(Washington DC, March 22, 2006) The $38 billion in World Bank financing for trade programs since 1987 helped open markets, but were not as effective as anticipated in boosting exports and growth, and alleviating poverty, according to a new report issued today by the institution’s Independent Evaluation Group (IEG).

According to the report, the World Bank’s strategies on trade were successful in helping countries to liberalize trade, but the impact on employment and poverty was less than expected. If developing countries are to reap larger gains from trade liberalization, the reforms need to be complemented with investments and institution building and measures to mitigate adverse effects.

"The evaluation confirms that liberalizing trade alone is not enough to generate growth and fight poverty," said Vinod Thomas, IEG's Director-General. “Carrying out the trade reform was right,”  Thomas said. “Carrying out the reform without understanding the effects on . . . income distribution was not.”

The evaluation recommends that the World Bank give greater attention to addressing poverty and distributional outcomes, and to cushioning shocks associated with trade policies.

The World Bank, said Yvonne Tsikata, lead author of the report, "was overly optimistic about the immediate and universal benefits of more open trade. It underestimated the constraints and local complexities involved in harnessing those benefits."

"This report is very timely. It is the first comprehensive and independent evaluation of Bank assistance on trade," said Professor David Greenaway, Head of the report’s External Advisory Panel and Director of the Leverhulme Centre for Research on Globalization and Economic Policy (University of Nottingham).

Overall, the evaluation found that the World Bank was effective in helping developing countries liberalize their trade regimes. Average tariffs fell, coverage of non-tariff barriers diminished, foreign exchange shortages shrunk, and the exchange rate became a more viable instrument for macroeconomic and trade policy. The developing world is far more open today than two decades ago.

However, these trade initiatives were less successful in generating a dynamic and sustained export growth path, especially in Africa. Many of the Bank’s clients in Africa have not succeeded in diversifying their exports, making them still vulnerable to commodity price shocks. Because of the lack of diversity in their exports, some of these reforming countries have not successfully integrated into the global economy and have actually lost market share. Complementary measures such as competition policy, reducing labor market rigidities, and improving the regulatory environment did not always accompany trade reforms recommended by the World Bank.

The Bank has also often promoted specific trade policies in countries without adequately assessing the potential impact they might have on affected communities. The IEG evaluation found little evidence that more recent trade-related operations are doing much better in identifying potential winners and losers of trade policies and of recommending specific adjustments. Between 1987 and 1995, 31 percent of trade adjustment loans included compensation or mitigation measures to cushion the social and economic effect of trade reform on the poor; since then 38 percent–a slight  increase–of trade adjustment loans have done so.