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Tariff reform, particularly tariff reduction, is one of the major economic reforms implemented in the last one and half decades in the Philippines. The paper attempts to analyze the effects of the tariff reduction from 1994 to 2000 on household income and welfare using a computable general equilibrium (CGE) model calibrated to the 1994 social accounting matrix (SAM). Insights that can be drawn from the tariff reduction experiments include: (a) significant drop in domestic prices; (b) improvement in export competitiveness through the effective depreciation in the real exchange rate; (c) reallocation of production and resources towards the non-food manufacturing sector, which is a dominant sector both in trade and production; (d) drop in agriculture wages and increase in production wages; and (f) factor substitution favoring skilled production workers. The effects on nominal income are biased against rural households. This is largely because of the decline in agriculture wages and the improvement in production wages. However, the significant drop in prices, especially consumer prices, offsets almost all of these negative effects. As a result, both real household income and consumption improve. Therefore, the tariff reduction program is generally welfare-improving as indicated by the positive increase in the equivalent variation (EV) both for total and across households.

Citations

This publication has been cited time(s).

Aldaba, Rafaelita M., 2008 "Can imports discipline collusive firms? The case of the Philippine cement industry" , Philippine Institute for Development Studies
Aldaba, Rafaelita M., 2008 "Can imports discipline collusive firms? The case of the Philippine cement industry" , East Asian Bureau of Economic Research
Liao, Christine Marie and Gloria O. Pasadilla, 2004 "Determinants of individual trade policy preference in the Philippines" , Philippine Institute for Development Studies
Cororaton, Caesar B. and John Cockburn, 2007 "Trade reform and poverty--Lessons from the Philippines: A CGE-microsimulation analysis" , Elsevier
Pimentel-Prenio, Ann, Majah-Leah Ravago, and Erlinda Medalla, 2007 "The AFTA-CEPT and the ASEAN China early harvest program: An assesment of potential short-run impacts" , Southeast Asian Regional Center for Graduate Study and Research in Agriculture (SEARCA)
Cororaton, Caesar B. and John Cockburn, 2005 "Trade reform and poverty in the Philippines: A computable general equilibrium microsimulation analysis" , CIRPEE
Aldaba, Rafaelita M., 2009 "Can imports discipline collusive firms?: The case of the Philippine cement industry" , Philippine Institute for Development Studies
Cororaton, Caesar B., 2003 "Analyzing the impact of Philippine tariff reform on unemployment, distribution and poverty using CGE-microsimulation approach" , Philippine Institute for Development Studies
Pimentel-Prenio, Ann, Majah-Leah V. Ravago, and Erlinda Medalla, 2007 "The AFTA-CEPT and the ASEAN-China early harvest program: An assessment of potential short-run impact" , University Library of Munich, Germany

Contributor

Philippine Institute for Development Studies

Authors

Cororaton, Caesar B.

Keywords

trade reforms; income distribution; computable general equilibrium (CGE); welfare

Analyzing the Impact of Trade Reforms on Welfare and Income Distribution Using CGE Framework: The Case of the Philippines

Citations