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Trade Reform and Poverty: The Case of Mexico

Author

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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.

Suggested Citation

  • Elena Ianchovichina & Alessandro Nicita & Isidro Soloaga, 2002. "Trade Reform and Poverty: The Case of Mexico," The World Economy, Wiley Blackwell, vol. 25(7), pages 945-972, July.
    • Handle: RePEc:bla:worlde:v:25:y:2002:i:7:p:945-972
    DOI: 10.1111/1467-9701.00473
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