Can Fair Trade Help to Reduce Poverty?


I remember quite well a question posed by Massimo during one of the lectures on SD, which reads as follows: ‘what is the difference between fair trade and just trade. The question encouraged me to research a bit into whether Fair Trade can help reduce poverty in the global South. The following notes represent some of my findings:
Trade and poverty are interwoven through economic growth, and faster economic growth resulting from trade liberalisation may definitely help to reduce poverty. However, orthodox research on trade and poverty has been marked by theoretical inconsistencies and empirical flaws (Deraniyagala and Fine 2006). Neutral trade regimes create labour-intensive production in many developing countries, thus increasing the demand for labour and unskilled employment. This scenario coupled with the potential upward pressure on unskilled wages, can definitely help to reduce the incidence of poverty in many countries in the global South. On the other hand, whether this actually leads to a fall in poverty, would largely depend on whether incomes for unskilled workers rise above poverty line. There is currently a huge volume of literature on trade and poverty. One conclusion drawn from the evaluation of this literature is that the effect of trade liberalisation on poverty is complex. The profile of the poor in a country, the production and consumption structures and etc all affect the effect of trade liberalisation on poverty. Therefore, it is hard to conclude that free trade and openness can result in poverty reduction. In fact in the case of Sub-Saharan Africa, it is not even clear if there will ever be free trade at all.


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