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Trade reform and household welfare : the case of Mexico

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  • Ianchovichina, Elena
  • Nicita, Alessandro
  • Soloaga, Isidro

Abstract

The authors use a two-step, computationally simple procedure to analyze the effects of Mexico's potentially unilateral tariff liberalization. First, they use a computable general equilibrium model provided by the Global Trade Analysis Project (GTAP) as the new price generator. Second, they apply the price changes to Mexican household data to assess the effects of the simulated policy on poverty and income distribution. By choosing GTAP as the pricegenerator, the authors are able to model Mexico's differential tariff structure appropriately: almost zero for North American Free Trade Agreement (NAFTA) members and higher tariffs for nonmembers. Even starting with low tariff protection, simulation results show that tariff reform will have a positive effect on welfare for all expenditure deciles. Under an assumption of nonhomothetic individual preferences, trade liberalization benefits people in the poorer deciles more than those in the richer ones.

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Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 2667.

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Date of creation: 31 Aug 2001
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Handle: RePEc:wbk:wbrwps:2667

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Related research

Keywords: Health Economics&Finance; Environmental Economics&Policies; Economic Theory&Research; Services&Transfers to Poor; Payment Systems&Infrastructure; Environmental Economics&Policies; Economic Theory&Research; Poverty Assessment; Inequality; Health Economics&Finance;

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References

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  1. Ravallion, M., 1998. "Poverty Lines in Theory and Practice," Papers 133, World Bank - Living Standards Measurement.
  2. Levy, Santiago & van Wijnbergen, Sweder, 1992. "Maize and the Free Trade Agreement between Mexico and the United States," World Bank Economic Review, World Bank Group, vol. 6(3), pages 481-502, September.
  3. Nicholas Minot & Francesco Goletti, 1998. "Export Liberalization and Household Welfare: The Case of Rice in Vietnam," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 80(4), pages 738-749.
  4. Paul Mosley & Steve Wiggins & Kerry Preibisch & Sharon Proctor, 1999. "The impact of agricultural policy liberalization on rural communities in Mexico," Journal of International Development, John Wiley & Sons, Ltd., vol. 11(7), pages 1029-1042.
  5. Hanoch, Giora, 1975. "Production and Demand Models with Direct or Indirect Implicit Additivity," Econometrica, Econometric Society, vol. 43(3), pages 395-419, May.
  6. Levy, Santiago, 1991. "Poverty alleviation in Mexico," Policy Research Working Paper Series 679, The World Bank.
  7. Huff, Karen & Robert McDougall & Terrie Walmsley, 1999. "Contributing Input-Output Tables to the GTAP Data Base," GTAP Technical Papers 304, Center for Global Trade Analysis, Department of Agricultural Economics, Purdue University.
  8. Foster, James E & Shorrocks, Anthony F, 1988. "Poverty Orderings," Econometrica, Econometric Society, vol. 56(1), pages 173-77, January.
  9. Lopez-Acevedo, Gladys & Salinas, Angel, 2000. "How Mexico's financial crisis affected income distribution," Policy Research Working Paper Series 2406, The World Bank.
  10. Bautista, Romeo M. & Thomas, Marcelle, 1997. "Income effects of alternative trade policy adjustments on Philippine rural households: a general equilibrium analysis," TMD discussion papers 22, International Food Policy Research Institute (IFPRI).
  11. Atkinson, A B, 1987. "On the Measurement of Poverty," Econometrica, Econometric Society, vol. 55(4), pages 749-64, July.
  12. Huff, Karen & Thomas W. Hertel, 2001. "Decomposing Welfare Changes in GTAP," GTAP Technical Papers 308, Center for Global Trade Analysis, Department of Agricultural Economics, Purdue University.
  13. Foster, James & Greer, Joel & Thorbecke, Erik, 1984. "A Class of Decomposable Poverty Measures," Econometrica, Econometric Society, vol. 52(3), pages 761-66, May.
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