The Benefit-Incidence of Tariff Liberalisation in South Africa

This paper evaluates how tariff liberalisation affected households in South Africa over the period 1995, 2000 and 2004, focussing specifically on the incidence of tariffs over the expenditure distribution. It is demonstrated that trade liberalisation has reduced the tariff burden for households across the expenditure distribution, implying significant welfare improvements to consumers in the form of reduced prices. However, the gains from liberalisation and the burden of continued protection are not uniform across the expenditure distribution. We employ a nonparametric method to test the impact of the change in tariff incidence on the cumulative expenditure distribution. Results suggest that wealthy households gained relative to all but the very poor between 1995 and 2000. Between 2000 and 2004, this trend was reversed, and the poor gained relatively more than the wealthy. Importantly, it was found that poor households always bear a greater share of the tariff burden, relative to their share in total expenditure, compared to the wealthy, indicating the regressive nature of import tariffs. Our results indicate potentially large pro-poor gains to consumers from further liberalisation, but the realisation of these gains is dependent on the pass-through of tariff reductions to consumers.