Relative effects of trade liberalization on poverty: Evidence from Thailand

Abstract

Trade liberalization has long been expected to contribute to poverty reduction. The economy of Thailand provides an excellent case to study this relationship because its economy has structurally transformed in the past few decades through the export-oriented growth strategies. The purpose of this article is to examine the relative effect of Thailand’s accession to the World Trade Organization (WTO) in 1995 on poverty reduction, using a unique data set compiled from labour force survey and tariff data. Variation in production composition across provinces allows us to examine a relative impact of such trade reform. Using the instrument variable estimation, we found that provinces in which employers are concentrated in industries exposed to a greater tariff reduction experience more rapid poverty reduction and more income growth than less exposed provinces. This impact on poverty and income is also more pronounced in urban areas. We hypothesize that labour mobility is a potential channel underpinning this effect.