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South Africa Trade Liberalization and Poverty in a Dynamic Microsimulation CGE Model

Ramos Mabugu and Margaret Chitiga ()
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Margaret Chitiga: Department of Economics, University of Pretoria

Authors registered in the RePEc Author Service: Margaret Mabugu

No 200718, Working Papers from University of Pretoria, Department of Economics

Abstract: South Africa has undergone significant trade liberalization since the end of apartheid. Average protection has fallen while openness has increased. However, economic growth has been insufficient to make inroads into the high unemployment levels. Poverty levels have also risen. The country’s experience presents an interesting challenge for many economists that argue that trade liberalization is pro-poor and pro-growth. This study investigates the short and long term effects of trade liberalization using a dynamic microsimulation computable general equilibrium approach. Trade liberalization has been simulated by a complete removal of all tariffs on imported goods and services, and by a combination of tariff removal and an increase of total factor productivity. The main findings are that a complete tariff removal on imports has negative welfare and poverty reduction impacts in the short run which turns positive in the long term due to the accumulation effects. When the tariff removal simulation is combined with an increase of total factor productivity, the short and long run effects are both positive in terms of welfare and poverty reduction. The mining sector (highest export orientation) is the biggest winner from the reforms while the textiles sector (highest initial tariff rate) is the biggest loser. African and Colored households gain the most in terms of welfare and numbers being pulled out of absolute poverty by trade liberalization.

Keywords: Sequential dynamic CGE; microsimulation; trade liberalization; total factor productivity; poverty; welfare; growth; South Africa (search for similar items in EconPapers)
JEL-codes: D58 E27 F17 I32 O15 O55 (search for similar items in EconPapers)
Pages: 43 pages
Date: 2007-09
New Economics Papers: this item is included in nep-afr, nep-cmp and nep-int
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