Editorial BoardXML

Seoul Journal of Economics - Vol. 23 , No. 4
[Paper List] [Go to Volume List]

[ Article ]
Seoul Journal of Economics - Vol. 23, No. 4, pp. 461-489
Abbreviation: SJE
ISSN: 1225-0279 (Print)
Print publication date 30 Nov 2010
Received 29 Jun 2009 Revised 19 Nov 2009 Accepted 21 Nov 2009

Tariff Reduction in a Small Open Economy
Vaqar Ahmed ; Cathal O’Donoghue
Corresponding Author, Deputy Chief, Planning Commission of Pakistan, Pakistan Secretariat, Islamabad, Pakistan, Tel: +92-300-5543136 (vahmed@gmail.com)
Head, Teagasc Rural Economy Research & National University Of Ireland, Galway, University Road, Galway, Ireland, Tel: +353-91-493043, Fax: +353-91-524130 (Cathal.ODonoghue@teagasc.ie)

JEL Classification: C68, D58, O24, I3

Abstract

During the late 1990s, Pakistan managed to significantly liberalize its external sector, and by 2002, the average tariff rate was under 17 percent which was well below the average in comparative countries. Using a social accounting matrix (SAM) for 2002, we develop a computable general equilibrium (CGE) model to evaluate the impact of tariff reduction in Pakistan. Our analysis goes beyond the usual trade-focused general equilibrium studies for Pakistan, as we also conduct a detailed sensitivity analysis to check the robustness of welfare-related results. Our findings suggest an overall positive impact of slashing tariff rates on macroeconomic, and welfare indicators.

Keywords: Trade liberalization, Economic growth, Welfare computable general equilibrium model
Acknowledgments

Authors would like to acknowledge comments / technical help by Paul Dorosh and Stefan Boeters. The usual disclaimer applies.

