<blockquote>
<p>Would poorer countries be better off by cutting off all trade with rich countries?</p>
</blockquote>
<p>Almost certainly not.</p>
<ol>
<li><p>One of the largest consensus in economic profession is that free trade and openness is beneficial for a country. According to various surveys more than 90-95% economists believe this (e.g. see this <a href="https://www.kentclarkcenter.org/surveys/free-trade/" rel="noreferrer">poll</a>). This is almost as strong consensus as the consensus among climate scientists that climate change is happening.</p>
<p>In fact <a href="https://www.aeaweb.org/articles?id=10.1257/jep.1.2.131" rel="noreferrer">Paul Krugman (1987)</a>, who won Nobel Prize for his contributions to international trade, once stated: &quot;If there were an Economist's Creed, it would surely contain the affirmations 'I understand the Principle of Comparative Advantage' and 'I advocate Free Trade'&quot;.</p>
</li>
<li><p>Just so this answer is not just appeal to consensus, there are numerous studies that show that economies open to trade develop economically faster and are generally more prosperous.</p>
<p>For example, <a href="https://mitpress.mit.edu/9780262570978/innovation-and-growth-in-the-global-economy/" rel="noreferrer">Grossman and Helpman (1991)</a>, <a href="https://academic.oup.com/qje/article-abstract/106/2/369/1905448" rel="noreferrer">Young (1991)</a>, <a href="https://academic.oup.com/qje/article-abstract/106/2/369/1905448" rel="noreferrer">Lee (1993)</a>, <a href="https://www.nber.org/system/files/chapters/c11058/c11058.pdf" rel="noreferrer">Rodríguez and Rodrik (2001</a>) and <a href="https://www.nber.org/system/files/working_papers/w8846/w8846.pdf" rel="noreferrer">Obstfeld and Taylor (2003)</a>, show that trade can have positive effects on long run economic growth (which increases living standards).  Free trade is also one of the inclusive institutions that are according to seminal work of <a href="https://scholar.harvard.edu/jrobinson/publications/why-nations-fail-origins-power-prosperity-and-poverty" rel="noreferrer">Acemoglu and Robinson (2012)</a> important preconditions for economic development (although it is not the only one or necessarily sufficient one).</p>
<p>There are several mechanisms through which countries benefit from trade (Krugman, Obstfeld &amp; Melitz, International Economics: Theory and Policy. 9th ed.).</p>
</li>
</ol>
<ul>
<li><p>Absolute advantage: some countries have absolute advantage in
producing some good or service. That is they can produce it better
than all other countries. In that case trying to produce the good
locally, as opposed to specializing in something local economy excels
at, hurts local economy, as scarce resources are devoted to producing
something economy is bad at, instead of importing the same thing from
countries that are good at producing it in exchange for something we
are good at producing.</p>
</li>
<li><p>Comparative advantage: even if country is not best at producing anything it will likely be comparatively better in producing
something. For example, a city might have neurosurgeon that is best
neurosurgeon but also best cook. In that case it still makes sense
that the neurosurgeon specializes in area that offers the highest
return, and just trades their services with some second best cook who
does not have any training in neurosurgery. In this case still both
can be show to benefit, and the same argument extends to whole
countries.</p>
</li>
<li><p>Difference in factor endowments. Some countries can be rich in capital, other countries in labor, other in land and so on. In a world without perfect factor mobility, trade between countries allows capital poor countries to get capital intensive goods cheaper, land poor countries can get land intensive goods cheaper etc. Hence it is mutually beneficial for countries with different factor endowments to trade between each other as that allows them enjoy higher standards of living compared to situation where they would not specialize in areas where they are well endowed, and tried to produce goods which are intensive in factors that are scarce in those countries.</p>
</li>
<li><p>Diversity of tastes. Most people have diverse taste. Different cultures produce different art, clothing etc. Thanks to trade an European can enjoy authentic Japanese Shogi set, and Japanese people can enjoy traditional French wine for example.</p>
</li>
<li><p>Economies of scale. Trade allows countries to produce goods and services at a larger scale, especially when we talk about small countries. Taiwan, can manufacture semiconductors for the whole world at low prices precisely because it produces semiconductors for whole world. Other countries can specialize in different products or services and trade them for the semiconductors with Taiwan, and again both parties benefit.</p>
</li>
<li><p>Technological spillers. Trade leads to spillovers of technology which allows countries to grow faster.</p>
</li>
<li><p>Dynamic gains from trade. Trade has additional dynamic benefits, as specialization leads to also more and faster innovation. Close countries technologically stagnate (e.g. China after isolationist policies of most of Ming and Qing
dynasty, Japan under Tokugawa before Meiji restoration, USSR or North Korea are recent examples).</p>
</li>
</ul>
<p>It is difficult to put precise number on it but they would almost certainly be worse off not better off if they would cut trade ties with developed countries. Also, that number from the Guardian article does not even come from some economic analysis, it just assumes that any financial outflow is bad for a country, which is absurd prima facie. That kind of mercantilist thinking was debunked already 300 years ago by classical economists.</p>
<blockquote>
<p>does this in any way imply if all developing countries ... declined all offers of aid (theoretically of course), they would be better off ... and their living standards would rise?</p>
</blockquote>
<p>When it comes to foreign aid evidence is more mixed. Prominent economists such as Easterly are claiming that foreign aid is harmful to economic development, because it leads to wrong incentives and de facto subsidizes dictatorial regimes (e.g. according to <a href="https://www.nbcnews.com/news/world/gaza-plagued-poverty-hamas-no-shortage-cash-come-rcna121099" rel="noreferrer">news</a> HAMAS enriched itself thanks to international aid at an expense of people in Gaza). You can see <a href="https://www.lse.ac.uk/ideas/Assets/Documents/updates/LSE-IDEAS-How-International-Aid-Can-Do-More-Harm-Than-Good.pdf" rel="noreferrer">Finckenstein (2021)</a> Lebanon case study as an example.</p>
<p>However, when foreign aid is used to build basic infrastructure it can certainly have positive effects on economy.</p>
<p>So here it is more complicated. You could make a sound argument that foreign aid hurts those countries, but you can certainly point towards some successful aid projects as well.</p>

