Household and Poverty Effects from Russia's Accession to the WTO

In this paper we employ a computable general equilibrium model of the Russian economy to assess the impact of accession to the World Trade Organization (WTO) on income distribution and the poor. We extend our earlier model that estimates the aggregate and sector effects in Russia with a representative consumer to a model that endogenously includes 55,098 Households. We find that virtually all households gain from Russian WTO accession in the medium term, with 99.9 percent of the estimated gains falling with a range from two percent increase in household income to 25 percent. We simulate Russian WTO accession in a constant returns to scale model that shows that the lack of virtually any losers in our model at the micro level is explained by the fact that we incorporate services liberalization and endogenous productivity effects from trade liberalization. These elements have never been incorporated in poverty analysis before and they result in larger estimated gains for the average household. We estimate that the rich will gain slightly less than average as the return on capital does not rise as much as wages. Despite the estimated gains for virtually all households in the medium term, many households may lose in the short term due to the costs of transition. Thus, safety nets are crucial for the poorest members of society during the transition.