Trade Liberalization and Pro-Poor Growth in South Africa

Trade liberalization has been at the center of South Africa’s post-Apartheid development strategy. However, despite reforms, the country has failed to generate pro-poor growth, with both unemployment and inequality worsening over the last ten years. This raises concern that liberalization may have undermined the country’s development objectives. This study uses a general equilibrium and microsimulation model to assess the effects of liberalization on growth, employment and poverty. The results indicate that liberalization has not increased poverty and has accelerated growth. However, liberalization has altered production structures and exacerbated inequality. Coloured households in the coastal provinces have borne most of the structural adjustment costs. Trade reforms also contributed to the rising capital and skill-intensity of production, so that the decline in poverty has been small. Therefore, while there may not be a trade-off between trade reform and poverty reduction, the country should not overemphasize the role of further liberalization in generating pro-poor growth.