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2023-10-30T10:23:11.110Z
**Comments have been [moved to chat](https://chat.stackexchange.com/rooms/149419/discussion-on-answer-by-1muflon1-would-poorer-countries-be-better-off-by-cutting); please do not continue the discussion here.** Before posting a comment below this one, please review the [purposes of comments](/help/privileges/comment). Comments that do not request clarification or suggest improvements usually belong as an [answer](/help/how-to-answer), on [meta], or in [chat]. Comments continuing discussion may be removed.
1muflon1
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2023-10-30T10:54:04.500Z
This answer would be better if you could spare a paragraph to explain by which mechanism trading countries always profit, not just links to studies.
Ivana
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2023-10-30T11:37:44.227Z
@Ivana I added some explanation, but the problem is there isn't just one mechanism but several mechanisms at the same time so the explanations are bit shallow. In any case you can read more in the sources I linked
1muflon1
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2023-10-27T12:48:48.300Z
2023-10-30T11:36:56.320Z
2023-10-30T11:36:56.320Z
1muflon1
<p>The Guardian article reports that poor workers make the rich richer.</p>
<p>That may be unjust (the Guardian thinks so), but &quot;Making the rich richer&quot; is not the same as &quot;making the poor poorer&quot;.</p>
<p>The Guadian has reported the resource flow imbalance. Cutting all trade and aid would certainly zero that imbalance: it would also zero the balanced trade. The balanced trade makes everybody richer:</p>
<p>Cutting off all trade and aid would make everybody poorer. It would make rich people poorer. It would make poor people poorer. Current conventional belief is that poor people would be affected worse, because going from &quot;poor&quot; to &quot;destitute&quot; is worse than going from &quot;rich&quot; to &quot;less rich&quot; (Note this has not always been the universal understanding: another view was that destitute people should just die).</p>

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2023-10-30T10:21:39.743Z
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1muflon1
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2023-10-28T04:53:19.523Z
2023-10-28T04:53:19.523Z
david
<p>Let us assume there are two countries, country A is developed and country B is developing.</p>
<p>Country A is a producer of timber which country B does not have access to because the terrain does not support trees. Country B has low labour costs and can produce furniture at competitive prices.</p>
<p>The trade goes like this:</p>
<p>Country A exports timber to B
Country B exports furniture to A</p>
<p>Without trade, the above exchange, which is beneficial to both countries would not be possible.</p>

