1. Micro-macro linkage
  2. Trade
Download icon

Impact of trade liberalization on poverty in Ethiopia: A computable general equilibrium microsimulation

  1. Kebede Sindu W.  Is a corresponding author
  2. Belay Fekadu  Is a corresponding author
  3. Dejene Aredo  Is a corresponding author
  1. Humboldt University of Berlin, Faculty of Agriculture and Horticulture Invalidenstr, Germany
  2. BDS-Center for Development Research (BDS-CDR), Ethiopiae
  3. Addis Ababa University, Ethiopia
Research article
Volume 9(1) Spring 2016
Cite this article as: K. Sindu W., B. Fekadu, D. Aredo; 2016; Impact of trade liberalization on poverty in Ethiopia: A computable general equilibrium microsimulation; International Journal of Microsimulation; 9(1); 109-133. doi: 10.34196/ijm.00130
1 figure and 11 tables

Figures

Figure 1
Download asset Open asset
A Synopsis of the effects of trade liberalization on poverty: A conceptual framework.

Tables

Table 1
Components of external trade in Ethiopia (2003/04 – 2010/11).
2003/04 2004/05 2005/06 2008/09 2010/11
Exports (as % of GDP) 6.2 7.6 7.7 4.6 17
Imports (as % of GDP) 26.6 32.5 33.9 24.5 34
Trade balance (as % of GDP) −20.4 −24.9 −26.2 −19.9 −17.0
Major export items (Percentage of total value of exports)
Coffee 37.2 39.6 35.4 26.0 31.1
Oilseeds 13.8 14.8 21.1 24.6 12.1
Leather and leather products 7.3 8.0 7.5 5.2 3.8
Pulses 3.8 4.2 3.7 6.3 5.1
Meat and meat products 1.3 1.7 1.9 1.8 2.3
Fruits and vegetables 2.1 1.9 1.3 0.8 1.2
Live animals 0.3 1.5 2.8 3.6 5.5
Khat 14.7 11.8 8.9 9.6 8.8
Gold 8.1 7.0 6.5 6.8 15.4
Flowers 0.4 0.9 2.2 9.0 6.5
Others 11.1 8.6 8.8 6.3 8.0
Major import items (by group) (Percentage of total value of imports)
Raw materials 1.0 1.4 1.8 4.6 2.2
Semi-finished goods 16.8 18.3 18.7 14.8 14.9
Fuel 12.0 18.4 14.9 16.3 20.1
Capital goods 33.9 33.0 33.2 32.0 33.4
Consumer goods 34.6 27.1 29.2 30.3 27.8
Miscellaneous 1.7 1.8 2.3 2.0 1.6
Table 2
Trade partners of Ethiopia by region in 2005/06 – 2008/09.
2005/06 2008/09
Export (percent share) Import (percent share) Export (percent share) Import (percent share)
Asia 39.3 54.9 35.6 64.7
Europe 37.8 28.9 41.7 24.8
Africa 16.9 5.96 16.6 3.9
America 5.6 9.9 5.7 6.5
Oceania 0.36 0.20 0.4 0.10

  1. Source: National Bank of Ethiopia Annual Report (2008/09).

Table 3
Trade tariffs and revenues in Ethiopia (%, 2004).
Maximum tariff 35
Simple average tariff 17.5
Trade tax revenue/GDP 2.6
Trade tax revenue/Total revenue 18.4
Effective collected tariff rate 13.7

  1. Source: International Monetary Fund (IMF, 2004).

Table 4
Evolution of customs tax collection (1997–2004).
Customs taxes (annual percentage changes)
1998 1999 2000 2001 2002 2003 2004
Duty tax 74.97 −24.92 −12.08 51.73 −9.51 51.79 −7.54
Excise tax 215.4 −41.11 −19.34 59.92 −37.67 120.01 12.61
VAT* − − − − − 50.07 −9.63
Total 95.00 −28.65 −13.46 53.18 56.70 56.03 −6.36

  1. VAT refers to Value Added Tax. VAT was introduced in Ethiopia as of January 1, 2003.

  2. Source: Phillip and Ferede (2005).

Table 5
Trends of poverty in Ethiopia (1995/96–2010/11).
National Rural Urban
1995/1996 Head count (P0) 0.455 0.475 0.332
Depth of poverty (P1) 0.129 0.134 0.099
Severity of poverty (P2) 0.051 0.053 0.041
1999/2000 Head count (P0) 0.442 0.454 0.369
Depth of poverty (P1) 0.119 0.122 0.101
Severity of poverty (P2) 0.045 0.046 0.039
2004/2005 Head count (P0) 0.387 0.393 0.351
Depth of poverty (P1) 0.083 0.085 0.077
Severity of poverty (P2) 0.027 0.027 0.026
2010/2011 Head count (P0) 0.296 0.304 0.257
Depth of poverty (P1) 0.078 0.080 0.069
Severity of poverty (P2) 0.031 0.032 0.027

  1. Source: MoFED (2012a).

Table 6
Model sectors.
Name used for sectors in GAMS code and reporting Full description of Name
CROP Crop farming
LIVE Livestock
FOOD Food processing
TELE Textile and leather
OMAN Other manufacturing
MICO Mining and construction
UTLI Utilities
TTCO Trade, transport and communication
PADM Public administration
OSER Other services
Table 7
Sectoral shares in 2001/02 (%).
SECTOR Gross output Value-added (or GDP) at factor cost Labour value-added at factor cost Capital value-added at factor cost Land value-added at factor cost Import tariff
CROP 14.16 21.00 23.45 3.36 76.68 0
LIVE 15.83 19.66 28.97 0.90 23.32 0
Total Agriculture 29.98 40.65 52.42 4.26 100.00
FOOD 3.97 3.02 0.97 7.65 0.00 20.02
TELE 2.10 0.83 0.58 1.51 0.00 32.57
OMAN 3.83 1.78 0.77 4.15 0.00 7.32
MICO 9.05 5.33 1.97 13.04 0.00 0
Total Industry 18.95 10.97 4.29 26.35 0.00
UTLI 1.91 2.41 1.42 4.86 0.00 0
TTCO 27.01 17.86 10.29 36.54 0.00 0
PADM 7.75 10.86 17.82 0.00 0.00 0
OSER 14.40 17.26 13.76 27.98 0.00 0
Total Services 51.07 48.38 43.29 69.39 0.00
TOTAL 100.00 100.00 100.00 100.00 100.00 7.64

