The Impact of Foreign Trade and Urbanization on Poverty Reduction: Empirical Evidence from China

Abstract

Poverty eradication is a worldwide development challenge, and China’s poverty reduction experience, evident in its sustainable development strategy, is receiving increasing attention. China has achieved high economic growth and success in poverty reduction over the past 40 years, since its reform and opening up. China’s experience can provide lessons for other countries, however, the situation of poverty in China is still severe, and the remaining people experiencing that condition have long been in a state where income poverty, capability poverty, and intergenerational transfer of poverty coexist. This requires systematic poverty reduction in multiple fields such as the following: population, production, consumption, capital, technology, finance and taxation, education, health care and environment. Foreign trade and urbanization are the best ways to implement poverty reduction. Despite the fruitful results of international studies, the impact of foreign trade, urbanization and their synergistic effects on poverty reduction have not been fully considered. Therefore, by selecting, as panel data, the urbanization rate, foreign trade dependence, and multiple dimensions of poverty indicators of different provinces in China from 2000 to 2017, this paper establishes regression models to study the poverty reduction effects of urban and rural areas. This is accomplished by focusing on three dimensions: poverty gap; income level and gap; and the numbers of under-insurance and guaranteed expenditure, in terms of both imports and exports, respectively. The paper not only considers the synergistic effects of foreign trade and urbanization on poverty reduction, but also investigates the heterogeneity of poverty reduction effects between urban and rural areas. The research results can be applied not only to poverty reduction policy formulation in China, but they can also provide empirical lessons for other developing countries with large urban-rural disparities. Therefore, the study has important implications for both poverty reduction theory development and poverty reduction policy formulation.