CC BY-SA 4.0
2023-10-29T20:41:22.533Z
As it happens, the international timber trade is a particularly bad example. The trade goes like this: "Country A is deforested, and gets a few tables back".  The international timber  trade is notoriously corrupt, with significant negative benefit in developing nations.
david
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2023-10-30T09:31:23.443Z
you posit 'low labour costs' as an advantage when this is exactly the kind of exploitation/theft that The Guardian is talking about.
Jumboman
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2023-10-30T19:33:51.670Z
@david Timber is a bad example, oil is a bad example, diamonds are a bad example, gold is a bad example ....
Peter - Reinstate Monica
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2023-10-31T04:38:36.427Z
@peter-reinstate-monica Taking all the diamonds from a country doesn't leave the people materially worse off. They just own fewer diamonds. Diamonds and gold are not productive resources. Labor and Fisheries and Timber are productive resources.
david
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2023-10-29T12:22:14.627Z
2023-10-29T12:22:14.627Z
Angus Comber
<p>A country is not monolithic. Your question almost answers itself if you are more specific: &quot;Would the poorest 10% be better off?&quot; Or &quot;would the top 1% be better off?&quot;</p>
<p>You also should ask what you try to measure. For example, GDP may rise enormously without the lower 10% profiting, as has been the case in the U.S. since the 1970s (see e.g. <a href="https://www.epi.org/publication/charting-wage-stagnation/" rel="nofollow noreferrer">https://www.epi.org/publication/charting-wage-stagnation/</a>, fig. 4). <strong>Even in the most developed country with a more or less working democratic government, the poor do not benefit from trade and economic growth <em>at all</em>.</strong> The idea that the poor profit more in kleptocracies or countries run by autocratic governments, which is the case in <a href="https://commons.wikimedia.org/wiki/File:Democracy_Index_2022.svg" rel="nofollow noreferrer">much of Africa and Asia</a>, is not plausible.</p>
<p>For a case study, I recommend the documentary <a href="https://en.wikipedia.org/wiki/Darwin%27s_Nightmare" rel="nofollow noreferrer">&quot;Darwin's Nightmare&quot;</a>. It shows the effects of opening the fish economy around lake Victoria for the international market on the local population. That the poorest do not profit is not a singular observation:</p>
<blockquote>
<p>the postulated [by the <a href="https://en.wikipedia.org/wiki/Stolper%E2%80%93Samuelson_theorem" rel="nofollow noreferrer">Stolper-Samuelson theorem</a>] narrowing wage gaps between skilled and unskilled labour have not been observed in many developing countries, particularly in Latin America and Africa. [<a href="https://www.wider.unu.edu/publication/impact-globalization-world%E2%80%99s-poor" rel="nofollow noreferrer">Machiko Nissanke/Erik Thorbecke, UNU-Wider</a>]</p>
</blockquote>
<p>This is corroborated by  <a href="https://insights.som.yale.edu/insights/how-has-globalization-benefited-the-poor" rel="nofollow noreferrer">Nina Pavcnik from Dartmouth College</a>:</p>
<blockquote>
<p>However, workers who were employed in sectors that were initially shielded by higher tariffs experienced a drop in relative wages as tariffs were eliminated. Many countries, such as Mexico and Colombia, had shielded industries that employed a high share of less educated workers. When the tariffs were eliminated, these <strong>unskilled workers</strong> were disproportionately affected by <strong>declines in industry wages.</strong> These are short-term costs of globalization, and over time you would hope that these workers would be able to move toward the exporting sectors and share in the benefits of globalization. But that is not occurring as fast as we would like because worker mobility in many of these countries is quite constrained.</p>
</blockquote>
<p>Hope never dies, but I'd like to point out that what should be short-term effects in theory turn out to be long-term in practice.</p>
<p>The eminent <a href="https://en.wikipedia.org/wiki/Ann_E._Harrison" rel="nofollow noreferrer">Ann Harrison</a> has written a very readable 2006 paper <a href="https://www.nber.org/system/files/working_papers/w12347/w12347.pdf" rel="nofollow noreferrer"><em>Globalization and Poverty</em></a> for the <a href="https://www.nber.org/" rel="nofollow noreferrer">National Bureau of Economic Research</a> which one can succinctly summarize with the following quote (p.7):</p>
<blockquote>
<p><strong>Globalization produces both winners and losers among the poor.</strong></p>
</blockquote>
<p>She explores cross-country, cross-region and cross-sector differences and notes that because globalization affects sectors differently, labor mobility is a key factor mitigating negative impacts on the poor, together with a number of other factors. Here are some key findings:</p>
<ul>
<li>&quot;Measures of export activity and
foreign investment are generally associated with poverty reduction, while removal of protection
(an ex ante measure of globalization) or import shares (an ex post measure) are frequently
associated with rising poverty.&quot; (p.8)</li>
<li>&quot;Don Davis and
Prachi Mishra argue that 'Stolper-Samuelson is dead'. They write eloquently that applying trade
theory to suggest that liberalization will raise the wages of the unskilled in unskilled-abundant
countries is 'worse than wrong—it is dangerous.'&quot;</li>
<li>&quot;Easterly finds that increasing trade integration is associated with falling
inequality within developed countries and greater inequality within developing countries.&quot;</li>
<li>&quot;To summarize, there is no evidence in the aggregate data that trade reforms are good or bad
for the poor&quot;</li>
</ul>
<p>On the other hand, a <a href="https://www.imf.org/external/pubs/ft/fandd/2001/09/dollar.htm" rel="nofollow noreferrer">David Dollar and Aart Kraay could show convincing statistical evidence</a> that globalization is beneficial for the poor. They divide the nations into &quot;non-globalizers&quot; and &quot;globalizers&quot; and show that the globalizers experience larger economic growth in the 1980s and 1990s. Because there is no significant change in inequality, this growth translates directly into income gains for the poor.</p>
<p>How can these contradicting findings be reconciled?</p>
<p>One hint can be found in Dani Rodrik's <em>One Economy/Many Recipes</em>, Princeton Press 2007. In the last chapter he asks &quot;Globalization for Whom?&quot; and notes that India and China &quot;house more than half of the world’s poor, and their experience is perhaps enough to dispel the collective doom elsewhere.&quot;</p>
<p>He continues to show that these strongest-growing and &quot;strongest-globalizing&quot; economies yielding the statistical evidence in &quot;globalizers vs. non-globalizers&quot; studies were not playing by the WTO free-trade rules but instead protected their markets and, in the case of India, actually grew already fast before opening up to more trade. That aligns somewhat with Harrison's findings above that simple liberalization is less beneficial for the poor than direct investment.</p>
<p>Bottom line: It is a mixed bag, there are winners and losers among the poor between countries and within countries. Opening an economy for trade hurts the poor less when accompanied by policy measures enabling labor mobility. Free trade is less beneficial than direct investments.</p>

