The objective of this paper is to develop a version of the MIRAGE model of the
world economy which includes households heterogeneity in order to study the impact of
trade liberalization on real income and welfare at the household level and to evaluate
the poverty impact of such international reform in various developing countries. In
five developing countries (Brazil, Pakistan, Tanzania, Uruguay, Vietnam), the model
disaggregates the representative household into up to 40 households by country, with
groups based on some characteristics that may be relevant within a Computable General
Equilibrium (CGE) model, such as income and consumption structures. Disaggregated
statistical data come from households’ surveys. The new model better captures the
behavior of the public agent in terms of revenues collected and expenditures. Aside
from MIRAGE, a poverty module uses the CGE results on consumption prices, remunerations
of productive factors, public and private transfers to evaluate changes in
households’ real income and poverty line, with detailed information coming from households
survey. We illustrate the development of this poverty module of the MIRAGE
model by studying the impact of full trade liberalization. This study concludes that:
(i) while the impact of full trade liberalization may be small at the macroeconomic
level, the effect on real income may be quite substantial at the household level with
large dispersion across households; (ii) the major channel of transmission of trade liberalization
on households’ real income is productive factors’ remuneration; (iii) various
domestic policies simultaneously implemented to trade liberalization like modification
of public transfers to households or changes in income taxation may drastically change
the picture; (iv) full trade liberalization may reduce poverty in developing countries
with major cut in poverty headcount in Vietnam and minor reduction in Brazil and
Tanzania.