The Effect of Trade on Poverty Reduction : A panel data study on trade's effect on poverty, investigating the different impacts between high- and low-income countries

Abstract: Poverty is a global issue that has been targeted to be eradicated completely. This study examines the causal effect of trade on poverty and its reduction by using panel data for 195 countries over the time of 32 years. The purpose is to investigate if there is a positive relationship between trade and poverty and whether the impact of trade is different between high-income countries and low-income countries. To fulfil the purpose of this study, a fixed-effects model is estimated with robust standard errors. The estimated results imply no direct effect of trade on poverty, providing a low, yet positive and insignificant relationship. The results are inconsistent with earlier studies that found evidence on the effect. However, these findings can be used for future research.