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2023-10-30T13:56:19.577Z
Studies show that poor people in the poor countries are main beneficiaries of economic growth, based on what research you claim they do not benefit?
Leeh Mizrahi
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2023-10-30T14:30:04.680Z
People in Europe went to cities because of high wages in cities compared to wages offered on farms and country side. You should read Gordon's The Raise and Fall of Economic Growth. Also even people like Piketty say inequality in west is driven by low growth (look at his Capital in 21st century). Poor economies are already unequal with local warlords living in luxury while poor people living at subsistence level. Also documentaries are not real evidence. There are documentaries like; plandemic or ancient aliens. You can always find few individuals who suffer from anything even vaccines
WilliamT
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2023-10-30T14:33:48.860Z
but few emotional anecdotes are not research
WilliamT
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2023-10-30T16:18:25.150Z
@LeehMizrahi Can you reference such studies?
Peter - Reinstate Monica
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2023-10-30T16:57:45.190Z
Chen 1997; Gallup et al 1998; Adams 2002; Dollar & Kray 2004 in Oxford Handbook of Growth, Inequality and Poverty. Kruijk 2012, Poverty Dynamics; Rodrick 2007 One Economics, Many Recipies; Acemoglu and Robinson 2012. All these studies are research from top universities and top economists. Literally, every university textbook on growth. The positive link between growth and poverty reduction is crystal clear and established beyond any reasonable doubt.
Leeh Mizrahi
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2023-10-30T17:40:37.590Z
@1muflon1 I added references (and changed my conclusion ;-) ).
Peter - Reinstate Monica
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2023-10-30T17:41:05.533Z
@Peter-ReinstateMonica oh haha that was fast, I will delete my last comment
1muflon1
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2023-10-30T19:44:43.743Z
@LeehMizrahi Thanks for the sources. I looked some of them up and incorporated them into my (now somewhat different) answer.
Peter - Reinstate Monica
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2023-10-30T20:03:22.683Z
@LeehMizrahi by the way, even Dollar&Kraay do not claim that the poor are "the main beneficiaries"; they merely claim that globalization increases growth while not increasing inequality which amounts to poverty reduction in absolute terms, and in absolute terms only (hey! three dollars instead of two!"). But since the rich gain a lot more it's a stretch to claim the poor are the "main beneficiaries".
Peter - Reinstate Monica
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2023-10-31T23:55:03.893Z
@Peter-ReinstateMonica it is not stretch you are just clearly layman and don't understand this issue. 1 dollar does not have the same marginal benefit to every person.  For a billionaire going from earning 1 billion per year to earning 2 billion per year will not be transformative. For a poor person to go from 1 dollar per day to 2 or 3 dollars per day may completely transform their lives, make them longer, healthier, happier. You are clearly reading this literature for the first time, and you don't know how it connects with wider literature. If you are not an expert on a subject why are
Leeh Mizrahi
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2023-10-31T23:56:53.157Z
you trying to answer technical issue that is clearly too complex for a layman and in area you don't know much about? I am sorry if I sound too harsh, but I am tired of people who pretend that they are experts on covid, physics, geopolitics, military, economics, when they clearly just discovered the subject for the first time, and when they try to answer complex question they don't really understand.
Leeh Mizrahi
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2023-11-01T08:41:31.197Z
@LeehMizrahi I suggest you cancel your stackexchange membership to avoid further frustration of this kind because it is not uncommon here that laymen pitch in, especially for hot network questions. "Quality control" is performed by votes, which appears to work. Alternatively, you could let us benefit from your expert insights. If you had written a convincing answer summarizing the state of research concerning the effects of liberalizing trade on the poor, I might have not attempted my own (seriously). Simply sitting on the sideline venting frustration though is the least productive option.
Peter - Reinstate Monica
CC BY-SA 4.0
2023-11-01T08:50:05.960Z
By the way, I like answering questions even in fields in which I do not have a formal education because I usually learn something; this answer was no exception. Sorry that the first version was not good; it was your remark which let me read a few papers from which I learned something. The motivation to pitch in here though is indeed the first paragraph of my answer: Whom do we focus on?
Peter - Reinstate Monica
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2023-10-30T13:27:53.607Z
2023-10-30T19:41:08.163Z
2023-10-30T19:41:08.163Z
Peter - Reinstate Monica
<p>A 2017 <a href="https://amp.theguardian.com/global-development-professionals-network/2017/jan/14/aid-in-reverse-how-poor-countries-develop-rich-countries" rel="nofollow noreferrer">Guardian article</a> covered research that outflows from developing countries, primarily by way of unrecorded capital flight, significantly outstrips inflows.</p>
<blockquote>
<p>... for every $1 of aid that
developing countries receive, they lose \$24 in net outflows. These
outflows strip developing countries of an important source of revenue
and finance for development. The GFI report finds that increasingly
large net outflows have caused economic growth rates in developing
countries to decline, and are directly responsible for falling living
standards.</p>
</blockquote>
<p>does this in any way imply if all developing countries cut off all trade from developed countries and declined all offers of aid (theoretically of course), they would be better off to the tune of $3tn per year and their living standards would rise? I imagine a lot depends on where the cut off is between the definition of developed and developing countries is and what the benefit per capita is when population sizes are taken into account. My guess is that the loss of intangible benefits like lack of access to advanced technology and education would make these poorer countries fall further behind the rest of the world.</p>
<p>This question is related to <a href="https://economics.stackexchange.com/questions/56789/in-what-way-do-developed-countries-steal-trillions-of-dollars-from-developing-co">another thread</a>, but rather than hijack that thread I am posting my angle on it here.</p>

