Trade openness and working poverty: empirical evidences from developing countries

Abstract

PurposeExistence of working poverty reduces the effectiveness of the strategy of “increasing employment to reduce poverty”. Developed countries are already concerned about it but insufficient attention has been made by developing countries. Focusing on developing countries this study identifies (1) the effects of trade openness (TO) on working poverty and (2) whether the working poverty trap exists or not in developing countries. Both objectives are also analyzed for three subsamples of low income, lower-middle income and upper-middle income developing countries.Design/methodology/approachPanel data for 98 developing countries over the period of 2000–2016 have been collected for the study. Fixed effect and GMM methods are applied for static and dynamic analysis, respectively.FindingsThe study finds that TO significantly reduces working poverty rate (WPR) (mainly driven up by upper-middle income developing countries). The positive association between WPR with its previous year's rate proves the existence of working poverty trap.Research limitations/implicationsThe study's outcome is subject to selected time, countries and methods. Future research should use more improve methods and should identify the channels through which TO could affect working poverty.Practical implicationsMiddle income and upper-middle income developing countries should increase TO to reduce the working poverty. Low income developing countries that have the highest working poverty should search the way to derive beneficial effects of trade on working poverty.Social implicationsWorking poverty is not only a developed country issue rather it is a global phenomenon. Hence, it is expected that the study will raise the social consciousness about this phenomenon in developing countries too.Originality/valueThe study fulfills the gaps of identifying the effects of TO on working poverty and existence of in-work poverty trap in developing countries.