Trade and the MDGs: how trade can help developing countries eradicate poverty.

• Author: Cordoba, Santiago Fernandez de
• Position: International trade and Millennium Development Goals

Developing countries depend on national and global economic growth to achieve the Millennium Development Goals (MDGs) by 2015. In this regard, international trade is recognized as a powerful instrument to stimulate economic progress and alleviate poverty. Trade contributes to eradicating extreme hunger and poverty (MDG 1), by reducing by half the proportion of people suffering from hunger and those living on less than one dollar a day, and to developing a global partnership for development (MDG 8), which includes addressing the least developed countries' needs, by reducing trade barriers, improving debt relief and increasing official development assistance from developed countries.

Poverty is the most crucial plague of our times. It is commonly agreed that in order to reduce the proportion of people living on less than $1 a day, developing countries need to substantially accelerate their economic growth by carefully opening their markets. The standard rationale is that trade liberalization improves efficiency in the allocation of scarce resources, enhances economic welfare and contributes to long-term economic growth. However, while there might well be long-term gains from opening their markets, liberalizing economies are likely to face some short-term adjustment costs. This is because, as economies open up, a country's imports use existing channels, while its new exports opportunities often come from different sectors that have yet to sufficiently develop production capacity.

The international community recognizes the importance of trade for development through initiatives, such as Aid for Trade, Financing for Development and, most importantly, the World Trade Organization (WTO) Doha Round of trade negotiations. It is estimated that the global annual welfare gains from trade liberalization would be in the order of $90 billion to $200 billion, of which two thirds would accrue to developing countries.(1) This could help lift 140 million people out of poverty by 2015.(2)

Trade and economic growth. In the last decade, trade has helped trigger strong growth in developing countries, whose share in the global trade has increased from 29 per cent in 1996 to 37 per cent in 2006 and whose exports have consistently been growing at a faster rate than those of developed countries. This has stimulated growth in export revenues of developing countries. At the same time, gross domestic product (GDP) per capita, one of the most relevant indicators of MDG...