Structural Change and Poverty Reduction in Brazil: The Impact of the Doha Round

For the Brazilian case, this paper intends to evaluate the poverty effects of possible trade liberalization outcomes of the Doha round in the medium run. This implies to assess the poverty impact of a Doha Round (and a Full Liberalization) counterfactual scenario against a scenario that incorporates some of the main features of medium run structural change. In doing so, we focus on the labor market, as we consider this transmission channel to be of overriding importance in this time horizon. We will thus examine whether the effects of trade liberalization, in particular on poverty and the distribution of income, are still prominent in the medium run. The main poverty-relevant transmission channels incorporated in our simulation exercise are changes real factor prices and changes in the sectoral composition of the workforce. These changes are driven by changing consumption patterns, differentials in productivity growth rates across sectors, educational upgrading of the workforce, and, finally, the trade shocks. The methodology used here combines a dynamic computable general equilibrium model with a microsimulation model for Brazil. This macro-micro model enables us to analyze the mediumterm poverty and distributional impact of different growth patterns in quite some detail. Our analysis suggests that the economic effects of the Doha round, even of an “optimistic deep” liberalization scenario, are rather limited for Brazil. Accordingly, poverty would remain largely unaffected by this trade reform, which does not appear to be biased in favor any of particularly poor groups. Yet, through a slight improvement in the urban income distribution the Doha scenario has some positive effect on poverty. In contrast, a full liberalization scenario implies quite substantial welfare gains that are concentrated among some of the poorest groups of the country, in particular those in agriculture.