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Tariff pass-through and the distributional effects of trade liberalization

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  • Ural Marchand, Beyza

Abstract

This paper estimates the distribution of welfare gains due to the trade reforms in India by simultaneously considering the effect on prices of tradable goods and wages. The cost of consumption for each household is affected by the domestic price changes, while wage incomes adjust to these price changes in equilibrium. Three rounds of the Indian Employment and Consumption Surveys are used for the analysis. The price transmission mechanisms are estimated for both rural and urban areas to understand the extent to which the trade reforms are able to affect the domestic prices. In order to assess the distributional effects, a series of nonparametric local linear regressions are estimated. The findings show that households at all per capita expenditure levels had experienced gains as a result of the trade liberalization, while the average effect was generally pro-poor and varied significantly across the per capita expenditure spectrum.

Suggested Citation

  • Ural Marchand, Beyza, 2012. "Tariff pass-through and the distributional effects of trade liberalization," Journal of Development Economics, Elsevier, vol. 99(2), pages 265-281.
  • Handle: RePEc:eee:deveco:v:99:y:2012:i:2:p:265-281
    DOI: 10.1016/j.jdeveco.2012.02.004
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    More about this item

    Keywords

    Trade liberalization; Pass-through; Wages; India; Welfare distribution;
    All these keywords.

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
    • O15 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration

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