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2023-10-27T15:41:08.060Z
Where would developing countries get resources that they *can't* make for themselves (lack of capital equipment, lack of trained workers, lack of resources)?
RonJohn
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2023-10-27T16:02:32.250Z
I imagine a big issue would be misuse of foreign aid, which does happen
Nicolas Formichella
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2023-10-28T03:08:02.637Z
@Ron, that was one of the points I was hinting at. That the poorer countries benefit in ways that don't show on the balance of payments figures that the Guardian is focused on.
KDP
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2023-10-28T03:15:08.197Z
Things like cell phones are more than intangible benefits to poor Africans.
RonJohn
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2023-10-29T03:36:41.797Z
North Korea might be an example of a country that has cut off (or been cut off) from trade with much of the world.  Has it helped them?
Jeremy Friesner
<international-trade><inequality>
Would poorer countries be better off by cutting off all trade with rich countries?
KDP
# Would poorer countries be better off by cutting off all trade with rich countries?

(Asked by: username_0 on 2023-10-27)

A 2017 [Guardian article](https://amp.theguardian.com/global-development-professionals-network/2017/jan/14/aid-in-reverse-how-poor-countries-develop-rich-countries) covered research that outflows from developing countries, primarily by way of unrecorded capital flight, significantly outstrips inflows.

> ... for every $1 of aid that
> developing countries receive, they lose \$24 in net outflows. These
> outflows strip developing countries of an important source of revenue
> and finance for development. The GFI report finds that increasingly
> large net outflows have caused economic growth rates in developing
> countries to decline, and are directly responsible for falling living
> standards.

does this in any way imply if all developing countries cut off all trade from developed countries and declined all offers of aid (theoretically of course), they would be better off to the tune of $3tn per year and their living standards would rise? I imagine a lot depends on where the cut off is between the definition of developed and developing countries is and what the benefit per capita is when population sizes are taken into account. My guess is that the loss of intangible benefits like lack of access to advanced technology and education would make these poorer countries fall further behind the rest of the world.

This question is related to [another thread](https://economics.stackexchange.com/questions/56789/in-what-way-do-developed-countries-steal-trillions-of-dollars-from-developing-co), but rather than hijack that thread I am posting my angle on it here.

**Tags:** international-trade, inequality

> **Comments:**
> **username_1**: Where would developing countries get resources that they *can't* make for themselves (lack of capital equipment, lack of trained workers, lack of resources)?  
> **username_2**: I imagine a big issue would be misuse of foreign aid, which does happen  
> **username_0**: @Ron, that was one of the points I was hinting at. That the poorer countries benefit in ways that don't show on the balance of payments figures that the Guardian is focused on.  
> **username_1**: Things like cell phones are more than intangible benefits to poor Africans.  
> **username_3**: North Korea might be an example of a country that has cut off (or been cut off) from trade with much of the world.  Has it helped them?  

---

## 4 answers

### Answer by username_4 on 2023-10-27. Score: 27

> Would poorer countries be better off by cutting off all trade with rich countries?

Almost certainly not.

1. One of the largest consensus in economic profession is that free trade and openness is beneficial for a country. According to various surveys more than 90-95% economists believe this (e.g. see this [poll](https://www.kentclarkcenter.org/surveys/free-trade/)). This is almost as strong consensus as the consensus among climate scientists that climate change is happening.

   In fact [Paul Krugman (1987)](https://www.aeaweb.org/articles?id=10.1257/jep.1.2.131), who won Nobel Prize for his contributions to international trade, once stated: "If there were an Economist's Creed, it would surely contain the affirmations 'I understand the Principle of Comparative Advantage' and 'I advocate Free Trade'".
2. Just so this answer is not just appeal to consensus, there are numerous studies that show that economies open to trade develop economically faster and are generally more prosperous.

   For example, [Grossman and Helpman (1991)](https://mitpress.mit.edu/9780262570978/innovation-and-growth-in-the-global-economy/), [Young (1991)](https://academic.oup.com/qje/article-abstract/106/2/369/1905448), [Lee (1993)](https://academic.oup.com/qje/article-abstract/106/2/369/1905448), [Rodríguez and Rodrik (2001](https://www.nber.org/system/files/chapters/c11058/c11058.pdf)) and [Obstfeld and Taylor (2003)](https://www.nber.org/system/files/working_papers/w8846/w8846.pdf), show that trade can have positive effects on long run economic growth (which increases living standards). Free trade is also one of the inclusive institutions that are according to seminal work of [Acemoglu and Robinson (2012)](https://scholar.harvard.edu/jrobinson/publications/why-nations-fail-origins-power-prosperity-and-poverty) important preconditions for economic development (although it is not the only one or necessarily sufficient one).