  1. Source: Computed from the 2001/02 Ethiopian SAM.

Table 8
Volume changes due to trade liberalization.
100 % tariff cut Uniform tariff scheme
Sectors tm ΔMi ΔEXi ΔXSi ΔDi ΔMi ΔEXi ΔXSi ΔDi
CROP 0 −10.77 5.56 0.84 −0.29 −4.9 2.4 0.34 −0.14
LIVE 0 −10.93 4.79 −1.31 −1.1 −5.12 2.22 −0.52 −0.43
FOOD 20.02 8.31 7.41 −2.2 −2.52 6.21 3.78 −1.49 −1.66
TELE 32.57 20.96 2.28 −6.63 −8.96 17.86 −0.03 −5.87 −7.37
OMAN 7.32 0.17 3.8 −0.61 −1.47 −0.86 0.97 0.61 0.54
MICO 0 0 4.51 −0.17 −0.41 0 1.27 0.23 0.17
UTLI 0 0 0 −1.11 −1.11 0 0 −0.68 −0.68
TTCO 0 −5.98 3.52 0.68 0.37 −2.6 1.45 0.25 0.12
PADM 0 0 0 −0.02 −0.02 0 0 0 0
OSER 0 −6.84 4.08 0.62 0.46 −3.3 2 0.37 0.3
ALL* 7.64 −0.08 4.3 −0.1 −0.46 −0.1 1.7 −0.07 −0.22

  1. Where: tm is import tariff, M is import, EX is export, XS is sectoral output, D is demanded commodity.

  2. *

    Average variation for volumes - Laspeyres index variation for prices.

Table 9
Changes in consumer price, total consumption and equivalent variation by household group.
100% tariff cut Uniform tariff scheme
FHH WHH EHH All FHH WHH EHH All
Change in total consumption −0.62 0.7 0.17 −0.07 −0.16 0.21 0.03 −0.01
Change in household consumer price 0.72 0.92 0.34 1.85 0.36 0.32 0.04 1.38
Equivalent variation −1.23 −0.18 −0.14 −0.7 −0.48 −0.1 0 −0.27

  1. Where: FHH is farm households, EHH is entrepreneur households, WHH is wage earner households.

Table 10
Poverty results of 100% tariff cut by household group.
Base (1) 100% tariff cut (2) Variation (percentage change from base) (b/n 2 & 1)
Poverty head count index (α = 0) All 0.561 (0.0061) 0.589 (0.0060) 2.8
FHH 0.597 (0.0070) 0.614 (0.0069) 1.7
EHH 0.263 (0.0134) 0.295 (0.0138) 3.2
WHH 0.383 (0.0098) 0.398 0.0098) 1.5
Poverty gap (α = 1) All 0.169 (0.0024) 0.182 (0.0025) 1.3
FHH 0.181 (0.0028) 0.189 (0.0029) 0.8
EHH 0.073 (0.0047) 0.085 (0.0050) 1.2
WHH 0.11 (0.0036) 0.117 (0.0037) 0.7
Poverty severity (α = 2) All 0.069 (0.0013) 0.076 (0.0014) 0.7
FHH 0.074 (0.0015) 0.078 (0.0016) 0.4
EHH 0.029 (0.0023) 0.034 (0.0026) 0.5
WHH 0.043 (0.0018) 0.047 (0.0019) 0.4

  1. Note: The figures in parentheses are standard deviations.

  2. Where: FHH is farm households, EHH is entrepreneur households, WHH is wage earner households

Table 11
Poverty results of uniform tariff scheme by household group.
Base (1) Uniform tariff Scheme (2) Variation (percentage Change from base) (b/n 2 & 1)
Poverty head count index (α = 0) All 0.561 (0.0061) 0.584 (0.0060) 2.3
FHH 0.597 (0.0070) 0.606 (0.0069) 0.9
EHH 0.263 (0.0134) 0.295 (0.0138) 3.2
WHH 0.383 (0.0098) 0.398 0.0098) 1.5
Poverty gap (α = 1) All 0.169 (0.0024) 0.18 (0.0025) 1.1
FHH 0.181 (0.0028) 0.185 (0.0029) 0.4
EHH 0.073 (0.0047) 0.085 (0.0050) 1.2
WHH 0.11 (0.0036) 0.117 (0.0037) 0.7
Poverty severity (α = 2) All 0.069 (0.0013) 0.075 (0.0014) 0.6
FHH 0.074 (0.0015) 0.076 (0.0016) 0.2
EHH 0.029 (0.0023) 0.034 (0.0026) 0.5
WHH 0.043 (0.0018) 0.047 (0.0019) 0.4

  1. Note: The figures in parentheses are standard deviations.

  2. Where: FHH is farm households, EHH is entrepreneur households, WHH is wage earner households.

Download links

A two-part list of links to download the article, or parts of the article, in various formats.

Downloads (link to download the article as PDF)

Download citations (links to download the citations from this article in formats compatible with various reference manager tools)

Open citations (links to open the citations from this article in various online reference manager services)