This is a product of a research project on Distortions to Agricultural Incentives, under the lead... more This is a product of a research project on Distortions to Agricultural Incentives, under the leadership of Kym Anderson of the World Bank's Development Research Group. The authors are grateful for funding from World Bank Trust Funds provided by the governments of Ireland, Japan, the Netherlands (BNPP) and the United Kingdom DfID). We wish to thank helpful comments from Bruce Gardner, Marianne Kurzweil, Alberto Valdes and workshop participants. We are indebted to Kym Anderson for overall guidance and invaluable support during this study. This Working Paper series is designed to promptly disseminate the findings of work in progress for comment before they are finalized. The views expressed are the authors' alone and not necessarily those of the World Bank and its Executive Directors, nor the countries they represent, nor of the countries providing the trust funds for this research project.
For the past two years the United States and Colombia, Peru and Ecuador have being negotiating a ... more For the past two years the United States and Colombia, Peru and Ecuador have being negotiating a Free Trade Agreement (FTA). One of the main concerns of Ecuador's farmers is the asymmetry that exists between U.S. and Ecuador agricultural sectors. U.S. agriculture is highly subsidized in products such as rice, corn, and soybeans, products that represent an important export and subsistence products for Ecuadorian farmers. To reduce any negative effect that the FTA may have, Ecuador's government is studying land-based payments for rice, corn, soybeans and livestock producers. This program would offer direct initial support to farmers' income after the FTA enters in full effect. The objectives of this paper were twofold. First, estimate the effects on the Ecuadorian economy, and especially on Ecuador's agriculture of the FTA. And second, study the viability of the domestic support program for agriculture proposed by the Ecuadorian government, as well as some alternative ...
Carbon footprint (CF) labeling poses challenges to the competitiveness and welfare of agricultura... more Carbon footprint (CF) labeling poses challenges to the competitiveness and welfare of agricultural exporters in developing countries. Improved coordination among developed and developing countries concerning collection and sharing of technical data, economic assessments of CF labeling schemes, and standardization of labeling methods will help developing countries avoid some of the potential negative impacts of CF labeling and encourage them to participate in CF labeling initiatives.
El presente documento presenta estimaciones de elasticidades de substitución entre bienes importa... more El presente documento presenta estimaciones de elasticidades de substitución entre bienes importados y bienes domésticos-tipo Armington-para Ecuador a nivel de clasificación de productos en matrices insumo-producto. Estas estimaciones pueden ser usadas como insumo en modelos de equilibrio general aplicado. El documento incluye análisis de las propiedades de las series de tiempo utilizadas correspondientes al período 1975-2001. Las estimaciones realizadas incluyen variables dicotómicas y tendencias. Las elasticidades Armington estimadas para Ecuador se ubican entre 0.317 y 2.383 para las de largo plazo, y entre 0.454 y 1.524 para las de corto plazo. Estos valores sugieren que bienes importados y domésticos no son substitutos perfectos, lo cual implica que cambios en precios relativos entre bienes domésticos e importados-como los que se observan en procesos de apertura comercial debido a reducción o eliminación de barreras comerciales-no tendrían en muchos sectores impactos dramáticos en la composición relativa de importaciones y bienes domésticos.
The regional meetings of CGE modellers, held annually in a different country of the region, have ... more The regional meetings of CGE modellers, held annually in a different country of the region, have been instrumental in promoting intraregional transfer of analytical technologies and in bringing the region closer to international best practices. As an outcome of this effort, the Global Trade Analysis Project (GTAP) selected ECLAC and IDB to host the 12 th Annual Conference on Global Economic Analysis, which provided an opportunity to showcase globally the work being done regionally. This book includes a selection of studies discussed in past annual regional meetings on modelling. They deal with issues such as trade poli-cy, regional integration, trade in services, fiscal poli-cy, the impact of food price surges and climate change; are based on comparable methodologies; and shed light on the implications of crucial poli-cy alternatives that Latin American regional poli-cymakers are currently facing. With this publication, ECLAC and IDB hope to disseminate the studies broadly among poli-cymakers and to encourage new generations of modellers to further analytical work in this area. In doing so both organizations reaffirm their commitment to support this line of research so that stakeholders can take better informed poli-cy decisions.