   There are several mechanisms through which countries benefit from trade (Krugman, Obstfeld & Melitz, International Economics: Theory and Policy. 9th ed.).

* Absolute advantage: some countries have absolute advantage in
  producing some good or service. That is they can produce it better
  than all other countries. In that case trying to produce the good
  locally, as opposed to specializing in something local economy excels
  at, hurts local economy, as scarce resources are devoted to producing
  something economy is bad at, instead of importing the same thing from
  countries that are good at producing it in exchange for something we
  are good at producing.
* Comparative advantage: even if country is not best at producing anything it will likely be comparatively better in producing
  something. For example, a city might have neurosurgeon that is best
  neurosurgeon but also best cook. In that case it still makes sense
  that the neurosurgeon specializes in area that offers the highest
  return, and just trades their services with some second best cook who
  does not have any training in neurosurgery. In this case still both
  can be show to benefit, and the same argument extends to whole
  countries.
* Difference in factor endowments. Some countries can be rich in capital, other countries in labor, other in land and so on. In a world without perfect factor mobility, trade between countries allows capital poor countries to get capital intensive goods cheaper, land poor countries can get land intensive goods cheaper etc. Hence it is mutually beneficial for countries with different factor endowments to trade between each other as that allows them enjoy higher standards of living compared to situation where they would not specialize in areas where they are well endowed, and tried to produce goods which are intensive in factors that are scarce in those countries.
* Diversity of tastes. Most people have diverse taste. Different cultures produce different art, clothing etc. Thanks to trade an European can enjoy authentic Japanese Shogi set, and Japanese people can enjoy traditional French wine for example.
* Economies of scale. Trade allows countries to produce goods and services at a larger scale, especially when we talk about small countries. Taiwan, can manufacture semiconductors for the whole world at low prices precisely because it produces semiconductors for whole world. Other countries can specialize in different products or services and trade them for the semiconductors with Taiwan, and again both parties benefit.
* Technological spillers. Trade leads to spillovers of technology which allows countries to grow faster.
* Dynamic gains from trade. Trade has additional dynamic benefits, as specialization leads to also more and faster innovation. Close countries technologically stagnate (e.g. China after isolationist policies of most of Ming and Qing
  dynasty, Japan under Tokugawa before Meiji restoration, USSR or North Korea are recent examples).

It is difficult to put precise number on it but they would almost certainly be worse off not better off if they would cut trade ties with developed countries. Also, that number from the Guardian article does not even come from some economic analysis, it just assumes that any financial outflow is bad for a country, which is absurd prima facie. That kind of mercantilist thinking was debunked already 300 years ago by classical economists.

> does this in any way imply if all developing countries ... declined all offers of aid (theoretically of course), they would be better off ... and their living standards would rise?

When it comes to foreign aid evidence is more mixed. Prominent economists such as Easterly are claiming that foreign aid is harmful to economic development, because it leads to wrong incentives and de facto subsidizes dictatorial regimes (e.g. according to [news](https://www.nbcnews.com/news/world/gaza-plagued-poverty-hamas-no-shortage-cash-come-rcna121099) HAMAS enriched itself thanks to international aid at an expense of people in Gaza). You can see [Finckenstein (2021)](https://www.lse.ac.uk/ideas/Assets/Documents/updates/LSE-IDEAS-How-International-Aid-Can-Do-More-Harm-Than-Good.pdf) Lebanon case study as an example.

However, when foreign aid is used to build basic infrastructure it can certainly have positive effects on economy.

So here it is more complicated. You could make a sound argument that foreign aid hurts those countries, but you can certainly point towards some successful aid projects as well.

> **Comments:**
> **username_4**: **Comments have been [moved to chat](https://chat.stackexchange.com/rooms/149419/discussion-on-answer-by-username_4-would-poorer-countries-be-better-off-by-cutting); please do not continue the discussion here.** Before posting a comment below this one, please review the [purposes of comments](/help/privileges/comment). Comments that do not request clarification or suggest improvements usually belong as an [answer](/help/how-to-answer), on [meta], or in [chat]. Comments continuing discussion may be removed.  
> **username_5**: This answer would be better if you could spare a paragraph to explain by which mechanism trading countries always profit, not just links to studies.  
> **username_4**: @username_5 I added some explanation, but the problem is there isn't just one mechanism but several mechanisms at the same time so the explanations are bit shallow. In any case you can read more in the sources I linked  

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### Answer by username_6 on 2023-10-28. Score: 9

The Guardian article reports that poor workers make the rich richer.

That may be unjust (the Guardian thinks so), but "Making the rich richer" is not the same as "making the poor poorer".

