Can reciprocal tariff elimination reduce the welfare losses due to lagging labour productivity?: An analysis of reciprocal preferential trade access between Sub-Saharan Africa and industrialized countries

Manitra A. Rakotoarisoa, Badri Narayanan G. and Sangeeta Khorana

No 332491, Conference papers from Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project

Abstract: This paper employs General Equilibrium framework modeling and estimates the effects of reciprocal preferential trade liberalization between Sub-Saharan Africa (SSA) and the European Union (EU-25) and all industrialized countries by taking differences in labor productivity into account. We use standard GTAP 7.1 version, with eight aggregated sectors and ten aggregated regions. Simulation results show that prior to reciprocal tariff elimination, when econometric estimates of labor productivity growth are included, SSA loses by USD 12.6 billion annually because of lagging productivity growth, especially in its manufacturing sector. Elimination of tariffs between SSA and all industrialized countries in agriculture and manufacturing sectors improves SSA’s welfare by USD 2 billion, as a result of an increase in endowment and allocative efficiency effects. The gains, however, are not substantial. Results also show that a minimal annual average growth rate of 3 per cent in labor productivity in manufacturing sector will lead to positive allocative and endowment efficiency effects and counter SSA welfare losses.

Keywords: Labor and Human Capital; International Relations/Trade (search for similar items in EconPapers)
Pages: 30
Date: 2014
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Persistent link: https://EconPapers.repec.org/RePEc:ags:pugtwp:332491

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