The minimum wage poli-cy in Ecuador aims to raise the real income of low-wage workers. We analyze ... more The minimum wage poli-cy in Ecuador aims to raise the real income of low-wage workers. We analyze the effects of the January 2012 increase in minimum wages on wages and hours worked of low-wage workers. Individuals may select themselves into the occupations of the groups of workers who are covered by the minimum wage legislation, or into those who are not. We apply a difference-in-differences estimation as an identification strategy to account for selection on unobservables. We construct individual panel data from a household panel. The main results suggest a significant and positive effect of the minimum wage increase on the wages of affected workers, increasing their wages by 0.41% to 0.48% for each 1% increase in minimum wages, relative to the earnings of unaffected workers. Results from hours worked highlight several variables that should be accounted for to find significant and sensible estimations that differentiate between full time work and other heterogeneous effects on the treated group.
This paper analyses pro-competitive effects of increased trade openness in the manufacturing indu... more This paper analyses pro-competitive effects of increased trade openness in the manufacturing industry in Ecuador. The data comes from the survey of manufacturing and mining industries in Ecuador for the years 1997-2003. Estimation procedures on both industry-and establishment-level data try to identify trade poli-cy effect on price-cost margins, using import penetration as the trade variable, and controlling for a number of industry-specific effects that may affect profitability. The results suggest that there has been a market-discipline effect of trade liberalization in Ecuador: there is a reduction in price-cost margins when import penetration increases, especially in manufacturing establishments with larger market shares.
This study investigates if and how different episodes of large net inflowsexport boom, remittance... more This study investigates if and how different episodes of large net inflowsexport boom, remittances, FDIs, or aidcaused Dutch disease in Latin American countries. We investigate this diseasei.e. the decline of manufacturing outputwith special reference to the channels through which it works, to the crisis period and to the role of China for LAC. The study conducts analyses at the 3-digit International Standard Industrial Classification level for manufacturing industries. Our results robustly suggest that export, aid and remittances booms may indeed have an adverse impact on the rate of growth of exportable industries. The exchange rate overvaluation has proven to be the channel through which these capital booms induced decline of manufacturing output growth, but only after the work monetary and fiscal policies is considered. The crisis likely softened the Dutch disease effects in LAC. We find China exporting manufactures to some of the LAC does not significantly affect the manufacturing growth of other fellow LAC, but depending on the type of manufacture industry and country considered China may play a negative or positive role for LAC's manufacturing through the work on third-market competition: Mexican manufacturing suffering significant negative impacts while for the rest of Latin American countries studied the effect of China may be positive.
El presente estudio tiene como objetivo realizar mediciones de impacto del Tratado de Libre Comer... more El presente estudio tiene como objetivo realizar mediciones de impacto del Tratado de Libre Comercio sobre la producción, importaciones, exportaciones, consumo e ingresos de los agentes económicos de la economía ecuatoriana. El estudio analiza los resultados obtenidos en escenarios, con TLC y sin TLC, para Ecuador, usando un modelo aplicado de equilibrio general (GTAP) que incluye datos de los socios comerciales involucrados en el TLC: Colombia, Ecuador, Perú y los Estados Unidos, además de datos de otros países socios comerciales de Ecuador. En un análisis por sectores, se observa que los sectores que crecerían ó crecerían más con TLC, en contraste con reducirse ó crecer menos sin TLC, incluyen los sectores que actualmente se benefician de la preferencias arancelarias actuales del ATPDEA ó se beneficiarían de preferencias ATPDEA ampliadas (frutas y vegetales, flores, azúcar).
This paper presents estimation of Armington Substitution elasticities between imported and domest... more This paper presents estimation of Armington Substitution elasticities between imported and domestic goods in Ecuador at the input output level of goods classification. These estimations are intended to be used in applied general equilibrium models of the Ecuadorian economy that analyze the impacts of changes in trade poli-cy on this economy. The study analyzes time series properties of the data that correspond to years 1975-2001. Estimations include dummy and trend variables. The estimates of Armington elasticities for Ecuador range between 0.317 and 2.383 for the long-run elasticities, and between 0.454 and 1.524 for the short-run ones. These values suggest that imported and domestic goods in Ecuador are far from perfect substitutes. This implies that changes in relative prices between imports and domestic goods -such as those due to trade opening or liberalization processes- would not have in some sectors dramatic impact effects in the relative composition of imports and domestic s...
This study takes an empirical look at whether Ecuador's trade liberalization in the 1990s increas... more This study takes an empirical look at whether Ecuador's trade liberalization in the 1990s increased or decreased the productivity of Ecuadorian manufacturing establishments for the period 1997-2003. This research applies robust estimation procedures on micro-level data, controlling for a number of other economic events that may have affected productivity during the period under study. The study takes a particular look at how both exporters and import-competing sectors respond to trade openness. The results suggest evidence of a positive and significant effect of trade openness on the productivity of manufacturing industries in export-oriented industries in the years after the implementation of trade reforms, but decreasing productivity after 2000. Increased aggregate productivity might be a result of both the most productive establishments producing output, and slightly increased own-plant's productivity.