The Guadian has reported the resource flow imbalance. Cutting all trade and aid would certainly zero that imbalance: it would also zero the balanced trade. The balanced trade makes everybody richer:

Cutting off all trade and aid would make everybody poorer. It would make rich people poorer. It would make poor people poorer. Current conventional belief is that poor people would be affected worse, because going from "poor" to "destitute" is worse than going from "rich" to "less rich" (Note this has not always been the universal understanding: another view was that destitute people should just die).

> **Comments:**
> **username_4**: **Comments have been [moved to chat](https://chat.stackexchange.com/rooms/149418/discussion-on-answer-by-username_6-would-poorer-countries-be-better-off-by-cutting-of); please do not continue the discussion here.** Before posting a comment below this one, please review the [purposes of comments](/help/privileges/comment). Comments that do not request clarification or suggest improvements usually belong as an [answer](/help/how-to-answer), on [meta], or in [chat]. Comments continuing discussion may be removed.  

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### Answer by username_7 on 2023-10-29. Score: 2

Let us assume there are two countries, country A is developed and country B is developing.

Country A is a producer of timber which country B does not have access to because the terrain does not support trees. Country B has low labour costs and can produce furniture at competitive prices.

The trade goes like this:

Country A exports timber to B
Country B exports furniture to A

Without trade, the above exchange, which is beneficial to both countries would not be possible.

> **Comments:**
> **username_6**: As it happens, the international timber trade is a particularly bad example. The trade goes like this: "Country A is deforested, and gets a few tables back".  The international timber  trade is notoriously corrupt, with significant negative benefit in developing nations.  
> **username_8**: you posit 'low labour costs' as an advantage when this is exactly the kind of exploitation/theft that The Guardian is talking about.  
> **username_9**: @username_6 Timber is a bad example, oil is a bad example, diamonds are a bad example, gold is a bad example ....  
> **username_6**: @peter-reinstate-monica Taking all the diamonds from a country doesn't leave the people materially worse off. They just own fewer diamonds. Diamonds and gold are not productive resources. Labor and Fisheries and Timber are productive resources.  

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### Answer by username_9 on 2023-10-30. Score: -3

A country is not monolithic. Your question almost answers itself if you are more specific: "Would the poorest 10% be better off?" Or "would the top 1% be better off?"

You also should ask what you try to measure. For example, GDP may rise enormously without the lower 10% profiting, as has been the case in the U.S. since the 1970s (see e.g. <https://www.epi.org/publication/charting-wage-stagnation/>, fig. 4). **Even in the most developed country with a more or less working democratic government, the poor do not benefit from trade and economic growth *at all*.** The idea that the poor profit more in kleptocracies or countries run by autocratic governments, which is the case in [much of Africa and Asia](https://commons.wikimedia.org/wiki/File:Democracy_Index_2022.svg), is not plausible.

For a case study, I recommend the documentary ["Darwin's Nightmare"](https://en.wikipedia.org/wiki/Darwin%27s_Nightmare). It shows the effects of opening the fish economy around lake Victoria for the international market on the local population. That the poorest do not profit is not a singular observation:

> the postulated [by the [Stolper-Samuelson theorem](https://en.wikipedia.org/wiki/Stolper%E2%80%93Samuelson_theorem)] narrowing wage gaps between skilled and unskilled labour have not been observed in many developing countries, particularly in Latin America and Africa. [[Machiko Nissanke/Erik Thorbecke, UNU-Wider](https://www.wider.unu.edu/publication/impact-globalization-world%E2%80%99s-poor)]

This is corroborated by [Nina Pavcnik from Dartmouth College](https://insights.som.yale.edu/insights/how-has-globalization-benefited-the-poor):

> However, workers who were employed in sectors that were initially shielded by higher tariffs experienced a drop in relative wages as tariffs were eliminated. Many countries, such as Mexico and Colombia, had shielded industries that employed a high share of less educated workers. When the tariffs were eliminated, these **unskilled workers** were disproportionately affected by **declines in industry wages.** These are short-term costs of globalization, and over time you would hope that these workers would be able to move toward the exporting sectors and share in the benefits of globalization. But that is not occurring as fast as we would like because worker mobility in many of these countries is quite constrained.

Hope never dies, but I'd like to point out that what should be short-term effects in theory turn out to be long-term in practice.

The eminent [Ann Harrison](https://en.wikipedia.org/wiki/Ann_E._Harrison) has written a very readable 2006 paper [*Globalization and Poverty*](https://www.nber.org/system/files/working_papers/w12347/w12347.pdf) for the [National Bureau of Economic Research](https://www.nber.org/) which one can succinctly summarize with the following quote (p.7):

> **Globalization produces both winners and losers among the poor.**

She explores cross-country, cross-region and cross-sector differences and notes that because globalization affects sectors differently, labor mobility is a key factor mitigating negative impacts on the poor, together with a number of other factors. Here are some key findings:

