middle-income economies with high-income economies.

Contrary to common belief, the report found weak correlation between trade openness and within-country income inequality, based on a comparison of the 2021 Gini inequality index and trade openness index of 157 economies. While income inequality remains high, it is not systematically linked to trade and import competition.

The report also highlights challenges, noting that many economies with weak trade participation and high commodity dependence have been left behind.

Between 1996 and 2021, low- and middle-income economies that grew slower than the average high-income economy in income-per-capita terms represented 13% of the global population and were mainly in Africa, Latin America and the Middle East.

Low- and middle-income economies that have lagged behind generally tend to engage less in international trade, receive less foreign direct investment, rely more on commodities, export less complex products, and trade with fewer partners.

“Less trade will not promote inclusiveness, nor will trade alone,” said WTO chief economist Ralph Ossa.

“True inclusiveness demands a comprehensive strategy — one that integrates open trade with supportive domestic policies and robust international cooperation,” he added.

The report emphasizes the need for a comprehensive strategy that integrates open trade with supportive domestic policies to make trade more inclusive, such as vocational training; unemployment benefits; education for a more skilled and mobile workforce; competition policy to ensure consumers benefit from lower prices; reliable infrastructure; and well-functioning financial markets.

Reducing trade costs, bridging the digital divide, and updating the WTO rulebook to reflect the growing importance of trade in services, digital, and green sectors are essential.

Greater international trade cooperation is also necessary to address evolving challenges in areas crucial to the future of trade.

Better coordination among international organizations could help to leverage synergies between trade policies and complementary policies and reinforce their impact on inclusiveness across and within economies.

READ: Trade growth likely in 2024 despite challenges —  WTO

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