The Effects of the Colombian Trade Liberalization on Urban Poverty

We examine whether the Colombian trade reform can explain any of Colombia's decline in urban poverty between 1984 and 1995. Our approach focuses on short- and medium- run channels through which trade reform could affect poverty. Despite the chronological coincidence of the poverty reduction with the trade reforms over this period, we do not observe any evidence of a link between poverty and tariff reductions operating through the labor income channel. Our descriptive analysis suggests that although poverty is predominately concentrated among individuals living in households with unemployed head, it is non-negligible among the employed and especially those working in the informal sector and those paid below minimum wage. Industry affiliation also plays a role. However, we find no evidence that the trade reforms reduced poverty via any of the above variables in a significant way. We cannot rule out the possibility that trade liberalization has contributed to the poverty reduction through general equilibrium effects, and in particular through its potential role in lowering the prices of goods consumed primarily by the poor.