* "Measures of export activity and
  foreign investment are generally associated with poverty reduction, while removal of protection
  (an ex ante measure of globalization) or import shares (an ex post measure) are frequently
  associated with rising poverty." (p.8)
* "Don Davis and
  Prachi Mishra argue that 'Stolper-Samuelson is dead'. They write eloquently that applying trade
  theory to suggest that liberalization will raise the wages of the unskilled in unskilled-abundant
  countries is 'worse than wrong—it is dangerous.'"
* "Easterly finds that increasing trade integration is associated with falling
  inequality within developed countries and greater inequality within developing countries."
* "To summarize, there is no evidence in the aggregate data that trade reforms are good or bad
  for the poor"

On the other hand, a [David Dollar and Aart Kraay could show convincing statistical evidence](https://www.imf.org/external/pubs/ft/fandd/2001/09/dollar.htm) that globalization is beneficial for the poor. They divide the nations into "non-globalizers" and "globalizers" and show that the globalizers experience larger economic growth in the 1980s and 1990s. Because there is no significant change in inequality, this growth translates directly into income gains for the poor.

How can these contradicting findings be reconciled?

One hint can be found in Dani Rodrik's *One Economy/Many Recipes*, Princeton Press 2007. In the last chapter he asks "Globalization for Whom?" and notes that India and China "house more than half of the world’s poor, and their experience is perhaps enough to dispel the collective doom elsewhere."

He continues to show that these strongest-growing and "strongest-globalizing" economies yielding the statistical evidence in "globalizers vs. non-globalizers" studies were not playing by the WTO free-trade rules but instead protected their markets and, in the case of India, actually grew already fast before opening up to more trade. That aligns somewhat with Harrison's findings above that simple liberalization is less beneficial for the poor than direct investment.

Bottom line: It is a mixed bag, there are winners and losers among the poor between countries and within countries. Opening an economy for trade hurts the poor less when accompanied by policy measures enabling labor mobility. Free trade is less beneficial than direct investments.

> **Comments:**
> **username_10**: Studies show that poor people in the poor countries are main beneficiaries of economic growth, based on what research you claim they do not benefit?  
> **username_11**: People in Europe went to cities because of high wages in cities compared to wages offered on farms and country side. You should read Gordon's The Raise and Fall of Economic Growth. Also even people like Piketty say inequality in west is driven by low growth (look at his Capital in 21st century). Poor economies are already unequal with local warlords living in luxury while poor people living at subsistence level. Also documentaries are not real evidence. There are documentaries like; plandemic or ancient aliens. You can always find few individuals who suffer from anything even vaccines  
> **username_11**: but few emotional anecdotes are not research  
> **username_9**: @LeehMizrahi Can you reference such studies?  
> **username_10**: Chen 1997; Gallup et al 1998; Adams 2002; Dollar & Kray 2004 in Oxford Handbook of Growth, Inequality and Poverty. Kruijk 2012, Poverty Dynamics; Rodrick 2007 One Economics, Many Recipies; Acemoglu and Robinson 2012. All these studies are research from top universities and top economists. Literally, every university textbook on growth. The positive link between growth and poverty reduction is crystal clear and established beyond any reasonable doubt.  
> **username_9**: @username_4 I added references (and changed my conclusion ;-) ).  
> **username_4**: @Peter-ReinstateMonica oh haha that was fast, I will delete my last comment  
> **username_9**: @LeehMizrahi Thanks for the sources. I looked some of them up and incorporated them into my (now somewhat different) answer.  
> **username_9**: @LeehMizrahi by the way, even Dollar&Kraay do not claim that the poor are "the main beneficiaries"; they merely claim that globalization increases growth while not increasing inequality which amounts to poverty reduction in absolute terms, and in absolute terms only (hey! three dollars instead of two!"). But since the rich gain a lot more it's a stretch to claim the poor are the "main beneficiaries".  
> **username_10**: @Peter-ReinstateMonica it is not stretch you are just clearly layman and don't understand this issue. 1 dollar does not have the same marginal benefit to every person.  For a billionaire going from earning 1 billion per year to earning 2 billion per year will not be transformative. For a poor person to go from 1 dollar per day to 2 or 3 dollars per day may completely transform their lives, make them longer, healthier, happier. You are clearly reading this literature for the first time, and you don't know how it connects with wider literature. If you are not an expert on a subject why are  
> **username_10**: you trying to answer technical issue that is clearly too complex for a layman and in area you don't know much about? I am sorry if I sound too harsh, but I am tired of people who pretend that they are experts on covid, physics, geopolitics, military, economics, when they clearly just discovered the subject for the first time, and when they try to answer complex question they don't really understand.  
> **username_9**: @LeehMizrahi I suggest you cancel your stackexchange membership to avoid further frustration of this kind because it is not uncommon here that laymen pitch in, especially for hot network questions. "Quality control" is performed by votes, which appears to work. Alternatively, you could let us benefit from your expert insights. If you had written a convincing answer summarizing the state of research concerning the effects of liberalizing trade on the poor, I might have not attempted my own (seriously). Simply sitting on the sideline venting frustration though is the least productive option.  
> **username_9**: By the way, I like answering questions even in fields in which I do not have a formal education because I usually learn something; this answer was no exception. Sorry that the first version was not good; it was your remark which let me read a few papers from which I learned something. The motivation to pitch in here though is indeed the first paragraph of my answer: Whom do we focus on?  

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