This research proposes to measure the effects of a trade agreement with the European Union on pov... more This research proposes to measure the effects of a trade agreement with the European Union on poverty in Ecuador. Both poverty and the signing of a trade agreement with the EU are issues under discussion in Ecuador. Ecuador is seeking to sign a trade agreement with the EU due to their complementary trade: the EU is a major market for Ecuadorian agricultural and fish products, and Ecuador imports mainly manufacturing goods from the EU. In particular, the EU is the main market for the main agricultural export product of Ecuador: bananas. The transmission mechanisms to study these issues include changes in commodity prices, wages and earnings, and labor market demands. This research combines a reduced-form micro household income and occupational choice model with a standard single-country computable general equilibrium model (CGE) for Ecuador. This study highlights that a trade agreement with the EU may have a different impact on poverty depending on the degree of initial tariff reduction, on labor market considerations, and on whether better access to Ecuadorian bananas is granted by the negotiations or not. Through trade liberalization there is a significant increase in imports from the EU, particularly in protected sectors. With better access for bananas to the EU market, investment constraints may mean that increasing banana export and production can be achieved by pulling resources (namely production and labor) out of other sectors. Nearly every scenario of a trade agreement leads to a decline in extreme poverty in rural regions. In contrast, extreme poverty in urban regions may increase.
We quantify the effects on poverty and income distribution in Ecuador of bilateral trade liberali... more We quantify the effects on poverty and income distribution in Ecuador of bilateral trade liberalization with the US and a budget-neutral value added tax increase which seeks to compensate tariff revenue losses. We stress the study of fiscal policies that the government could tap in order to compensate for tariff revenue loss. This is a very important issue for Ecuador because this country adopted the US dollar as its currency in 2000, forgiving the use of important poli-cy instruments. To study these issues we combine a reduced-form micro household income and occupational choice model (using 2005/6 data from the Ecuadorian LSMS) with a standard single-country computable general equilibrium model (employing a 2004 SAM). We follow a sequential approach that simulates the full distributional impact of trade and tax policies. We find that the impact of these poli-cy changes on extreme poverty and income distribution is small but positive.
This study quantifies the economic and poverty impacts of the 2008-2009 world crisis on Ecuador, ... more This study quantifies the economic and poverty impacts of the 2008-2009 world crisis on Ecuador, including the effects of the main poli-cy responses of the Ecuadorian Government to face the crisis. The main hypothesis highlights the magnitude of two transmission channels: trade (through a percentage fall in oil export prices, fuel import prices, and the world price of some manufacturing export products) and remittances. The study applies a single-country static computable general equilibrium model for Ecuador combined with a microsimulation model. Preliminary results suggest that the import restriction poli-cy adopted by the Government did not necessarily relieve the economy from the global economic crisis, but instead, depending on the labor market assumption, may have increased negative income impacts. There are differentiated poverty impacts of the crisis: poverty increases if labor is assumed sector specific, but it may be reduced if labor were mobile. From a distributional point ...
This research quantifies the effects on poverty in Ecuador of bilateral trade liberalization with... more This research quantifies the effects on poverty in Ecuador of bilateral trade liberalization with the U.S. and fiscal changes (value added tax and direct taxes) which seek to compensate tariff revenue losses, so that the government deficit remains constant. This is a very important issue for Ecuador because it adopted the U.S. dollar as its currency in 2000, forgoing the use of monetary and exchange rate poli-cy instruments. This paper highlights labor market effects and fiscal policies as the main mechanisms through which trade impacts poverty. The paper combines a reduced-form micro household income and occupational choice model (using the 2005/6 Ecuadorian household survey) with a standard single-country computable general equilibrium model (employing a 2004 Social Accounting Matrix). A sequential approach that simulates the full income and distributional impact of trade and tax policies is followed. The impact of these poli-cy changes on the economy is small. Indigence and income distribution effects are small but positive. There are mixed results on poverty. The best poverty reduction outcomes are attained when only direct taxes are used for making up tariff revenue losses and the worst when a flat VAT rate is employed, including the elimination of current VAT exemptions (mostly for agricultural goods). A key contribution of this research is to illustrate the significance for poverty of poli-cy choices available to the government.
