Doha Scenarios, Trade Reforms, and Poverty in the Philippines: A Computable General Equilibrium Analysis

36 Pages Posted: 14 Oct 2005

See all articles by Caesar B. Cororaton

Caesar B. Cororaton

International Food Policy Research Institute (IFPRI)

John Cockburn

Partnership for Economic Policy (PEP); Université Laval; Partnership for Economic Policy (PEP)

Erwin Corong

De La Salle University

Date Written: October 2005

Abstract

Since the early 1980s the Philippines has undertaken substantial trade reform. The current Doha Round of World Trade Organization (WTO) negotiations is now likely to bring further reform and shocks to world import prices and export demand. The impact of all these developments on the poor is not very clear and is the subject of intense debate. The authors use a detailed economywide computable general equilibrium (CGE) model to run a series of policy experiments. They find that poverty increases slightly with the implementation of the prospective Doha scenario. These effects are focused primarily among rural households in the wake of falling world prices and demand for the Philippines' agricultural exports. The authors find that the impacts of full liberalization-involving free world trade and complete domestic liberalization-depend strongly on the mechanism the government adopts to offset forgone tariff revenue. If an indirect tax is used, the incidence of poverty falls marginally, but the depth (poverty gap) and severity (squared poverty gap) increase substantially. If, instead, an income tax is used, all measures of poverty increase. In both cases, full liberalization favors urban households, as exports, which are primarily nonagricultural, expand. In separate simulations, the authors discover that free world trade is poverty reducing and favors rural households, whereas domestic liberalization is poverty increasing and favors urban households. Under free world trade, rural households benefit from increasing world agricultural demand. The anti-rural bias of domestic liberalization stems from the fact that import prices fall more for agricultural goods than for industrial goods, as initial import-weighted average tariff rates are higher for the former. In conclusion, the current Doha agreement appears likely to slightly increase poverty, especially in rural areas and among the unemployed, self-employed, and rural low-educated. The Philippines is found to have an interest in pushing for more ambitious world trade liberalization, as free world trade holds out promise for reducing poverty.

Suggested Citation

Cororaton, Caesar B. and Cockburn, John and Corong, Erwin, Doha Scenarios, Trade Reforms, and Poverty in the Philippines: A Computable General Equilibrium Analysis (October 2005). World Bank Policy Research Working Paper No. 3738. Available at SSRN: https://ssrn.com/abstract=822889

Caesar B. Cororaton (Contact Author)

International Food Policy Research Institute (IFPRI) ( email )

1201 Eye St, NW,
Washington, DC 20005
United States

John Cockburn

Partnership for Economic Policy (PEP) ( email )

P.O. Box 30772-00100
ICIPE - Duduville Campus, Kasarani
Nairobi
Kenya

Université Laval ( email )

Dept. of Economics
Québec, Quebec G1V 0A6
Canada

Partnership for Economic Policy (PEP) ( email )

Duduville Campus, Kasarani
P.O. Box 30772-00100
Nairobi
Kenya

Erwin Corong

De La Salle University ( email )

Manila, 1004
Philippines

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