In the real world the changes depicted in Figure 5 take place simultaneously, but in the GIDD’s simplified framework they are accommodated in a sequential fashion. In the first step, consistent with an overall growth rate of real income per capita, changes in labor remuneration by skill level and sectoral location are applied to each worker in the sample depending on their education and sector of employment. In the second step, real household incomes are affected by the change in the price of food versus non-food; households with a higher share of household income allocated to food consumption will bear the larger impact after a change in the price of food.

The sequential changes described above reshape national income distribution under a set of strong assumptions. In particular, income inequality within population subgroups formed by skills and sector of employment is assumed to remain constant after the trade reform. Moreover, data limitations affect estimates of the initial inequality and its evolution. Although consumption expenditure is a more reliable welfare measure than income, and its distribution is normally more equal than the distribution of income, consumption data are not available for all countries’ surveys. To get a global picture, the present study had to include, both, countries for which only income data were available with countries with consumption information. Finally, measurement errors implicit in purchasing power parity exchange rates, which have been used to convert local currency units, also affect comparability across countries. The resulting hypothetical income distribution should thus not be seen as a _forecast_ of what the future distribution might look like; instead it should be interpreted as the result of an exercise that captures the _ceteris paribus_ distributional effect of agricultural trade liberalization.

# **4 What happens to poverty and income distribution when agriculture trade distortions are removed?**

In this section, we link the macro outcomes of global agricultural trade reform to the changes in the distribution of income _between_ and _within_ countries. Our analysis is carried out in three stages. First, we briefly examine the macroeconomic results of the LINKAGE model, focusing on the variables that are passed on to the household survey data. Second, we consider the income distribution results from a global perspective, quantifying the likely changes in global poverty and inequality and identifying groups of countries and individuals that are likely to benefit the most (least) from agricultural trade reform. Thirdly, we assess the potential trends in the distribution of income within countries, identifying countries where inequality pressures may heighten and thus erode support for additional reforms.

# **_4.1 Macroeconomic general equilibrium results_**

The LINKAGE simulation analysis has been carried out with the 7.0 pre-release of the GTAP database, which disaggregates global trade into bilateral flows between 101 countries/regions in 57 commodity groups. The base year for the simulations is 2004, and the data take into account changes in the global trade and tariff structure due to the implementation of the Uruguay Round commitments, the EU enlargement, China’s accession to the WTO, and implementation of most major preferential trade agreements. The model is solved in a comparative static mode, which means that simulations are 11