Tariff pass-through and the distributional effects of trade liberalization

Type Journal Article - Journal of Development Economics
Title Tariff pass-through and the distributional effects of trade liberalization
Author(s)
Volume 99
Issue 2
Publication (Day/Month/Year) 2012
Page numbers 265-281
URL http://www.ualberta.ca/~ural/files/JDE_2012.pdf
Abstract
This paper estimates the distribution of welfare gains due to the trade reforms in India by simultaneously considering the effect on prices of tradable goods and wages. The cost of consumption for each household is affected by the domestic price changes, while wage incomes adjust to these price changes in equilibrium. Three rounds of the Indian Employment and Consumption Surveys are used for the analysis. The price transmission mechanisms are estimated for both rural and urban areas to understand the extent to which the trade reforms are able to affect the domestic prices. In order to assess the distributional effects, a series of nonparametric local linear regressions are estimated. The ?ndings show that households at all per capita expenditure levels had experienced gains as a result of the trade liberalization, while the average effect was generally pro-poor and varied signi?cantly across the per capita expenditure spectrum.

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