Assessing the impacts of trade policies on growth, employment and poverty in Cambodia
|Find out all about the outcomes and impact of this PEP-supported project - in terms of research findings, policy engagement and promotion of local expertise - in the following PEP impact brief. You may also read the full research paper (PEP working paper 2015-08) to find out all about the research method and detailed results, or their summary in the "PEP policy brief 123"|
Background, objective and method
The objective of this study is to assess the impacts of Cambodia’s trade liberalization and related changes in fiscal policy - e.g. an increase in VAT and income tax, to offset tariff revenue loss - on growth, employment and poverty in the country, using CGE modeling and simulation techniques.
Despite the fact that tariff is an important source of revenue for the government, Cambodia has been moving towards increased trade liberalization since the 1990’s. As it prepares for the establishment of the ASEAN Economic Community (AEC, by the end of 2015), trade liberalization and economic integration (both regional and international) have become top policy priorities for the Royal Government of Cambodia in recent years.
As stated in its National Strategic Plan (2009-2013), the ultimate goals of these policies are to create jobs, enhance economic growth, and reduce poverty. This strategy has been elaborated in a number of Government policy frameworks and yet, there has been no evidence from in-depth analysis to support such policies, i.e. to measure the potential costs and benefits, especially in terms of growth and employment, of increased trade liberalization.
Despite positive claims from the policy side, there is ongoing debate as to whether or not Cambodia may be ready for full trade liberalization, especially given its low-skills labour force and limited infrastructure.
This project aims to produce reliable evidence regarding the significance and actual effects of this trend on growth, employment and poverty reduction in the country, using modeling and simulation techniques (find out more about the method) after building both the first Social Accounting Matrix (SAM) and Computable General Equilibrium (CGE) model of Cambodia's national economy. In particular, through the conduct of macro-micro policy simulations using these new analytical tools, the researchers seek to identify the policy options that would help maximize the benefits and minimize the costs, while preparing the country for full trade liberalization.
Their results show that tariff elimination leads to an expansion in production outputs and an increase in export/import volumes. Government policy for indirect tax-led revenue compensation results in the change of structural production output, favoring the manufacturing industry - versus agriculture and service sectors. However, in general, the gains in terms of welfare at the household level are small and, for some populations living in “remote” areas, the effects are in fact negative.
Find out more through the publications below - see, in particular, the PEP working paper 2015-08 and policy brief (forthcoming).
Policy responsiveness, engagement and impact
Throughout the project lifecycle, the team has held several consultation meetings with the Supreme National Economic Council (SNEC), the Ministry of Planning, the Ministry of Economy and Finance, the National Institute of Statistics and UNICEF-Cambodia. The SNEC, in particular, is a highly strategic audience, as the top economic think tank for the Royal Government of Cambodia, and the main and most influential institution in economic policymaking, with direct access to the Prime Minister.
These meetings and discussions have resulted in raising keen interest, amongst those consulted institutions, for the researchers’ new expertise and the potential uses of the CGE model they have developed. UNICEF decided to sponsor a CGE training workshop (held in collaboration with the PEP team) for economists at the Ministry of Economy and Finance (MEF) and the eme National Economic Council (SNEC) – both institutions are thus currently building their capacity in the CGE methodology, to promote evidence-based policymaking in Cambodia. UNICEF has also advocated for the application of the new CGE tools to analyze the impact of fiscal efficiency on child welfare and social protection
The research team members have also been approached by UNICEF and other government agencies (e.g. the Ministry of Labor and Vocational Training) to lead other research projects using the same tools and methods.
As a result of the interactions and network building with policymakers and Cambodian economists during the PEP study, the project team leader was appointed president of Cambodian Economic Association in January 2014. Moreover, in September 2014, he was invited to join the IMF Economist Program in Washington DC – the first Cambodian economist to ever participate in this program. He specifies: “My knowledge, experience, and confidence on the analysis of macroeconomic issue and sectoral interaction built during the PEP study period have helped me to be one of the successful applicants out of 1500 PhD applicants in economics from around the world”.
Other team members were recruited by the Ministry of Economy and Finance (as economist), by a major bank in Cambodia (as trade specialist), and by a top think tank in Cambodia (as lead researcher).
In September 2014, the team was invited to present their PEP study and findings during the ADB/3iE Conference on “Making Impact Evaluation Matter: Better Evidences for Effective Policies and Programmes”, held in Manila, Philippines.
In November 2014, the PEP research team organized a special "policy roundtable", in Phnom Penh, to communicate and discuss their PEP research findings and related policy implications to/with policy makers and other stakeholders at the national level. The event attracted high-profile participants from the Cambodia government - including the Minister of Commerce himself - the public and private sectors, as well as from international institutions and civil society organizations.
DIscussions and comments shared during this event suggest that the project's findings and conclusions will serve to inform important decision-making in Cambodia, especially in the context of the establishement of the ASEAN Economic Community (AEC) in 2015. The Minister of Commerce, in particular, committed to take account of the research findings in regards to potential negative impact of trade policies on the agriculture sector, and the need for related policy responses (such as to attract investments in the sector). Find out more about this particular event and its main outcomes.
Download this "PEP impact brief" to find out more about the impact of this project in terms of capacity building, promotion of local expertise and policy influence
The project described above is one of the several projects selected for support under the PEP research and capacity building initiative for Policy Analysis on Growth and Employment (PAGE) in developing countries. The PAGE program is co-funded by UK's Department for International Development (DFID) and Canada's International Development Research Center (IDRC).
This particular project was selected in June 2013, following the first of three competitive calls for proposals of the PAGE initiative. A total of 65 projects have been selected for support under the three PAGE funding rounds. Find out more