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Impact of Trade Liberalization on Poverty in Ethiopia: A Computable General Equilibrium Microsimulation

Author

Listed:
  • Kebede W. Sindu

    (Humboldt University of Berlin, Faculty of Agriculture and Horticulture Invalidenstr. 42, D-10115 Berlin, Germany)

  • Belay Fekadu

    (BDS-Center for Development Research (BDS-CDR),)

  • Dejene Aredo

    (Addis Ababa University P.O.Box 5563, Addis Ababa, Ethiopia)

Abstract

This study analyses the impact of trade liberalization on poverty in Ethiopia using a computable general equilibrium Microsimulation approach. Two scenarios (complete tariff cut and uniform tariff scheme) suggest that further liberalization of trade has a negative short-run effect on the overall economy. We find that the agriculture-based manufacturing sector (in particular, textile and leather) is likely to be strongly affected by tariff reductions. Poverty estimates show an increase in both scenarios. At the national level, complete tariff cut increases poverty by 2.8%, compared to 2.3% under a uniform tariff scheme. In both scenarios, poverty increases more among entrepreneur households (3.2% in the uniform tariff cut scenario), than farm and wage earner households (0.9% and 1.5%, respectively). This is consistent with the theoretical argument that previously-protected infant industries are highly affected by trade liberalization and may require compensatory policies.

Suggested Citation

  • Kebede W. Sindu & Belay Fekadu & Dejene Aredo, 2016. "Impact of Trade Liberalization on Poverty in Ethiopia: A Computable General Equilibrium Microsimulation," International Journal of Microsimulation, International Microsimulation Association, vol. 9(1), pages 109-133.
    • Handle: RePEc:ijm:journl:v:9:y:2016:i:1:p:109-133
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    References listed on IDEAS

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    More about this item

    Keywords

    trade liberalization; poverty; CGE; Microsimulation;
    All these keywords.

    JEL classification:

    • D58 - Microeconomics - - General Equilibrium and Disequilibrium - - - Computable and Other Applied General Equilibrium Models
    • O55 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Africa
    • O24 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Trade Policy; Factor Movement; Foreign Exchange Policy

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