Civil wars are more likely to occur in poor countries than in rich ones. While there may be some relationship between certain kinds of violence and poverty, not all poor states are volatile. Some rich states too can experience violence. “Extreme poverty is a huge problem in developing countries with 1.2 billion people surviving on less than a dollar a day. A further 1.6 billion, more than a quarter of the world’s population, make do with one to two dollars a day.” This is according to a study titled “Trade, Income Disparity and Poverty”, by the World Trade Organization (WTO).
Trade can play an important part in reducing poverty because it aids economic growth and the poor tend to gain from fast progressing kind of growth. According to the European Commission, fair trade can help tackle poverty and bring peace to conflict zones by:
Trade creates employment opportunities
Free trade boosts economic sectors thereby creating stability, more jobs, and usually higher incomes. Higher incomes directly translate to improved livelihoods. As developed countries move their operations into developing countries, new opportunities arise for local workers. An increase in employment levels and general standard of living reduces hunger as well as boosts food production. Lack of increasing dependency for medical care in developing countries can be attributed to better living standards where there is free trade. More income increases the levels of literacy as education is now affordable. The overall result increases in life expectancy and reduction in infant mortality rates.
Trade strengthens ties between nations
By bringing people together in peaceful and mutually beneficial trade pacts and policies, free trade contributes to peace and stability. Cultural exchanges and assimilation often lead to dilution of bad war habits and tendencies as well other negative behavior.
Trade can help increase development and reduce poverty by initiating growth through increased commercial opportunities and investment
With new capital entering a developing country, a growing productivity cycle that stimulates the entire economy is initiated. Foreign capital inflows excite the banks and other lenders, leading to more investment and increased lending. Lending sparks a country’s economy which in turn helps develop locally owned businesses. Furthermore, free trade allows a reciprocate relationship where foreign-owned companies establish themselves in developing countries and native companies sell to their foreign markets. This is particularly true for small businesses in developing countries that no longer have to worry about absorbing entry tariffs and other red tapes to enter foreign markets and can sell their products freely.
Affordable prices and availability of products.
Freeing up trade helps the poor as well as the other people in a similar way, by lowering prices of imports and maintaining prices of substitute imported goods at a low. This action increases people’s real incomes. Basic foods, pharmaceuticals, and other medical or basic health products, as well as used clothing, are imports that are especially important for the poor. An example of trade liberalization that benefited the poor directly was in April of 2000 at the African Summit on Roll Back Malaria. During the summit, Africa’s heads of states committed themselves to reduce & waive taxes and tariffs for goods needed to control malaria. Such as insecticides, nets, and anti-malarial drugs.
In most cases, trade liberalization increases the income of the poor creating harmony in the process. Compared to the overall benefits, transition costs are small. However, there are cases where the short-term effects of free trade on the poor and others have been both negative and significant.
In Zambia for example, liberalization of the maize market achieved the opposite of desired results. Before, maize producers had a considerably low cost of inputs due to cross-subsidies financed by the country’s mining sector. In addition, parastatal subsidized prices for small producers in remote areas and served as monopsony buyer. This was applied without discrimination throughout the seasons in the entire country. Later on, subsidies were removed and the parastatal was privatized. Large farmers, due to their economies of scale and closeness to national markets, experienced little change but severe price fluctuations hit poor farmers in rural areas hard. To make matters worse, due to deterioration in transportation infrastructure, remote rural corn markets were completely wiped off. This left the poor farmers without any formal income, in direct contradiction to what had been expected of the move.