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Doha Scenarios, Trade Reforms, and Poverty inthe Philippines: a CGE Analysis

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  • Caesar B. Cororaton
  • John Cockburn
  • Erwin Corong

Abstract

Since the early 1980s, the Philippines have undertaken substantial trade reform. The current Doha round of WTO negotiations is now likely to bring further reform and shocks to world import and export prices and world export demand. The impact of all these developments on the poor is not very clear and is the subject of very intense debate. A detailed economy-wide CGE model is used to run a series of policy experiments. Poverty is found to increase slightly with the implementation of the Doha scenario. These effects are focused primarily among rural households in the wake of falling world prices and demand for Philippines agricultural exports. The impacts of full liberalization involving free world trade and complete domestic liberalization are found to depend strongly on the mechanism the government adopts to offset forgone tariff revenue. If an indirect tax is used, the incidence of poverty falls marginally, but the depth (poverty gap) and severity (squared poverty gap) increase substantially. If, instead, an income tax is used, all measures of poverty increase. In both cases, full liberalization favors urban households, as exports, which are primarily non-agricultural, expand. In separate simulations, we discover that free world trade is poverty reducing and favors rural households, whereas domestic liberalization is poverty-increasing and favors urban households. Under free world trade, rural households benefit from increasing world agricultural export prices and demand. The anti-rural bias of domestic liberalization stems from the fact that import prices fall more for agricultural goods than for industrial goods, as initial import-weighted average tariffs rates are higher for the former. In conclusion, the current Doha agreement appears likely to slightly increase poverty, especially in rural areas and among the unemployed, self-employed and rural low-educated. The Philippines is found to have an interest in pushing for more ambitious world trade liberalization, as free world trade holds out promise for reducing poverty.

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Bibliographic Info

Paper provided by PEP-MPIA in its series Working Papers MPIA with number 2005-03.

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Date of creation: 2005
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Handle: RePEc:lvl:mpiacr:2005-03

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Keywords: Computable General Equilibrium; Microsimulation; Poverty; International Trade; Philippines;

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References

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  1. de Janvry, Alain & Sadoulet, Elisabeth & Fargeix, Andre, 1991. "Politically feasible and equitable adjustment: Some alternatives for ecuador," World Development, Elsevier, vol. 19(11), pages 1577-1594, November.
  2. Cororaton, Caesar B., 1994. "Structural Adjustment Policy Experiments: The Use of Philippine CGE Models," Discussion Papers DP 1994-03, Philippine Institute for Development Studies.
  3. David, Cristina C., 1997. "Agricultural policy and the WTO Agreement: The Philippine Case," Discussion Papers DP 1997-13, Philippine Institute for Development Studies.
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Cited by:
  1. Briones, Roehlano M. & David, Cristina C. & Inocencio, Arlene B. & Intal, Ponciano Jr. S. & Geron, Maria Piedad S. & Ballesteros, Marife M., 2012. "Monitoring and Evaluation of Agricultural Policy Indicators," Discussion Papers DP 2012-26, Philippine Institute for Development Studies.
  2. Shutes, Lindsay & Ganesh-Kumar, Anand & Meijerink, Gerdien W., 2012. "Fluctuating staple prices and household poverty in India," MPRA Paper 40982, University Library of Munich, Germany.
  3. John Gilbert, 2008. "Agricultural trade reform and poverty in the Asia-Pacific region: a survey and some new results," Asia-Pacific Development Journal, United Nations Economic and Social Commission for Asia and the Pacific (ESCAP), vol. 15(1), pages 1-34, June.
  4. Rodriguez, U-Primo E., 2008. "Impacts of the Free Trade Area of the Pacific (FTAAP) on Production, Consumption, and Trade of the Philippines," Discussion Papers DP 2008-20, Philippine Institute for Development Studies.
  5. Roehlano M. Briones, 2009. "Impact Assessment of National and Regional Policies Using the Philippine Regional General Equilibrium Model," Development Economics Working Papers 22617, East Asian Bureau of Economic Research.

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