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South Africa Trade Liberalization and Poverty in a Dynamic Microsimulation CGE Model

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Author Info

  • Ramos Mabugu

    ()
    (Financial and Fiscal Commission)

  • Margaret Chitiga

    ()
    (Department of Economics, University of Pretoria)

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 University of Pretoria, Department of Economics in its series Working Papers with number 200718.

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Length: 43 pages
Date of creation: Sep 2007
Date of revision:
Handle: RePEc:pre:wpaper:200718

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Related research

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. 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.
  2. 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.
  3. 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, International Association for Energy Economics, vol. 0(Number 2), pages 113-142.
  4. Servaas van der Berg & Ronelle Burger & Rulof Burger & Megan Louw & Derek Yu, 2005. "Trends in poverty and inequality since the political transition," Working Papers 01/2005, Stellenbosch University, Department of Economics.
  5. Foster, James & Greer, Joel & Thorbecke, Erik, 1984. "A Class of Decomposable Poverty Measures," Econometrica, Econometric Society, Econometric Society, vol. 52(3), pages 761-66, May.
  6. Jung, Hong-Sang & Thorbecke, Erik, 2003. "The impact of public education expenditure on human capital, growth, and poverty in Tanzania and Zambia: a general equilibrium approach," Journal of Policy Modeling, Elsevier, Elsevier, vol. 25(8), pages 701-725, November.
  7. Hildegunn Ekroll Stokke & Jørn Rattsø, 2004. "Ramsey model of barriers to growth and skill-biased income distribution in South Africa," Working Paper Series, Department of Economics, Norwegian University of Science and Technology 4604, Department of Economics, Norwegian University of Science and Technology, revised 07 Feb 2005.
  8. 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, PEP-MPIA 2005-02, PEP-MPIA.
  9. 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, Economic Society of South Africa, vol. 65(2), pages 78-88, 06.
  10. 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, Economic Society of South Africa, vol. 65(2), pages 89-103, 06.
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Cited by:
  1. Filipski, Mateusz & Edward Taylor, J. & Msangi, Siwa, 2011. "Effects of Free Trade on Women and Immigrants: CAFTA and the Rural Dominican Republic," World Development, Elsevier, Elsevier, vol. 39(10), pages 1862-1877.

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