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Results from simulations of different policy scenarios suggest that further trade liberalization would not only have little effect on the overall economy in Ethiopia, but also lead to an increase in national poverty rates...
Using CGE modeling and macro-micro simulation techniques - as fostered by PEP-supported research in developing countries - a team of local researchers in Ethiopia performed two distinct simulations of different trade policy reform scenarios (complete tariff cut and uniform tariff scheme), in order to assess how further liberalization would impact the country’s various economic sectors, on the one hand, and welfare/poverty at the household level on the other.
Both scenarios suggest that further liberalization of trade would have little short-run effect on the overall economy in Ethiopia. However, the agriculture-based manufacturing sector is likely to be strongly affected by further tariff reduction. Reductions in import prices of textiles and leather products would increase imports of these goods implying that trade liberalization is likely to dampen domestic production of textile and leather products.
Furthermore, both scenarios lead to a slight increase in poverty rates - including inequality and poverty severity indices. Indeed, a complete tariff cut results in a 2.8 percent increase in the national poverty rate, while a uniform tariff scheme raises poverty by 2.3 percent. The study also compares the effects of trade reforms on different groups/types of households, according to the main income-generating activities – i.e. farming, wage-earning and entrepreneurs. To find out more about the researchers’ findings and methods, follow the links below to access the related PEP publications:
PEP Working Paper 2012-04 (publication of policy brief is forthcoming)
Based on PEP-supported project MPIA-10603
Researchers:Dejene Aredo | Belay Fekadu | Endris Negus | Sindu Workneh | Solomon Lemma
To find more recent findings and policy recommendations from PEP-supported studies in developing countries, see Recent PEP findings