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The Impact of Export Promotion Agreements on Poverty and Income Inequality: Insights and Challenges

This analysis explores the relationship between Export Promotion Agreements (EPAs) and their effects on export growth, poverty reduction, and income inequality. While some studies highlight positive impacts of EPAs on larger firms, concerns arise regarding their benefit to small and medium-sized enterprises (SMEs) and low-income households. Key findings indicate that EPAs can enhance SME engagement in global markets, yet the majority of funding is allocated to established exporters. The study advocates for policies that prioritize SMEs and leverage e-commerce to create more inclusive trade environments.

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The Impact of Export Promotion Agreements on Poverty and Income Inequality: Insights and Challenges

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  1. Export Promotion and Poverty: What do we know? Marcelo Olarreaga, University of Geneva and CEPR Arnoldshain XI University of Antwerp June 26-28, 2013

  2. What do we know? • Positive impact of EPA on export growth (Lederman et al. 2010) • But whobenefits? • The evidence on trade, incomeinequality and povertyis mixed(Goldberg and Pavnick, 2004 and Winters et al., 2004) • On exports and povertyitis more positive (Porto 2004, 2008) • But no evidence on EPA induced export-growth • If EPA's focus on large firmsthen the inequality (and perhapspoverty) canincrease: 10 percent of firmsrepresent 70 to 80 percent of exports. • Poor households are likely to have theirincomeassociatedwithSMEs, not multinationals • Evidence for developed countries isworrisome (Bernard and Jensen, 1999 and Görg et al, 2008): • Impact only on the intensive margin, benefittinglarge establishedexporters and not new and smallerfirms.

  3. Literature on Impact of EPA in LDCs • Most existingstudies on the "extensive" margin in developing countries are conditional on being an exporter (Volpe et al, 2008, 2009, 2011 or Cadot et al. 2011) • Extensive marginisdefined as a new market or a new product, but not a new firm. • The distinction is important if we are focusing on poverty and incomeinequality. • New exporters are muchsmallerthanestablishedexporters • And povertyreductionislikely to come through the connectionof SMEs to world market • Existingstudiescanveryimperfectlyaddress the question of how EPA may affect poverty, or more precisely how EPAscan help SMEsconnect to world markets.

  4. The (almost) good news • Survey of EPAsaround the world suggeststhatpromoting SME exports istheirthird top priority

  5. The bad news • Survey of EPAsaround the world suggeststhat the largest budget shareisspent on establishedexporters, not on new or non-exporters…

  6. The really good news • In a study of the impact of sevenLAC'sEPAs on export growth (Lederman et al, 2013) findthat the mainly affect the entry and survival of firms in export markets. • So the small budget spent on new exporters and non-exportersseems to be effective. Diff in Diffwithnearestneighbormatching:

  7. Impact on poverty • Wedon't know. Weneed more evidence • But if EPAsworkthrough the firm entry marginwecanexpectSMEsbenefittingrelatively more than if itworksthrough the intensive margin. • EPAscan help maketrade more inclusive, and thereforemakeitpolitically more acceptable • But how canthey do it?

  8. what do epa's do? • Most of EPAs training grants are spent on helpingfind new markets

  9. The (neglected) role of e-commerce • E-commerce significantlyreduces information asymmetries (caputred by the impact of distance on tradeflows), makingiteasier for smallerfirms to participate in world markets (Lendle et al. 2012)

  10. Easier to buildreputation • Online platformsproviderelatively cheap ways of acquiringreputation Testingdifferences of gravitydeterminants for powersellers and others on eBay

  11. Impact islargerwheremostneeded • Online platformsproviderelatively cheap ways of acquiringreputation • And theseeffects are larger in remote countries with corruption, incomeinequality…. • 97% of firms on eBay export • DeviationsfromZipflawthatwe observe offline…. • Providingaccess to online marketscanbe a very efficient way of connecting the poor to foreignmarkets….

  12. Impact islargerwheremostneeded • Theseeffects are larger in poor countries with high incomeinequality….

  13. Easier to export for SMEs • 85% of US firms on eBay export (against 4% offline) – Lendle et al. (2013) • SME represent a largershare and deviationsfromZipf

  14. Concludingremarks • Weneed more research on the impact of export promotion on poverty and incomeinequality • A strong focus of EPA on SME can help dissipatefearsthatagencies are captured. • Online platformscouldprovide an interestingtool to help international tradebe more inclusive, makingeveryonebenefitdirectlyfromsmooth and well-functioningborders • Raises the question of how EPAscan help provideaccess to online markets: Local offices devoted to online marketsinstead of expensives offices abroad?

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