The Earnings Effects of Multilateral Trade Liberalization: Implications for Poverty

Most researchers examining poverty and multilateral trade liberalizationhave had to examine average, or per capita effects, suggestingthat if per capita real income rises, poverty will fall. Thisinference can be misleading. Combining results from a new internationalcross-section consumption analysis with earnings data from householdsurveys, this article analyzes the implications of multilateraltrade liberalization for poverty in Indonesia. It finds thatthe aggregate reduction in Indonesia's national poverty headcountfollowing global trade liberalization masks a more complex setof impacts across groups. In the short run the poverty headcountrises slightly for self-employed agricultural households, asagricultural profits fail to keep up with increases in consumerprices. In the long run the poverty headcount falls for allearnings strata, as increased demand for unskilled workers liftsincomes for the formerly self-employed, some of whom move intothe wage labor market. A decomposition of the poverty changesin Indonesia associated with different countries' trade policiesfinds that reform in other countries leads to a reduction inpoverty in Indonesia but that liberalization of Indonesia'strade policies leads to an increase. The method used here canbe readily extended to any of the other 13 countries in thesample.     

Selling to the moneyed masses

Over the past decade, the distribution of household incomes has shifted so much that a much larger proportion of consumers now earn significantly higher-than-average incomes--while still falling short of being truly rich. As a result, what used to be a no-man's-land for new product introductions has in many categories become an extremely profitable "new middle ground." How can marketers capitalize on this new territory? The key, say the authors, is to rethink the positioning and design of offerings and the ways they can be brought to market. Take, for instance, how Procter & Gamble redefined the positioning map for tooth-whitening solutions. A decade ago, dental centers were popularizing expensive bleaching techniques that put the price of a professionally brightened smile in the 400 dollars range. At the low end, consumers also had the choice of whitening toothpastes that cost anywhere from 2 dollars to 8 dollars. P&G wisely positioned itself between the two ends, successfully targeting the new mass market with its 35 dollars Whitestrips. In product categories where it's clear the middle ground has already been populated, it's important for companies to design or redesign offerings to compete. An example is the Polo shirt. How do you sell a man yet another one after he's bought every color he wants? Add some features, and call it a golf shirt. Here, marketers have introduced designs based on the concept of "occasional use" in order to stand out. Finally, companies wishing to reach the "almost rich" can change how they go to market. Perhaps no mass retailer has made a stronger bid for the mass affluent than Target Stores, which has pioneered a focus the company itself characterizes as upscale discount. The strategy has made Target an everyday shopping phenomenon among well-heeled urbanites and prosperous professionals.     

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