Relationship and Causality between Technology-intensive Trade and Poverty –A Panel ARDL and Granger Causality based Analysis

Abstract

Purpose: The purpose of this study is to identify whether trade in different sectors classified based on technology intensity has differential effects on poverty in emerging economies. The study classified trade into high technology (HT), medium technology (MT), low technology (LT), and periphery products using classified trade data collected from the UNcomtrade database. The study then examined whether the relationship and causality between trade in different sectors and poverty vary. Methodology: The study applies a panel ARDL model to identify the long-term and short-term between trade in different sectors and poverty as well as the VECM based Granger causality approach to find out the direction of causality between the variables. Findings: The results of the study support the view that the relationships and causality between technology-intensive trade compositions and poverty differ across measures of poverty and country groups. Trade-in any sector substantially raises the average income of the poorest quintile both in low growth and high growth developing countries but they have a differential effect on extreme poverty measured by poverty HCR in different countries. Limitations: The major limitation of the study is the unavailability of trade data. The trade data for emerging countries is not available for a long time and there are problems with missing data. Moreover, poverty and income data are not also available. Due to the unavailability of data, the study excludes some emerging countries from the analysis. Practical Implication: The results of the study would help to identify the effects of trade on alleviating poverty and formulate trade policies that would be pro-poor. The study also opens a new window for trade-poverty linkage research. Originality: This study is one of the unique approaches to look into the trade-poverty nexus from a different point of view. The results of the study evidence that trade in different sectors affects countries' poverty differently and thus urge research in this field in a broader scope.