References
1. Ahmed, Vaqar, and O’ Donoghue, Cathal. Welfare Impact of External Balance in Pakistan: CGE-Microsimulation Analysis. GTAP Conference Poceedings at the 11th Annual Conference on Global Economics Analysis, Helsinki, Finland, 2008.
2. Anderson, J. E. “A Theoretical Foundation for the Gravity Equation.” American Economic Review 69 (No. 1 1979): 106-16.
3. Anderson, K., Dimaran, B., Francois, J., Hertel, T., and Hoekman, B. “The Cost of Rich (and Poor) Country Protection to Developing Countries.” Journal of African Economies 10 (No. 3 2003): 227-57.
4. Anderson, K., Martin, W., and Mensbrugghe, Dominique Van Der. “Market and Welfare Implications of the Doha Reform Scenarios.” In K. Anderson and W. Martin (eds.), Agricultural Trade Reform and the Doha Development Agenda. Chapter 12, Washington D.C.: World Bank, pp. 333-99, 2005.
5. Annabi, N., Cockburn, J., and Decaluwe, B. Functional Forms and Parameterization of CGE Models. PEP MPIA Working Paper 2006-04, http://132.203.59.36:81/Group/papers/papers/MPIA-2006-04.pdf, 2006.
6. Bhagwati, J. “Export-Promoting Trade Strategy: Issues and Evidence.” The World Bank Research Observer 3 (No. 1 1988): 27-57.
7. Bhagwati, Jagdish, and Hudec, Robert E. Fair Trade and Harmonization: Prerequisites for Free Trade? Vol. 1, Economic Analysis, Cambridge, MA, USA: MIT Press, 1996.
8. Bhagwati, J., and Srinivasan, T. N. “Trade and Poverty in the Poor Countries.” AEA Papers and Proceedings 92 (No. 2 2002): 180-3.
9. Bohringer, C., Rutherford, T. F., and Wiegard, W. Computable General Equilibrium Analysis: Opening a Black Box. ZEW Discussion Paper No. 03-56, http://bibserv7.bib.uni-mannheim.de/madoc/volltexte/2004/363/pdf/dp0356.pdf, 2004.
10. Bouët, A. What Can the Poor Expect from Trade Liberalization? Opening the Black Box of Trade Modelling. MTID Discussion Paper No. 93, IFPRI, 2006.
11. Bourguignon, Francois, Jaime, de Melo, and Suwa, Akiko. Distributional Effects of Adjustment Policies: Simulations for Two Archetypes Economies. Policy Research Working Paper Series 674, The World Bank, 1991.
12. Bourguignon, Francois, Robilliard, Anne, and Robinson, Sherman. “Representative versus Real Households in the Macroeconomic Modeling of Inequality.” In T. J. Kehoe, T. N. Srinivasan, and John Whalley (eds.), Frontiers in Applied General Equilibrium Modelling. Cambridge: Cambridge University Press, pp. 219-54, 2005.
13. Brown, D. K., Deardorff, A. V., and Stern, R. M. “Multilateral, Regional and Bilateral Trade Policy Options for the United States and Japan.” The World Economy 26 (No. 6 2003): 803-28.
14. Cline, W. R. Trade Policy and Global Poverty. Washington D.C.: Peterson Institute for International Economics, 2004.
15. Cloutier, M., Cockburn, J., and Decaluwe, B. Welfare, Poverty and Distributional Effects of Trade Liberalization: A Review of the CGE Literature. Mimeo, Universite Laval: Poverty and Economics Policy Network, 2003.
16. Cockburn, J., Decaluwe, B., and Robichaud, V. Trade Liberalization and Poverty: A CGE Analysis of the 1990s Experience in Africa and Asia. Quebec, Canada: IDRC, 2008.
17. Davey, W. J., and Pauwelyn, J. “MFN-Unconditionality.” In T. Cottier and P. C. Mavroidis (eds.), Regulatory Barriers and the Principle of Non-Discrimination in World Trade Law: Past, Present, and Future. University of Michigan Press, pp. 38-41, 2000.
18. Decaluwe, B., Martin, M. C., and Souissi, M. Ecole PARADI de modelisation de Politiques Economiques de Development. Québec: Universite Laval, 1996. (in French)
19. Dervis, K., Melo, J. de, and Robinson, S. General Equilibrium Models for Development Policy. New York: Cambridge University Press, 1982.
20. Dorosh, P., Niazi, M. K., and Nazli, H. A Social Accounting Matrix for Pakistan, 2001-02: Methodology and Results. Pakistan Institute of Development Economics Working Papers 2006: 9, 2006.
21. Ethier, W. J. “Theoretical Problems in Negotiating Trade Liberalization.” European Journal of Political Economy 17 (No. 2 2001): 209-32.
22. Ethier, W. J. “Unilateralism in a Multilateral World.” Economic Journal 112 (No. 479 2002): 266-92.
23. Francois, J., Meijl, H. Van, and Tongeren, F. Van. Trade Liberalization and Developing Countries under the Doha Round. CEPR Discussion Paper No. 4032, 2003.
24. Francois, J. F., and Reinert, K. A. Applied Methods for Trade Policy Analysis: A Handbook. Cambridge: Cambridge University Press, 2008.
25. Guisinger, S., and Scully, G. “Liberalising Foreign Trade: Lessons of Experience in the Developing World.” In D. Papageorgiou, M. Michaely, and A. M. Choksi (eds.), Liberalizing Foreign Trade: Lessons of Experience in the Developing World. Oxford: Oxford University Press, pp.197-282, 1991.
26. Hertel, T. W. Future Directions in Global Trade Analysis. GTAP Working Paper No. 4, Center for Global Trade Analysis, Department of Agricultural Economics, Purdue University, 1999.
27. Hillman, A. L. Trade Liberalization and Globalization: A Survey. International Trade and Public Policy Discussion Paper Series No. 3845, Center for Economic Policy Research, UK, 2003.
28. Horn, H., and Mavroidis, P. “Economic and Legal Aspects of the Most-Favored-Nation Clause.” European Journal of Political Economy 17 (No. 2 2001): 233-79.
29. Jacob, J., and Meister, C. “Productivity Gains, Technology Spillovers and Trade: Indonesian Manufacturing, 1980-96.” Bulletin of Indonesian Economic Studies 41 (No. 1 2005): 37-56.
