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Doha scenarios, trade reforms, and poverty in the Philippines : a computable general equilibrium analysis

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  • Cororaton, Caesar B.
  • Cockburn, John
  • Corong, Erwin

Abstract

Since the early 1980s the Philippines has undertaken substantial trade reform. The current Doha Round of World Trade Organization (WTO) negotiations is now likely to bring further reform and shocks to world import prices and export demand. The impact of all these developments on the poor is not very clear and is the subject of intense debate. The authors use a detailed economywide computable general equilibrium (CGE) model to run a series of policy experiments. They find that poverty increases slightly with the implementation of the prospective Doha scenario. These effects are focused primarily among rural households in the wake of falling world prices and demand for the Philippines'agricultural exports. The authors find that the impacts of full liberalization-involving free world trade and complete domestic liberalization-depend strongly on the mechanism the government adopts to offset forgone tariff revenue. If an indirect tax is used, the incidence of poverty falls marginally, but the depth (poverty gap) and severity (squared poverty gap) increase substantially. If, instead, an income tax is used, all measures of poverty increase. In both cases, full liberalization favors urban households, as exports, which are primarily nonagricultural, expand. In separate simulations, the authors discover that free world trade is poverty reducing and favors rural households, whereas domestic liberalization is poverty increasing and favors urban households. Under free world trade, rural households benefit from increasing world agricultural demand. The anti-rural bias of domestic liberalization stems from the fact that import prices fall more for agricultural goods than for industrial goods, as initial import-weighted average tariff rates are higher for the former. In conclusion, the current Doha agreement appears likely to slightly increase poverty, especially in rural areas and among the unemployed, self-employed, and rural low-educated. The Philippines is found to have an interest in pushing for more ambitious world trade liberalization, as free world trade holds out promise for reducing poverty.

Suggested Citation

  • Cororaton, Caesar B. & Cockburn, John & Corong, Erwin, 2005. "Doha scenarios, trade reforms, and poverty in the Philippines : a computable general equilibrium analysis," Policy Research Working Paper Series 3738, The World Bank.
  • Handle: RePEc:wbk:wbrwps:3738
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    References listed on IDEAS

    as
    1. Bautista, Romeo M., 1988. "General Equilibrium Effects of Increasing Productivity in Philippine Manufacturing, with Special Reference to Food Processing," Philippine Journal of Development JPD 1988 Vol. XV No. 2-d, Philippine Institute for Development Studies.
    2. de Janvry, Alain & Sadoulet, Elisabeth & Fargeix, Andre, 1991. "Politically feasible and equitable adjustment: Some alternatives for ecuador," World Development, Elsevier, vol. 19(11), pages 1577-1594, November.
    3. Cororaton, Caesar B., 1994. "Structural Adjustment Policy Experiments: The Use of Philippine CGE Models," Discussion Papers DP 1994-03, Philippine Institute for Development Studies.
    4. David, Cristina C., 1997. "Agricultural policy and the WTO Agreement: The Philippine Case," Discussion Papers DP 1997-13, Philippine Institute for Development Studies.
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    Cited by:

    1. Caesar B. Cororaton & Erwin L. Corong, 2006. "Agriculture-sector Policies and Poverty in the Philippines: a Computable General-Equilibrium (CGE) Analysis," Working Papers MPIA 2006-09, PEP-MPIA.
    2. Cororaton, Caesar B. & Cockburn, John, 2007. "Trade reform and poverty--Lessons from the Philippines: A CGE-microsimulation analysis," Journal of Policy Modeling, Elsevier, vol. 29(1), pages 141-163.
    3. Andreas PEICHL, "undated". "The Benefits of Linking CGE and Microsimulation Models - Evidence from a Flat Tax analysis," EcoMod2008 23800106, EcoMod.
    4. Peichl, Andreas, 2009. "Benefits and problems of linking micro and macro models - evidence from a flat tax analysis," ISER Working Paper Series 2009-02, Institute for Social and Economic Research.
    5. Andreas Peichl & Thilo Schaefer, 2009. "FiFoSiM - an integrated tax benefit microsimulation and CGE model for Germany," International Journal of Microsimulation, International Microsimulation Association, vol. 2(1), pages 1-15.
    6. Schaefer, Thilo & Peichl, Andreas, 2006. "Documentation FiFoSiM: integrated tax benefit microsimulation and CGE model," FiFo Discussion Papers - Finanzwissenschaftliche Diskussionsbeiträge 06-10, University of Cologne, FiFo Institute for Public Economics.
    7. Acharya, Sanjaya & Hölscher, Jens & Perugini, Cristiano, 2012. "Trade liberalisation and inequalities in Nepal: A CGE analysis," Economic Modelling, Elsevier, vol. 29(6), pages 2543-2557.

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