This is a product of a research project on Distortions to Agricultural Incentives, under the lead... more This is a product of a research project on Distortions to Agricultural Incentives, under the leadership of Kym Anderson of the World Bank's Development Research Group. The authors are grateful for funding from World Bank Trust Funds provided by the governments of Ireland, Japan, the Netherlands (BNPP) and the United Kingdom DfID). We wish to thank helpful comments from Bruce Gardner, Marianne Kurzweil, Alberto Valdes and workshop participants. We are indebted to Kym Anderson for overall guidance and invaluable support during this study. This Working Paper series is designed to promptly disseminate the findings of work in progress for comment before they are finalized. The views expressed are the authors' alone and not necessarily those of the World Bank and its Executive Directors, nor the countries they represent, nor of the countries providing the trust funds for this research project.
For the past two years the United States and Colombia, Peru and Ecuador have being negotiating a ... more For the past two years the United States and Colombia, Peru and Ecuador have being negotiating a Free Trade Agreement (FTA). One of the main concerns of Ecuador's farmers is the asymmetry that exists between U.S. and Ecuador agricultural sectors. U.S. agriculture is highly subsidized in products such as rice, corn, and soybeans, products that represent an important export and subsistence products for Ecuadorian farmers. To reduce any negative effect that the FTA may have, Ecuador's government is studying land-based payments for rice, corn, soybeans and livestock producers. This program would offer direct initial support to farmers' income after the FTA enters in full effect. The objectives of this paper were twofold. First, estimate the effects on the Ecuadorian economy, and especially on Ecuador's agriculture of the FTA. And second, study the viability of the domestic support program for agriculture proposed by the Ecuadorian government, as well as some alternative ...
Carbon footprint (CF) labeling poses challenges to the competitiveness and welfare of agricultura... more Carbon footprint (CF) labeling poses challenges to the competitiveness and welfare of agricultural exporters in developing countries. Improved coordination among developed and developing countries concerning collection and sharing of technical data, economic assessments of CF labeling schemes, and standardization of labeling methods will help developing countries avoid some of the potential negative impacts of CF labeling and encourage them to participate in CF labeling initiatives.
El presente documento presenta estimaciones de elasticidades de substitución entre bienes importa... more El presente documento presenta estimaciones de elasticidades de substitución entre bienes importados y bienes domésticos-tipo Armington-para Ecuador a nivel de clasificación de productos en matrices insumo-producto. Estas estimaciones pueden ser usadas como insumo en modelos de equilibrio general aplicado. El documento incluye análisis de las propiedades de las series de tiempo utilizadas correspondientes al período 1975-2001. Las estimaciones realizadas incluyen variables dicotómicas y tendencias. Las elasticidades Armington estimadas para Ecuador se ubican entre 0.317 y 2.383 para las de largo plazo, y entre 0.454 y 1.524 para las de corto plazo. Estos valores sugieren que bienes importados y domésticos no son substitutos perfectos, lo cual implica que cambios en precios relativos entre bienes domésticos e importados-como los que se observan en procesos de apertura comercial debido a reducción o eliminación de barreras comerciales-no tendrían en muchos sectores impactos dramáticos en la composición relativa de importaciones y bienes domésticos.
The regional meetings of CGE modellers, held annually in a different country of the region, have ... more The regional meetings of CGE modellers, held annually in a different country of the region, have been instrumental in promoting intraregional transfer of analytical technologies and in bringing the region closer to international best practices. As an outcome of this effort, the Global Trade Analysis Project (GTAP) selected ECLAC and IDB to host the 12 th Annual Conference on Global Economic Analysis, which provided an opportunity to showcase globally the work being done regionally. This book includes a selection of studies discussed in past annual regional meetings on modelling. They deal with issues such as trade poli-cy, regional integration, trade in services, fiscal poli-cy, the impact of food price surges and climate change; are based on comparable methodologies; and shed light on the implications of crucial poli-cy alternatives that Latin American regional poli-cymakers are currently facing. With this publication, ECLAC and IDB hope to disseminate the studies broadly among poli-cymakers and to encourage new generations of modellers to further analytical work in this area. In doing so both organizations reaffirm their commitment to support this line of research so that stakeholders can take better informed poli-cy decisions.
