Analyzing the Impact of Trade Reforms on Welfare and Income Distribution Using CGE Framework: The Case of the Philippines
AbstractTariff reform, particularly tariff reduction, is one of the major economic reforms implemented in the last one and half decades in the Philippines. The paper attempts to analyze the effects of the tariff reduction from 1994 to 2000 on household income and welfare using a computable general equilibrium (CGE) model calibrated to the 1994 social accounting matrix (SAM). Insights that can be drawn from the tariff reduction experiments include: (a) significant drop in domestic prices; (b) improvement in export competitiveness through the effective depreciation in the real exchange rate; (c) reallocation of production and resources towards the non-food manufacturing sector, which is a dominant sector both in trade and production; (d) drop in agriculture wages and increase in production wages; and (f) factor substitution favoring skilled production workers. The effects on nominal income are biased against rural households. This is largely because of the decline in agriculture wages and the improvement in production wages. However, the significant drop in prices, especially consumer prices, offsets almost all of these negative effects. As a result, both real household income and consumption improve. Therefore, the tariff reduction program is generally welfare-improving as indicated by the positive increase in the equivalent variation (EV) both for total and across households.
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Bibliographic InfoPaper provided by Philippine Institute for Development Studies in its series Discussion Papers with number DP 2003-01.
Date of creation: 2003
Date of revision:
trade reforms; income distribution; computable general equilibrium (CGE); welfare;
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- Cororaton, Caesar B., 2000. "Philippine Tariff Reforms: A CGE Analysis," Discussion Papers DP 2000-35, Philippine Institute for Development Studies.
- Cororaton, Caesar B., 1994. "Structural Adjustment Policy Experiments: The Use of Philippine CGE Models," Discussion Papers DP 1994-03, Philippine Institute for Development Studies.
- Caesar B. Cororaton & John Cockburn, 2005. "Trade Reform and Poverty in the Philippines: a Computable General Equilibrium Microsimulation Analysis," Cahiers de recherche 0513, CIRPEE.
- Pasadilla, Gloria & Liao, Christine Marie, 2004. "Determinants of Individual Trade Policy Preference in the Philippines," Discussion Papers DP 2004-16, Philippine Institute for Development Studies.
- Pimentel-Prenio, Ann & Ravago, Majah-Leah V. & Medalla, Erlinda, 2007. "THE AFTA-CEPT and the ASEAN-China Early Harvest Program: An Assessment of Potential Short-run Impact," MPRA Paper 28330, University Library of Munich, Germany.
- Cororaton, Caesar B., 2003. "Analyzing the Impact of Philippine Tariff Reform on Unemployment, Distribution and Poverty Using CGE-Microsimulation Approach," Discussion Papers DP 2003-15, Philippine Institute for Development Studies.
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