Poverty and Inequality Impacts of Trade Policy Reforms in South Africa

MPIA Working Paper No. 2007-19

39 Pages Posted: 8 May 2007

See all articles by Ramos Mabugu

Ramos Mabugu

University of Zimbabwe

M. Chitiga

University of Pretoria - Department of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: May 2007

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

JEL Classification: D58, E27, F17, I32, O15, O55

Suggested Citation

Mabugu, Ramos and Chitiga, Margaret Mabugu, Poverty and Inequality Impacts of Trade Policy Reforms in South Africa (May 2007). MPIA Working Paper No. 2007-19. Available at SSRN: https://ssrn.com/abstract=984466 or http://dx.doi.org/10.2139/ssrn.984466

Ramos Mabugu

University of Zimbabwe

c/o Hall Farm, Wenhaston
Suffolk Ip19 9HE, Mashonaland
United Kingdom

Margaret Mabugu Chitiga (Contact Author)

University of Pretoria - Department of Economics ( email )

Lynnwood Road
Hillcrest
Pretoria 0002
South Africa

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