Liberalizing Trade, and its Impact on Poverty and Inequality in Nicaragua
AbstractThe Doha Round of multilateral trade negotiations stalled in 2008 owing in no small degree to a lack of agreement on the terms of substantially reducing trade-distorting support for agricultural products and to what extent this would be beneficial to developing countries. Nicaragua presents an interesting case in point, being one of the poorest economies in Latin America with still a relatively large agricultural sector and high degrees of rural poverty. In 2005, the country signed a free trade agreement with the United States. A previous study showed that most welfare gains of this agreement for Nicaragua would potentially come from the increased market access for textiles and clothing exported to the United States. Under the agreement, the country stands to benefit much less from reducing tariffs on agricultural imports or agro-industrial export quotas. Since the United States is Nicaragua’s main trading partner, this raises the question whether further trade liberalization with all trading partners, including full elimination of all taxes and tariffs on agricultural production and trade, would be any more beneficial. Using a CGE model and a microsimulation methodology, this study shows that small welfare gains in terms of increased output and poverty reduction may be expected for Nicaragua under various scenarios of trade opening. At best, however, there would be a static gain in aggregate output of 1.5 percent as compared with the baseline scenario. This outcome would materialize only in a scenario of worldwide liberalization of trade in agricultural and non-agricultural products as this would yield relatively strong positive terms-of-trade effects for Nicaragua. Employment and real wage growth would contribute to poverty reduction, but only very modestly in a country with still widespread poverty. Most of these small gains would accrue to the rural poor. The analysis further shows that these gains tend to be smaller when using trade elasticity estimates based on country-specific data as compared with the much higher elasticities typically assumed by global trade models, including the Global Linkage model.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by World Bank in its series Agricultural Distortions Working Paper with number 52796.
Date of creation: Jun 2009
Date of revision:
Distorted incentives; agricultural and trade policy reforms; national agricultural development; Agricultural and Food Policy; International Relations/Trade; F13; F14; Q17; Q18;
Find related papers by JEL classification:
- F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
- F14 - International Economics - - Trade - - - Empirical Studies of Trade
- Q17 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agriculture in International Trade
- Q18 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agricultural Policy; Food Policy
This paper has been announced in the following NEP Reports:
- NEP-AGR-2009-09-05 (Agricultural Economics)
- NEP-ALL-2009-09-05 (All new papers)
- NEP-DEV-2009-09-05 (Development)
- NEP-HAP-2009-09-05 (Economics of Happiness)
You can help add them by filling out this form.
reading list or among the top items on IDEAS.Access and download statisticsgeneral information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (AgEcon Search).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.