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The Impact of Trade Liberalization on Household Welfare in Vietnam

  • Nguyen Chan
  • Tran Kim Dung
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    This paper evaluates the efficiency and distributional effects of trade liberalization in the context of fiscal reform in Vietnam. The analysis is performed using a computable general equilibrium (CGE) model of the Vietnamese economy calibrated to late- 1990s production and household data. It is a standard small open price taking economy model with CES nested demand and CES production functions. Results show that the efficiency gains (in term of aggregate welfare measure) from the combined tax and tariff reform are modest, but significant redistribution occurs among rich and poor household groups and between urban and rural populations. Careful analyses show that the sharpness of the redistribution falls as the country moves from only trade liberalization the combined tax and tariff reforms. Finally, additional simulations have been performed to make clearer the transmission mechanisms linking tariff policy to income distribution and household welfare. A key finding is that trade liberalization is pro-rich due essentially to the higher share of imported goods consumed by the rich.

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    File URL: http://portal.pep-net.org/documents/download/id/13524
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    Paper provided by PEP-MPIA in its series Working Papers MPIA with number 2006-02.

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    Date of creation: 2006
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    Handle: RePEc:lvl:mpiacr:2006-02
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    1. Ghosh, Madanmohan & Whalley, John, 2004. "Are price controls necessarily bad? The case of rice in Vietnam," Journal of Development Economics, Elsevier, vol. 73(1), pages 215-232, February.
    2. Harrison, Glenn W & Rutherford, Thomas F & Tarr, David G, 1993. "Trade Reform in the Partially Liberalized Economy of Turkey," World Bank Economic Review, World Bank Group, vol. 7(2), pages 191-217, May.
    3. Ngee-Choon Chia & Wahba, Sadek & Whalley, John, 1992. "A general equilibrium based social policy model for Cote d'Ivoire," Policy Research Working Paper Series 925, The World Bank.
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