Thursday, July 31, 2008

Meager benefits of the Doha Round for the developing countries

Here is a research done by Sandra Polaski from Carnegie Endowment for International Peace (CEIP) about the winners and losers from the Doha Round under different scenarios. The general equilibrium model showed that total gains from trade to be between $32-55 billion, with rich nations getting $30 billion; middle income countries like China, Brazil and SA getting $20 billion; and poor countries getting $5 billion (about $2 per head).

Global Real Income Gains from Trade Scenarios:

  Agriculture Central Doha Central Doha with “Special Products” Hong Kong Full liberalization
Gain in US$ (billion) 5.4 58.6 57.7 43.4 168.1
Gain over base year GDP 0.02% 0.19% 0.18% 0.14% 0.53%
Polaski also argues that a complete agricultural trade liberalization might actually hurt the developing countries. Full elimination of agricultural subsidies could increase food prices, which is not good for net food importers. Developing countries might gain more from liberalization of goods than agriculture.

The biggest winners among industrial nations would be Japan and the European Union, where incomes stand to grow by $6.5 billion and $5.8 billion, respectively. Among developing nations, the chief beneficiary by far would be China, which would gain $10.3 billion in annual income, or more than four times the increase expected for India. In fact, China's expected benefits account for nearly half of those likely to accrue to the developing world. The biggest losers would be Bangladesh, Malawi, Tanzania, and Uganda and the rest of the nations of sub-Saharan Africa (excluding South Africa). The numbers are so small, however, relative to the size of national economies, that the precise figures are less important than the broad picture they paint.

Here is a paper on how India would stand on different trade policy choices. In terms of change in real income, it seems that India would benefit the most from the Doha Round. Surprisingly, India would lose from India-EU FTA.

Here is a previous blog post on why the most recent Doha Round of trade negotiations failed.