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Poverty and Inequality Impacts of Trade Policy Reforms in South Africa

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  • Ramos Mabugu
  • Margaret Chitiga

Abstract

South Africa has undergone significant trade liberalization since the end of apartheid. Average protection has fallen while openness has increased. However, economic growth has been insufficient to make inroads into the high unemployment levels. Poverty levels have also risen. The country's experience presents an interesting challenge for many economists that argue that trade liberalization is pro-poor and pro-growth. This study investigates the short and long term effects of trade liberalization using a dynamic microsimulation computable general equilibrium approach. Trade liberalization has been simulated by a complete removal of all tariffs on imported goods and services, and by a combination of tariff removal and an increase of total factor productivity. The main findings are that a complete tariff removal on imports has negative welfare and poverty reduction impacts in the short run which turns positive in the long term due to the accumulation effects. When the tariff removal simulation is combined with an increase of total factor productivity, the short and long run effects are both positive in terms of welfare and poverty reduction. The mining sector (highest export orientation) is the biggest winner from the reforms while the textiles sector (highest initial tariff rate) is the biggest loser. African and Colored households gain the most in terms of welfare and numbers being pulled out of absolute poverty by trade liberalization.

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Bibliographic Info

Paper provided by PEP-MPIA in its series Working Papers MPIA with number 2007-19.

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Date of creation: 2007
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Handle: RePEc:lvl:mpiacr:2007-19

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Keywords: Sequential dynamic CGE; microsimulation; trade liberalization; total factor productivity; poverty; welfare; growth; South Africa;

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References

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  1. Jan van Heerden & Reyer Gerlagh & James Blignaut & Mark Horridge & Sebastiaan Hess & Ramos Mabugu & Margaret Mabugu, 2006. "Searching for Triple Dividends in South Africa: Fighting CO2 Pollution and Poverty while Promoting Growth," The Energy Journal, International Association for Energy Economics, vol. 0(Number 2), pages 113-142.
  2. Foster, James & Greer, Joel & Thorbecke, Erik, 1984. "A Class of Decomposable Poverty Measures," Econometrica, Econometric Society, vol. 52(3), pages 761-66, May.
  3. Z. R. Coetzee & K. Kwarada & W. Naude & J. Swanepoel, 1997. "Currency Depreciation, Trade Liberalisation and Economic Development," South African Journal of Economics, Economic Society of South Africa, vol. 65(2), pages 78-88, 06.
  4. B. Gibson & D.E.N. Seventer, 1997. "The Macroeconomic Impact of Restructuring Public Expenditure by Function in South Africa," South African Journal of Economics, Economic Society of South Africa, vol. 65(2), pages 89-103, 06.
  5. François Bourguignon & William H. Branson & Jaime de Melo, 1989. "Macroeconomic Adjustment and Income Distribution: A Macro-Micro Simulation Model," OECD Development Centre Working Papers 1, OECD Publishing.
  6. Margaret Chitiga & John Cockburn & Bernard Decaluwé & Ismaël Fofana & Ramos Mabugu, 2010. "Case Study: A gender-focused macro-micro analysis of the poverty impacts of trade liberalization in South Africa," International Journal of Microsimulation, Interational Microsimulation Association, vol. 3(1), pages 104-108.
  7. Nabil Annabi & H. Khondker Bazlul & Selim Raihan & John Cockburn & Bernard Decaluwe, 2005. "Implications of WTO Agreements and Domestic Trade Policy Reforms for Poverty in Bangladesh: Short vs. Long Run," Working Papers MPIA 2005-02, PEP-MPIA.
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Cited by:
  1. Ramos Mabugu & Margaret Chitiga, 2007. "Poverty and Inequality Effects of a High Growth Scenario in South Africa: A Dynamic Microsimulation CGE Analysis," Working Papers 200716, University of Pretoria, Department of Economics.
  2. Margaret Chitiga & Ramos Mabugu, 2007. "Is Increased Agricultural Protection Beneficial for South Africa?," Working Papers 200717, University of Pretoria, Department of Economics.
  3. Kebede, Sindu & Fekadu, Belay & Aredo, Dejene, 2011. "Trade Liberalization and Poverty: A Macro-Micro Analysis in Ethiopia," Proceedings of the German Development Economics Conference, Berlin 2011 44, Verein für Socialpolitik, Research Committee Development Economics.

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