Global Trade and Poor Nations: The Poverty Impacts and Policy Implications of Liberalization

Chapter 6: Cambodia

119 Changes in trade policies can create opportunities as well as risks for the poor.1 This chapter assesses the likely impact of the implementation of the Doha Development Agenda on household income and expenditures in Cambodia. And, since rice plays a large role in both production and consumption for Cambodia’s poor, the chapter also assesses the ability of potential domestic reforms to improve the production, processing, and trading of rice. The results shed light on priorities for poverty reduction by suggesting how different income groups of households would be affected by different reforms and what they would gain or lose in purchasing power. The assessment is conducted in a partial equilibrium setting and provides an indication of the first-order impact on poverty of potential changes in key prices and quantities. Specifically, it explores the effects on Cambodian household income and expenditures of the following: —Changes in world prices and exports derived from implementation of multilateral trade liberalization, under the business-as-usual and the more ambitious scenarios that were introduced in chapter 2, —A unilateral change in Cambodia’s tariff structure to a flat 7 percent rate, —Increased demand for labor in industry, associated with a growth in demand for Cambodian textile exports, and Cambodia isidro soloaga 6 1. World Bank (2001). —Key improvements in rice production, along with a reduction in transaction costs. The chapter is organized as follows. The first section offers a brief poverty profile of Cambodia in terms of consumption patterns and sources of income, followed by a section describing the analytical framework used in assessing the impact on household welfare of the various policy changes. A third section describes the simulation results, and a final section concludes. People who are poor cannot afford much flexibility in their spending, so among the poor trade policies are expected to have more impact on the sources of income than on the consumption bundle.2 Nonetheless, some of the scenarios examined assume strong changes in international prices, which do affect the real incomes of the poor. The results show that a business-as-usual Doha outcome would produce a small average loss of 0.2 percent in household purchasing power, whereas an ambitious outcome would generate a substantial gain of about 7.5 percent. Losses to producers from lower global rice prices would be more than offset by gains to consumers. If Cambodia were to act on its own, changing its tariff structure to a 7 percent flat rate, average household real income would rise by about 3.7 percent, nearly half as much as the estimated gain from ambitious global liberalization. Most of the benefit in this case would come from lower prices for food, which takes more than 70 percent of spending for all but the richest 20 percent of households. An expansion of textile exports would raise demand for labor, with potentially highly beneficial effects on the real incomes of households with at least one member switching into one of the new jobs. For these households, most of which would be in the poorer 40 percent of the income distribution, the average gain would be about 8 percent of purchasing power. The poorer half of the population also would gain if Cambodia took measures to improve the paddy-to-rice yield, to reduce post-harvest losses, and to lower transaction costs: here the average gain for the poorer 50 percent of households would range from 5 to 7.2 percent of real income. The gain for the poor could rise to more than 10 percent of real income if the rice market improvements were simultaneous with the ambitious Doha scenario. Poverty in Cambodia Cambodia has about 14 million people, 75 percent of them living in rural areas. Current measures of poverty are controversial since changes in survey design and in interview practices make it difficult to compare estimates of poverty rates for different years. Following Gibson, the nationwide proportion of the population in poverty was 35.9 percent in 2000.3 The urban poverty rate was only about 18 percent , and in the capital city, Phnom Penh, it was the lowest in the country, 120 isidro soloaga 2. World Bank (2001). 3. Gibson (2002). at 1.6 percent. The rural rate was much higher, at about 39 percent. In turn, the national food-poverty headcount was 11.5 percent: 9.4 percent in urban areas and 11.8 percent in rural...