The Role of Trade Agreements in Combating Poverty in Developing Countries

Trade agreements, orchestrated by entities like the World Trade Organization, play a pivotal role in reducing poverty in developing countries by lowering trade barriers, boosting incomes, and creating employment opportunities. By fostering export-oriented economies and integrating developing markets into global trade networks, these agreements have lifted millions out of poverty since the 1990s. This article explores how reducing tariffs and other trade barriers influences incomes and employment, supported by data and insights from authoritative sources as of 2025.

Trade Agreements and Poverty Reduction: A Global Perspective

Trade agreements, including multilateral frameworks and regional pacts like the African Continental Free Trade Area, aim to liberalize trade by reducing tariffs, quotas, and subsidies. The World Trade Organization, established in 1995, oversees rules governing 98% of global trade, promoting non-discriminatory and open markets. Global trade has been a key driver in reducing extreme poverty, with over 1 billion people escaping poverty between 1990 and 2017 as developing countries increased their share of world exports from 16% to 30%.

Developing countries benefit from trade agreements through enhanced market access, which allows them to export goods and services to larger markets. The Doha Development Agenda, launched in 2001, emphasizes special and differential treatment for developing nations, ensuring they gain equitable market access. Lowering trade barriers enables these countries to diversify exports, moving beyond raw commodities to processed goods, which generates higher economic value and supports sustainable development.

Impact of Lowering Trade Barriers on Incomes

Reducing trade barriers, such as tariffs and non-tariff measures, directly boosts incomes by increasing export revenues and lowering consumer prices. Tariffs, which are taxes on imports or exports, often raise the cost of goods, disproportionately affecting low-income households. A 1% reduction in global tariffs could increase global GDP by $170 billion annually, with developing countries capturing a significant share due to their reliance on trade.

In developing markets, export-oriented industries, such as textiles in Bangladesh or electronics in Vietnam, thrive when tariffs are lowered. Vietnam’s participation in a major trade pact since 2018 has increased its export revenues by 15% annually, raising per capita incomes by 8% in export-driven regions. Lower tariffs also reduce input costs for manufacturers, enabling them to compete globally and reinvest profits into wage increases. Export-led growth in developing countries raised average wages by 12% between 2000 and 2020.

Moreover, trade liberalization enhances consumer welfare by lowering prices. Free trade agreements can reduce the cost of imported goods by up to 20%, increasing purchasing power for low-income households. This effect is particularly pronounced in countries like Ethiopia, where tariff reductions on agricultural imports have lowered food prices by 10% since 2015, directly benefiting rural poor communities.

Employment Gains from Trade Liberalization

Trade agreements stimulate job creation by expanding export industries and attracting foreign direct investment. Export-oriented firms in developing countries employ up to 90% women in sectors like garments and electronics, promoting gender-inclusive growth. Bangladesh’s textile industry employs over 4 million workers, 85% of whom are women, contributing to a 30% reduction in poverty since 2000.

Lowering trade barriers also fosters foreign direct investment, which creates high-quality jobs. The African Continental Free Trade Area, implemented in 2021, is projected to create 18 million jobs across Africa by 2030 by eliminating 90% of tariffs among member states. This agreement has increased intra-African trade by 20% since its inception, with countries like Kenya and Nigeria reporting 5% employment growth in export sectors. A global trade facilitation agreement, fully implemented by 2023, has reduced trade costs by 14%, enabling small and medium enterprises in developing countries to access global markets and create jobs.

However, short-term job losses can occur in industries exposed to import competition. Trade liberalization may lead to temporary unemployment in less competitive sectors, such as agriculture in some African nations. To mitigate this, governments must implement retraining programs and social safety nets, as seen in Mexico after a major trade agreement, where targeted policies reduced transition costs for displaced workers.

Challenges and Criticisms of Trade Agreements

Despite their benefits, trade agreements face criticism for uneven outcomes. Some argue that global trade rules favor developed nations, as powerful economies dominate negotiations. Developing countries often lack the capacity to fully leverage agreements, facing technical barriers like stringent quality standards. Protectionist measures, such as subsidies in developed countries, also undermine benefits for developing nations. Agricultural subsidies in major economies, totaling $200 billion annually, distort global markets, reducing export opportunities for African farmers. Additionally, the erosion of trade preferences for least-developed countries, as global tariffs fall, can diminish their competitive edge. Recent ministerial conferences have proposed measures to enhance technical assistance for developing nations.

Data Summary: Trade and Poverty Metrics

The following table summarizes key metrics on how trade agreements impact poverty, incomes, and employment in developing countries, based on data from 1990 to 2025.

Policy Recommendations for Maximizing Benefits

To maximize the poverty-reducing potential of trade agreements, developing countries should prioritize export diversification, invest in infrastructure, and strengthen institutional capacity. Governments can support small and medium enterprises by simplifying trade procedures. International organizations should expand technical assistance to help countries meet global standards, reducing non-tariff barriers. Addressing protectionist policies in developed nations through negotiations is critical to ensuring equitable benefits.

Conclusion

Trade agreements are powerful tools for combating poverty in developing countries. By lowering trade barriers, these agreements increase incomes, create jobs, and integrate developing markets into the global economy. While challenges like protectionism and uneven benefits persist, strategic policies can enhance their impact. As of 2025, the continued liberalization of trade offers a pathway to reduce global poverty to historic lows, fostering inclusive and sustainable growth.

Sources

Name: World Bank – Trade Overview
URL: https://www.worldbank.org/en/topic/trade/overview
Description: Provides data on trade’s role in poverty reduction and economic growth, including statistics on export shares and employment.

Name: World Trade Organization – Trade and Development
URL: https://www.wto.org/english/tratop_e/devel_e/devel_e.htm
Description: Details initiatives like the Doha Agenda and Trade Facilitation Agreement, focusing on developing countries.