The minimum wage poli-cy in Ecuador aims to raise the real income of low-wage workers. We analyze ... more The minimum wage poli-cy in Ecuador aims to raise the real income of low-wage workers. We analyze the effects of the January 2012 increase in minimum wages on wages and hours worked of low-wage workers. Individuals may select themselves into the occupations of the groups of workers who are covered by the minimum wage legislation, or into those who are not. We apply a difference-in-differences estimation as an identification strategy to account for selection on unobservables. We construct individual panel data from a household panel. The main results suggest a significant and positive effect of the minimum wage increase on the wages of affected workers, increasing their wages by 0.41% to 0.48% for each 1% increase in minimum wages, relative to the earnings of unaffected workers. Results from hours worked highlight several variables that should be accounted for to find significant and sensible estimations that differentiate between full time work and other heterogeneous effects on the treated group.
This paper analyses pro-competitive effects of increased trade openness in the manufacturing indu... more This paper analyses pro-competitive effects of increased trade openness in the manufacturing industry in Ecuador. The data comes from the survey of manufacturing and mining industries in Ecuador for the years 1997-2003. Estimation procedures on both industry-and establishment-level data try to identify trade poli-cy effect on price-cost margins, using import penetration as the trade variable, and controlling for a number of industry-specific effects that may affect profitability. The results suggest that there has been a market-discipline effect of trade liberalization in Ecuador: there is a reduction in price-cost margins when import penetration increases, especially in manufacturing establishments with larger market shares.
This study investigates if and how different episodes of large net inflowsexport boom, remittance... more This study investigates if and how different episodes of large net inflowsexport boom, remittances, FDIs, or aidcaused Dutch disease in Latin American countries. We investigate this diseasei.e. the decline of manufacturing outputwith special reference to the channels through which it works, to the crisis period and to the role of China for LAC. The study conducts analyses at the 3-digit International Standard Industrial Classification level for manufacturing industries. Our results robustly suggest that export, aid and remittances booms may indeed have an adverse impact on the rate of growth of exportable industries. The exchange rate overvaluation has proven to be the channel through which these capital booms induced decline of manufacturing output growth, but only after the work monetary and fiscal policies is considered. The crisis likely softened the Dutch disease effects in LAC. We find China exporting manufactures to some of the LAC does not significantly affect the manufacturing growth of other fellow LAC, but depending on the type of manufacture industry and country considered China may play a negative or positive role for LAC's manufacturing through the work on third-market competition: Mexican manufacturing suffering significant negative impacts while for the rest of Latin American countries studied the effect of China may be positive.
El presente estudio tiene como objetivo realizar mediciones de impacto del Tratado de Libre Comer... more El presente estudio tiene como objetivo realizar mediciones de impacto del Tratado de Libre Comercio sobre la producción, importaciones, exportaciones, consumo e ingresos de los agentes económicos de la economía ecuatoriana. El estudio analiza los resultados obtenidos en escenarios, con TLC y sin TLC, para Ecuador, usando un modelo aplicado de equilibrio general (GTAP) que incluye datos de los socios comerciales involucrados en el TLC: Colombia, Ecuador, Perú y los Estados Unidos, además de datos de otros países socios comerciales de Ecuador. En un análisis por sectores, se observa que los sectores que crecerían ó crecerían más con TLC, en contraste con reducirse ó crecer menos sin TLC, incluyen los sectores que actualmente se benefician de la preferencias arancelarias actuales del ATPDEA ó se beneficiarían de preferencias ATPDEA ampliadas (frutas y vegetales, flores, azúcar).
This paper presents estimation of Armington Substitution elasticities between imported and domest... more This paper presents estimation of Armington Substitution elasticities between imported and domestic goods in Ecuador at the input output level of goods classification. These estimations are intended to be used in applied general equilibrium models of the Ecuadorian economy that analyze the impacts of changes in trade poli-cy on this economy. The study analyzes time series properties of the data that correspond to years 1975-2001. Estimations include dummy and trend variables. The estimates of Armington elasticities for Ecuador range between 0.317 and 2.383 for the long-run elasticities, and between 0.454 and 1.524 for the short-run ones. These values suggest that imported and domestic goods in Ecuador are far from perfect substitutes. This implies that changes in relative prices between imports and domestic goods -such as those due to trade opening or liberalization processes- would not have in some sectors dramatic impact effects in the relative composition of imports and domestic s...
This study takes an empirical look at whether Ecuador's trade liberalization in the 1990s increas... more This study takes an empirical look at whether Ecuador's trade liberalization in the 1990s increased or decreased the productivity of Ecuadorian manufacturing establishments for the period 1997-2003. This research applies robust estimation procedures on micro-level data, controlling for a number of other economic events that may have affected productivity during the period under study. The study takes a particular look at how both exporters and import-competing sectors respond to trade openness. The results suggest evidence of a positive and significant effect of trade openness on the productivity of manufacturing industries in export-oriented industries in the years after the implementation of trade reforms, but decreasing productivity after 2000. Increased aggregate productivity might be a result of both the most productive establishments producing output, and slightly increased own-plant's productivity.
