A Prescription for Free Trade

Review of International Economics, Volume 15, Issue 4, September 2007

Most people agree that free trade is a mixed blessing. We may enjoy greater general prosperity, and we all benefit from low-priced goods from abroad. But, as a result, jobs are exported overseas. Importing clothes from countries with sweatshops or buying oil from war-torn locales raises deep ethical concerns. As for whether free trade is beneficial for the poorest in society, even economists are divided. Competition drives down wages and makes companies cut corners on healthcare for their poorest workers. Bosses push short-term contracts with no health insurance, so employees have to work sporadic but generally longer hours in unsafe conditions for less pay. In other words, free trade directly and indirectly damages the health of the poor.

Or does it? According to a recent article, "Is Trade Good for Your Health?" in the Review of International Economics, economists Ann L. Owen and Stephen Wu of Hamilton College build on an increasingly strong, but rarely reported, body of literature demonstrating the health benefits of free trade. By analyzing a variety of data from 219 countries over 35 years, they demonstrate that the citizens of economically freer nations are healthier than those where the economy is more tightly controlled. Their model is simple and useful. To measure a country’s openness to trade, they assess foreign currency restrictions and trade distortions, such as high tariffs and low quotas on foreign imports. They measure health by examining factors such as infant mortality and life expectancy. Owen and Wu conclude that openness to trade and higher volumes of trade are powerfully associated with reductions in infant mortality and increases in life expectancy, particularly among women in developing countries. Interestingly, the effect is even more marked for the poorest of the poor: A small opening up of trade in the poorest developing countries gives a disproportionately larger health benefit to that country’s citizens than it would to the citizens of richer nations. In terms of health, the worst off gain the most from free trade.

In some ways, the authors’ findings are intuitive. If medications and vaccines are allowed across borders freely, it makes sense that more lives would be saved. But Owen and Wu also suggest that the transfer of something less concrete matters more: beneficial knowledge that spills over simply from the act of trading with other countries. "[I]f trade facilitates the transfer of knowledge," they write, "then countries that import goods from healthier trading partners should receive more knowledge." They claim that knowledge of disease treatment, good health practices, and the design and administration of health programs comes about because of the associations from trade.

To ensure the accuracy of their findings, the authors spend nearly half the paper testing the validity of their methodology. Along the way, they unveil several startling points of discussion. Most notably, they find that most foreign aid has no significant impact on a country’s health (water appears to be an exception), and that while opening up trade causes improvements in health, improving health does not lead to open trade.

These two findings undermine most of the economic (but not humanitarian) arguments put forward by aid activists for increases in healthcare spending by donors. International aid cheerleaders such as economist Jeffrey Sachs argue that we must vastly increase aid in order to improve health so that people can trade, create better institutions, and draw themselves out of disease and poverty. But history and wider research support Owen and Wu’s conclusions. Numerous countries have been given foreign aid to battle diseases such as malaria, but only those that have developed sensible domestic policies and embraced international trade have completely eradicated or controlled the disease. For example, there were 3 million cases of malaria annually in Sri Lanka until the 1950s. After the World Health Organization and UNICEF funded a DDT-spraying program, malaria cases plummeted to only 17 in 1963 and remained at low levels for several years. But without sustainable domestic policies, the disease eventually resurged. Many other countries took that same approach, but only the ones that developed rapidly, such as Italy and Greece, sustained eradication. Indeed, myriad diseases often flourish on only one side of a border: for example, Mexico and the United States, Malaysia and Singapore, and Mozambique and South Africa. Certainly, wealth is an important factor. But openness to trade may explain a key part of this phenomenon as well.

This idea gives extra impetus for countries to open their borders, and for the World Trade Organization to complete the Doha round of trade talks sooner rather than later. My own research has demonstrated that tariffs on medicines significantly lower access to them, notably in places such as Nigeria and the Democratic Republic of the Congo. Singapore, Switzerland, and the United States have tried to encourage their removal through the World Trade Organization. Owen and Wu’s findings suggest that a long list of practices that impede trade could also be guilty of impeding improvements in public health.

This idea should, but probably won’t, influence the upcoming U.S. presidential election. Although President George W. Bush has done well with his AIDS and malaria programs, Owen and Wu’s analysis implies that he might have done much more for global health simply by lowering U.S. agricultural subsidies and increasing trade with poor nations. As for the next administration, all of the presidential candidates support more health aid for poor countries. But neither of the two Democratic hopefuls is pushing a free trade agenda, and it’s far from Republican nominee John McCain’s top priority. Although they should continue to support humanitarian programs, they should also reconsider promoting trade: As Owen and Wu’s findings suggest, it would do more for the health of the world’s poor than the most generous acts of charity.