3. NECESSITY: WTO says yes; its trade policy is oriented toward reducing inequality through redistribution, which requires corresponding domestic policy.

The strong increase in trade was enabled by decreasing trade costs. Containerization (i.e., the transport of freight by means of large containers) and technological developments lowered transportation and communication costs leading to greater efficiencies. In addition, tariffs and non-tariff measures (NTMs) were reduced through multilateral, plurilateral and regional trade agreements during the last three decades. The volume of world trade increased by 43 times between 1950 and 2021. Average applied tariffs have fallen from 50 per cent in the 1930s to single digits since the 1990s, although other trade restrictions have been increasing in recent years.1 In 1995, with the creation of the WTO, the strengthening of a rules-based multilateral trade regime further provided the predictable trading environment that fostered trade and growth. This convergence was accompanied by a decline in global income inequality. The global Gini index (i.e., a measure of inequality, in which higher inequality is indicated by higher values) experienced a fast decline, from 70 to 60 points from the late 1990s to 2018, in large part due to strong income growth in populous poor countries. Global inequality in wealth, however, has increased. Income tax data reveal that since 1995, although the poorest half of the world population experienced about 3 per cent annual income growth, it only captured 2 per cent of the overall wealth growth because it started from very low wealth levels. The middle classes of high-income economies experienced slightly higher income growth and captured 60 per cent of the total wealth growth during the same period. Between 1995 and 2021, 38 per cent of the total wealth growth has gone to the global top 1 per cent (Chancel et al., 2021). Trade openness can also contribute to economic inclusion (WTO, 2018a). Some of the most open and trade-dependent economies, including Germany, Latvia and the Netherlands, are also some of the most equal in terms of income levels, living standards, and wealth disparities (see Figure D.2). Conversely, some economies have levels of inequality relatively similar to those of less economically integrated economies, highlighting the importance of complementary domestic complementary policies, such as redistribution and labour market policies, in promoting inclusive economic growth (IMF, World Bank and WTO, 2017; WTO, 2017). (b) Globalization has sharply reduced poverty From 1981 to 2019, lower- and middle-income economies increased their share in global exports from 19 to 29 per Figure D.2: Trade openness can go hand in hand with economic inclusion 20 30 40 50 60 1.3 1.7 2.1 2.5 Average inequality Gini index (2000-21) Average trade openness (log) (2000-21) High-income Upper middle-income Lower middle-income Low-income Source: Authors’ calculations, based on the World Bank’s World Development Indicators. Note: Trade openness corresponds to the ratio between the sum of exports and imports and gross domestic product (GDP). The Gini coefficient measures the extent to which the distribution of income among individuals or households within an economy deviates from a perfectly equal distribution. A Gini index of 0 represents perfect equality, while an index of 100 implies perfect inequality. The average trade openness and Gini coefficients are calculated for the period 2000 to 2021, or a shorter period, based on data availability. The linear trend is represented by the dashed black line, which is statistically different from zero. - 66 - WORLD TRADE REPORT 2023 cent, and reduced the share of their population subsisting on less than US$ 2.15 per day from 55 per cent to 10 per cent (see Figure D.3). Trade contributes to poverty reduction by raising economic growth.2 Comprehensive trade opening in developing economies can increase economic growth by an average of 1.0 to 1.5 percentage points (Irwin, 2019). In turn, economic growth, through different mechanisms, has been found to lead to almost one-to-one rise in the real income of the poor (Dollar, Kleineberg and Kraay, 2016). The poor tend to allocate a greater portion of their income towards purchasing tradeable goods, particularly food and beverages, which can be subject to comparatively high tariffs (Cravino and Levchenko, 2017), and thus can gain disproportionately lower prices at the consumer level resulting from the reduction or elimination of trade barriers (Artuc, Porto and Rijkers, 2019; Faijgelbaum and Khandelwal, 2016). Some economies have, however, not benefited as much as others. While export-led growth has dramatically reduced poverty in East Asia and several Eastern European economies, the number of poor people in sub-Saharan Africa has, for instance, stagnated since the 1990s. Slower progress in economic growth and poverty reduction in Africa in part reflects slower growth in trade.