30. Kemal, A. R. Structural Adjustment, Macroeconomic Policies and Poverty Trends in Pakistan. Paper presented at Asia and Pacific Forum on Poverty: Reforming Policies and Institutions for Poverty Reduction, Asian Development Bank, Manila, 5-9 February, 2001.
31. Khan, H. Assessing Poverty Impact of Trade Liberalization Policies: A Generic Macroeconomic Computable General Equilibrium Model for South Asia. ADB Institute Discussion Paper No. 22, 2005.
32. Khor, M. The Singapore Issues in the WTO: Implications and Recent Developments. Malaysia: Third World Network, 2004.
33. Kim, Hag-Soo. “Empirical Evidence on the Determinants of TFP and Its Role in the Growth of Innovation-Driven Economies.” Seoul Journal of Economics 22 (No. 1 2009): 55-75.
34. Kim, Taegi, and Zhan, Jun-Heng. “Industrial Structure, Regional Trade Bias, and China's FTA with Korea and Japan.” Seoul Journal of Economics 19 (No. 4 2006): 381-404.
35. Krueger, A. O. Trade Policies and Developing Nations. Washington D. C.: The Brookings Institution, 1995.
36. Krugman, P. “Growing World Trade: Causes and Consequences.” Brookings Papers on Economic Activity 26 (No. 1 1995): 327-77.
37. Kwark, Noh-Sun. “Long-Run Comparative Advantage and Transitional Dynamics after Free Trade in an Endogenous Growth Model.” Seoul Journal of Economics 18 (No. 2 2005): 173-203.
38. Kydd, J., Dorward, A., and Poulton, C. Institutional Dimensions of Trade Liberalisation and Poverty. Paper Presented at OECD Global Forum on Agriculture, Meeting on Agricultural Trade Reform, Adjustment and Poverty, 23/24th May, 2002.
39. Lee, Young Hoon, and Pyo, Hak K. “Productivity Growth and Patterns of Efficiency Changes in Korean Economy: Stochastic Frontier Approach with Industry-Panel Data.” Seoul Journal of Economics 20 (No. 1 2007): 23-58.
40. Lofgren, H., Harris, R. L., and Robinson, S. A Standard Computable General Equilibrium Model in GAMS. Microcomputers in Policy Research 5, International Food Policy Research Institute, 2002.
41. McKibbin, W. J. Quantifying APEC Trade Liberalization: A Dynamic Analysis. Paper Prepared for the Economic Modeling Bureau of Australia: Conference on Changing Patterns of Interdependence in the Asia-Pacific Region held in Cairns, Australia, August, 1996.
42. OECD. The Doha Development Agenda: Welfare Gains from Further Multilateral. Trade Liberalization with Respect to Tariffs. TD/ TC/WP(2003)10/FINAL, Paris, 2003.
43. Page, S. Principle Issues in the Doha Negotiations. in the Doha Development Agenda Impacts on Trade and Poverty, Overseas Development Institute, http://www.odi.org.uk/resources/download/2265.pdf, 2004.
44. Pauw, K. Functional Forms Used in CGE Models: Modelling Production and Commodity Flows. PROVIDE Project Background Paper 2003: 5, 2003.
45. Piermartini, R. Demystifying Modeling Methods for Trade Policy. WTO Discussion Paper No. 10, 2006.
46. Planning Commission. Medium Term Development Framework 2005-10, Islamabad, Pakistan, Islamabad: Government of Pakistan, 2005.
47. Rege, S. R. “General Equilibrium Analysis of India’s Trade Reforms.” Review of Urban and Regional Development Studies 13 (No. 2, 2001): 123-42.
48. Rodrik, Dani. The New Global Economy and Developing Countries: Making Openness Work. Washington: Overseas Development Council, 1999.
49. Santos-Paulino, A., and Thirlwall, A. P. The Impact of Trade Liberalization on Export Growth, Import Growth, the Balance of Trade and the Balance of Payments of Developing Countries. Kent, UK: University of Kent, 2002.
50. Shafaeddin, S. M. Trade Liberalization and Economic Reform in Developing Countries: Structural Change or De-industrialization? UNCTAD Discussion Paper No. 179, 2005.
51. Siddiqui, Rizwana, and Iqbal, Zafar. Tariff Reduction and Functional Income Distribution in Pakistan: A CGE Model. Paper Presented at the Workshop on Micro Impact of Macroeconomic Adjustment Policies, Islamabad, Pakistan, November, 1999.
52. Tarjanne, P., Leive, D. M., and Tyler, M. The Changing Role of Government in an Era of Telecom Deregulation. Geneva: International Telecommunications Union, 1995.
53. Vlahantoni-Tikof, M. WTO Negotiations on Agriculture: Tariff Reduction Formula. Technical Assistance to Support ACP Country Delegations in Geneva on Post-July Framework Process, 2005.
54. Weiss, J. Export Growth and Industrial Policy: Lessons from the East Asian Miracle Experience. ADB Institute Discussion Paper No. 26, 2005.
55. Willenbockel, D. Specification Choice and Robustness in CGE Trade Policy. Analysis with Imperfect Competition. ECOMOD Conference Proceedings, 2002.
56. Winters, A. L., McCulloch, N., and McKay, A. “Trade Liberalization and Poverty: The Evidence So Far.” Journal of Economic Literature 42 (No. 1 2004): 72-115.
57. Wood, Adrian. “How Trade Hurt Unskilled Workers.” Journal of Economic Perspectives 9 (No. 3 1995): 57-80.
58. World Bank. The East Asian Miracle: Economic Growth and Public Policy. World Bank Policy Research Report, 1993.
59. UNCTAD. Back to Basics: Market Access Issues in the Doha Agenda. United National Conference on Trade and Development, Geneva, 2003.
60. Yallapragada, R. R., Roe, C. W., Paruchuri, M. R., and Toma, A. G. The Collapse at Cancun: The Fifth Ministerial Conference of the World Trade Organization. Southwestern Economic Review Proceedings, http://www.ser.tcu.edu/2005-Pro/SEP2005%20Yallapragada%20et%20al%20II%2065-70.pdf, 2005.
 

Editorial Office, Seoul Journal of Economics, Institute of Economic Research, Seoul National University 599 Gwanangno, Gwanak-gu, Seoul 151-746, Korea
Tel: +82-2-880-5434 | Fax: +82-2-888-4454 | E-mail: sje@plaza.snu.ac.kr
Copyright (c) 2020 SJE. All rights reserved.