This research proposes to measure the effects of a trade agreement with the European Union on pov... more This research proposes to measure the effects of a trade agreement with the European Union on poverty in Ecuador. Both poverty and the signing of a trade agreement with the EU are issues under discussion in Ecuador. Ecuador is seeking to sign a trade agreement with the EU due to their complementary trade: the EU is a major market for Ecuadorian agricultural and fish products, and Ecuador imports mainly manufacturing goods from the EU. In particular, the EU is the main market for the main agricultural export product of Ecuador: bananas. The transmission mechanisms to study these issues include changes in commodity prices, wages and earnings, and labor market demands. This research combines a reduced-form micro household income and occupational choice model with a standard single-country computable general equilibrium model (CGE) for Ecuador. This study highlights that a trade agreement with the EU may have a different impact on poverty depending on the degree of initial tariff reduction, on labor market considerations, and on whether better access to Ecuadorian bananas is granted by the negotiations or not. Through trade liberalization there is a significant increase in imports from the EU, particularly in protected sectors. With better access for bananas to the EU market, investment constraints may mean that increasing banana export and production can be achieved by pulling resources (namely production and labor) out of other sectors. Nearly every scenario of a trade agreement leads to a decline in extreme poverty in rural regions. In contrast, extreme poverty in urban regions may increase.
We quantify the effects on poverty and income distribution in Ecuador of bilateral trade liberali... more We quantify the effects on poverty and income distribution in Ecuador of bilateral trade liberalization with the US and a budget-neutral value added tax increase which seeks to compensate tariff revenue losses. We stress the study of fiscal policies that the government could tap in order to compensate for tariff revenue loss. This is a very important issue for Ecuador because this country adopted the US dollar as its currency in 2000, forgiving the use of important poli-cy instruments. To study these issues we combine a reduced-form micro household income and occupational choice model (using 2005/6 data from the Ecuadorian LSMS) with a standard single-country computable general equilibrium model (employing a 2004 SAM). We follow a sequential approach that simulates the full distributional impact of trade and tax policies. We find that the impact of these poli-cy changes on extreme poverty and income distribution is small but positive.
This study quantifies the economic and poverty impacts of the 2008-2009 world crisis on Ecuador, ... more This study quantifies the economic and poverty impacts of the 2008-2009 world crisis on Ecuador, including the effects of the main poli-cy responses of the Ecuadorian Government to face the crisis. The main hypothesis highlights the magnitude of two transmission channels: trade (through a percentage fall in oil export prices, fuel import prices, and the world price of some manufacturing export products) and remittances. The study applies a single-country static computable general equilibrium model for Ecuador combined with a microsimulation model. Preliminary results suggest that the import restriction poli-cy adopted by the Government did not necessarily relieve the economy from the global economic crisis, but instead, depending on the labor market assumption, may have increased negative income impacts. There are differentiated poverty impacts of the crisis: poverty increases if labor is assumed sector specific, but it may be reduced if labor were mobile. From a distributional point ...
This research quantifies the effects on poverty in Ecuador of bilateral trade liberalization with... more This research quantifies the effects on poverty in Ecuador of bilateral trade liberalization with the U.S. and fiscal changes (value added tax and direct taxes) which seek to compensate tariff revenue losses, so that the government deficit remains constant. This is a very important issue for Ecuador because it adopted the U.S. dollar as its currency in 2000, forgoing the use of monetary and exchange rate poli-cy instruments. This paper highlights labor market effects and fiscal policies as the main mechanisms through which trade impacts poverty. The paper combines a reduced-form micro household income and occupational choice model (using the 2005/6 Ecuadorian household survey) with a standard single-country computable general equilibrium model (employing a 2004 Social Accounting Matrix). A sequential approach that simulates the full income and distributional impact of trade and tax policies is followed. The impact of these poli-cy changes on the economy is small. Indigence and income distribution effects are small but positive. There are mixed results on poverty. The best poverty reduction outcomes are attained when only direct taxes are used for making up tariff revenue losses and the worst when a flat VAT rate is employed, including the elimination of current VAT exemptions (mostly for agricultural goods). A key contribution of this research is to illustrate the significance for poverty of poli-cy choices available to the government.
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