Trade Protection as Income Protection in Poor Countries

Type Conference Paper - Conference on New Political Economy of Globalisation
Title Trade Protection as Income Protection in Poor Countries
Author(s)
Publication (Day/Month/Year) 2007
City New Orleans
URL http://www.nottingham.ac.uk/shared/shared_levevents/conferences/2007_tulane_Morrissey_Ackah.pdf
Abstract
This paper considers two pieces of empirical analysis of the effects of trade policy on incomes in poor countries. The first set of results relate to the relationship between trade policy and growth using a dynamic panel regression model with GMM estimates for data on 44 developing countries over 1980-1999. Trade policy is captured by measures of tariffs and import taxes, and the specification includes an interaction term between trade barriers and initial income levels to capture the non-linearity in the relationship. For low income countries tariffs appear to be associated with higher growth, whereas only for middle-income and richer countries is there a negative impact of tariffs on growth. The second set of results is from a microeconometric study of the impact of trade protection on household income in Ghana. Tariff measures at the two-digit ISIC level are matched to Ghanaian household survey data for 1991/92 and 1998/99 to represent the tariff for the industry in which the household head is employed. The results suggest that higher tariffs are associated with higher incomes for households employed in the sector, at least in the short run. This positive effect of protection is disproportionately greater for less educated (low skilled labour) households, suggesting an erosion of income of unskilled labour households would result from trade liberalization. The conclusion considers some implications for political economy analysis of trade policy reform in poor countries.

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