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Trade Reform and Poverty: The Case of Mexico

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  • Elena Ianchovichina
  • Alessandro Nicita
  • Isidro Soloaga

Abstract

We use a two-step computationally simple procedure to analyse the effects of Mexico's's potential unilateral tariff liberalisation on real incomes. First, we use the CGE model provided by the Global Trade Analysis Project (GTAP) as the new price generator. Second, we apply the price changes to Mexican household data in order to assess the effects of the policy simulation on poverty and income distribution. Although Mexico widely liberalised most of its imports by the mid 90s, one salient feature is its membership in the North American Free Trade Agreement (NAFTA) with Canada and United States. By choosing GTAP as the price generator, we are able to model the differential tariff structure. Even starting with a low level of tariff protection, simulation results show that the impact of tariff reform on welfare will be positive in general for all expenditure deciles. We find that, when we assume non-homothetic individual preferences, trade liberalisation benefits people in the poorer deciles more than those in the richer ones. Copyright Blackwell Publishers Ltd 2002.

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Bibliographic Info

Article provided by Wiley Blackwell in its journal The World Economy.

Volume (Year): 25 (2002)
Issue (Month): 7 (07)
Pages: 945-972

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Handle: RePEc:bla:worlde:v:25:y:2002:i:7:p:945-972

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  1. Foster, James & Greer, Joel & Thorbecke, Erik, 1984. "A Class of Decomposable Poverty Measures," Econometrica, Econometric Society, vol. 52(3), pages 761-66, May.
  2. Huff, Karen & Thomas W. Hertel, 2001. "Decomposing Welfare Changes in GTAP," GTAP Technical Papers 308, Center for Global Trade Analysis, Department of Agricultural Economics, Purdue University.
  3. Atkinson, A B, 1987. "On the Measurement of Poverty," Econometrica, Econometric Society, vol. 55(4), pages 749-64, July.
  4. Lopez-Acevedo, Gladys & Salinas, Angel, 2000. "How Mexico's financial crisis affected income distribution," Policy Research Working Paper Series 2406, The World Bank.
  5. Paul Mosley & Steve Wiggins & Kerry Preibisch & Sharon Proctor, 1999. "The impact of agricultural policy liberalization on rural communities in Mexico," Journal of International Development, John Wiley & Sons, Ltd., vol. 11(7), pages 1029-1042.
  6. Levy, Santiago & van Wijnbergen, Sweder, 1992. "Maize and the Free Trade Agreement between Mexico and the United States," World Bank Economic Review, World Bank Group, vol. 6(3), pages 481-502, September.
  7. Huff, Karen & Robert McDougall & Terrie Walmsley, 1999. "Contributing Input-Output Tables to the GTAP Data Base," GTAP Technical Papers 304, Center for Global Trade Analysis, Department of Agricultural Economics, Purdue University.
  8. Hanoch, Giora, 1975. "Production and Demand Models with Direct or Indirect Implicit Additivity," Econometrica, Econometric Society, vol. 43(3), pages 395-419, May.
  9. Levy, Santiago, 1991. "Poverty alleviation in Mexico," Policy Research Working Paper Series 679, The World Bank.
  10. Nicholas Minot & Francesco Goletti, 1998. "Export Liberalization and Household Welfare: The Case of Rice in Vietnam," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 80(4), pages 738-749.
  11. Ravallion, M., 1998. "Poverty Lines in Theory and Practice," Papers 133, World Bank - Living Standards Measurement.
  12. Foster, James E & Shorrocks, Anthony F, 1988. "Poverty Orderings," Econometrica, Econometric Society, vol. 56(1), pages 173-77, January.
  13. Bautista, Romeo M. & Thomas, Marcelle, 1997. "Income effects of alternative trade policy adjustments on Philippine rural households: a general equilibrium analysis," TMD discussion papers 22, International Food Policy Research Institute (IFPRI).
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