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GTAP Resource #1767

"A Computable General Equilibrium Micro-Simulation Analysis of the Impact of Trade Policies on Poverty in Zimbabwe"
by Chitiga, Margaret

There is an ongoing debate on the role of trade policies in alleviating poverty. Winters et al (2002), Reimer (2002) and Rajan and Bird (2002) among others give a comprehensive literature review of the evidence on the impact of trade liberalization and poverty. Reimer (2002 summarizes the main links between trade and poverty coming from the Winters (2000) paper and concludes that there is no simple generalization about the relationship between trade liberalization and poverty and that it is difficult in one study to take into account all these linkages. It does seem though that there is no strong evidence that trade liberalization will increase poverty or vulnerability but no guarantees either that the poor will always benefit. These conclusions seem to suggest that such evidence from a particular country must be obtained empirically. An important question is therefore, to what extent is the poverty in Africa attributable to trade liberalisation? Using the example of Zimbabwe, this paper explores how successful trade liberalisation has been in alleviating poverty and improving income distribution.

Like many other countries, Zimbabwe implemented trade liberalization in 1991, which reversed a long tradition of dirigisme. The import control, industrial licensing and fixed exchange rate associated with the colonial period were dismantled. Despite the serious drought in 1991-92, liberalisation policy was not reversed. The aggregate response of trade to the opening up was quite dramatic. Total trade rose from 45 percent of GDP in 1988, to more than 100 percent ten years later. Despite compelling evidence of its many benefits, trade liberalisation still remains an unfinished business in Zimbabwe.

While it is generally agreed that the programme significantly altered the contours of the Zimbabwean economy, it is also clear the programme could have sharpened inequality and increased poverty. Poverty has been on the increase in Zimbabwe, particularly since the implementation of the structural adjustment program in 1991 leading people to blame the reforms for increased poverty. For the reader who is more interested in trade policy effects than Zimbabwe, the question is whether Zimbabwe’s experience is an inevitable consequence of trade liberalization or whether it is simply a result of ‘local’ mismanagement. This paper will attempt to show that, while the last of these reasons is important, there are lessons to be drawn by a wider audience.

This paper aims to establish the longer-term impact of trade liberalisation on incomes, poverty and inequality in Zimbabwe. In thinking about these lessons, it is useful to realize that the majority of computable general equilibrium (CGE) models used in poverty and inequality analysis are aggregated CGEs with representative households to infer changes on income distribution due to trade liberalisation. In such models, not much can be done in terms of poverty analysis since, by its nature, the study of poverty relies on micro data. To overcome this limitation we replace the assumption of a representative household by incorporating all the households from a nationally representative survey. In this way, we endogenize intra- group variations. To our knowledge there is no work yet that looks at poverty and trade at the household level in a CGE model in Zimbabwe. Preliminary results show that the complete removal of tariffs favours export-oriented sectors and all imports increase. Poverty falls in the economy while inequality hardly changes. The results differ between rural and urban areas.

Resource Details (Export Citation) GTAP Keywords
Category: 2005 Conference Paper
Status: Published
By/In: Presented at the 8th Annual Conference on Global Economic Analysis, Lübeck, Germany
Date: 2005
Version: 1
Created: Chitiga, M. (5/2/2005)
Updated: Chitiga, M. (5/2/2005)
Visits: 3,277
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