The use of CGE models for the trade policies analysis and their impact on poverty: criticisms and proposals for improvements Model

No 9602, Working Paper from Aix-Marseille II University, CEDERS

Abstract: In this paper, we analyze the recourse to CGE modeling for assessing the impact of the Economic Partnership Agreement (EPA) signed between the European Union and the ACP (Africa-Caribbean-Pacific) countries. This partnership requires the progressive dismantling of the trade barriers against the products originating from the EU and many African countries are worried about its impact on employment a nd ask for a closer examination. . More particularly, it is needed to know whether a wider opening of these countries to liberalism would increase or reduce the poverty level of the less favored households. The debate on this point is all the more difficult because it is not sufficient to look at the GDP growth rate evolution to draw some significant conclusions. A country can present a satisfying GDP growth rate, but can also see the social categories most underprivileged becoming increasingly poor. The CGE models are generally recognized as the best tools to analyze the micro-economic impacts of macro-economic policies and more particularly the trade policies impacts on the poverty. However, to be able to give sufficiently reliable results in order to support decision-making, these models must be based on a robust and coherent data base. Hence, we believe that too much attention is put on the model’s equations and not enough on the SAM elaboration, which is the Achilles’ heel of CGE models. Hence, one of the major actions to carry out in priority would be to require from all the national institutes of statistics to built-up, as a part of their daily activities, a reliable and disaggregated Social Accounting Matrix (SAM), including a relatively fine decomposition of the households. Presently, the Social Accounting Matrix is too often seen as being simply a specific data base, built-up exclusively for the needs of the CGE model, and not as a dashboard for economic deciders that should be constantly monitored and analyzed. As a result, the absence of a reliable and up-to-date Social Accounting Matrix maintained by the national Institutes of Statistics generally reflects a lack of will or transparency from of the national government, as political decisions require to follow closely the evolution of all the socio-economic indicators that are embedded into the Social Accounting Matrix. The normalization of the SAM follow-up process would significantly facilitate a better understanding of the socio-economic consequences of the government policies, such as the trade liberalization, which is presently imposed to the developing countries under the leadership of WTO within a context that is presently more polemic than scientific.

Keywords: CGE; Calculable General Equilibrium Model; GEM; General Equilibrium Model; Trade issues; WTO; Economic Partnership Agreement; CGE modeling; SAM; Social Accounting Matrix (search for similar items in EconPapers)
JEL-codes: E32 R10 (search for similar items in EconPapers)
Date: Written 2006-03

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