Households heterogeneity in a global CGE model: an illustration with the MIRAGE-HH (MIRAGE-HouseHolds) model

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Preprint submitted on 28 Jan 2013

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Households heterogeneity in a global CGE model: an

illustration with the MIRAGE-HH

(MIRAGE-HouseHolds) model

Antoine Bouet, Carmen Estrades, David Laborde

To cite this version:

)2EB59

7 Introduction ... 77 1.

7 Trade liberalization and poverty ... 97 2.

2.17 Trade and poverty: what theory predicts ... 97 2.27 Trade and poverty: the empirical evidence ... 107 2.37 Trade and poverty: the methodological debate ... 127 2.47 Micro-macro synthesis ... 157 2.4.1. Static vs. dynamic microsimulation framework ... 187 2.4.2. Country level vs. global framework ... 187 7 Methodological improvements of this paper ... 207 3.

3.17 Including households’ heterogeneity in the MIRAGE model ... 207 3.1.1 The public agent ... 207 3.1.2 Households’ behavior ... 247 3.1.3 Endogenous inter-household private transfers ... 287 3.2 The data ... 307 3.2.1 Microdata ... 317 3.2.2 Clustering analysis ... 337 3.2.3 Incorporation into the model ... 337 3.3 Poverty analysis ... 357 3.4 Advantages of the new methodological framework ... 367 7 An application of the new MIRAGE-HH model: impact full trade liberalization on

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household’s welfare and poverty ... 377 4.1 Database, disaggregation of households and simulation scenario ... 387 4.2 Impact of full trade liberalization with the traditional model with a single household in each country ... 407 4.3 Impact of trade liberalization with MIRAGE-HH household disaggregation in five

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Figure 17 The representative agent in the traditional version of MIRAGE ... 217 Figure 27 The representative and public agent in the new version of MIRAGE... 227 Figure 37 The new version of MIRAGE with household heterogeneity ... 267 Figure 4: Framework to build a systematic and flexible treatment for a global model ... 317 Figure 5: Brazil - 2025 - Impact of full trade liberalization on households’welfare ... 437 Figure 6: Pakistan - 2025 - Impact of full trade liberalization on households’welfare ... 447 Figure 7: Tanzania - 2025 - Impact of full trade liberalization on households’welfare ... 457 ... 457 Figure 8: Uruguay - 2025 - Impact of full trade liberalization on households’welfare ... 457 Figure 9: Vietnam - 2025 - Impact of full trade liberalization on households’ welfare ... 467 Figure 10: Brazil - 2025 - Impact of full trade liberalization on households’ welfare ... 487 Figure 11: Pakistan - 2025 - Impact of full trade liberalization on households’ welfare ... 487 Figure 12: Tanzania - 2025 - Impact of full trade liberalization on households’ welfare ... 497 ... 497 Figure 13: Uruguay - 2025 - Impact of full trade liberalization on households’ welfare ... 497 ... 497 Figure 14: Vietnam - 2025 - Impact of full trade liberalization on households’ welfare ... 507 Figure 15: Brazil - 2025 - Decomposition of the total impact of full trade liberalization on

households’welfare into a price effect and an income effects ... 547 Figure 16: Pakistan - 2025 - Decomposition of the total impact of full trade liberalization on households’welfare into a price effect and an income effects ... 547 Figure 17: Tanzania- 2025 - Decomposition of the total impact of full trade liberalization on households’welfare into a price effect and an income effects ... 557 Figure 18: Uruguay - 2025 - Decomposition of the total impact of full trade liberalization on households’welfare into a price effect and an income effects ... 557 Figure 19: Vietnam - 2025 - Decomposition of the total impact of full trade liberalization on households’welfare into a price effect and an income effects ... 567 Figure 20: Brazil - 2010/2025 - Dynamic impact of full trade liberalization on households’ welfare... 697 Figure 21: Pakistan - 2010/2025 - Dynamic impact of full trade liberalization on households’ welfare... 697 Figure 22: Tanzania - 2010/2025 - Dynamic impact of full trade liberalization on

households’welfare ... 727 Figure 23: Uruguay - 2010/2025 - Dynamic impact of full trade liberalization on

households’welfare ... 727 Figure 24: Vietnam - 2010/2025 - Dynamic impact of full trade liberalization on

households’welfare ... 737 Figure 25: Brazil - 2025 - Decomposition of the variation of households’ disposable income ... 737 Figure 26: Pakistan - 2025 - Decomposition of the variation of households’ disposable income 747 Figure 27: Tanzania - 2025 - Decomposition of the variation of households’ disposable income ... 747 Figure 28: Uruguay - 2025 - Decomposition of the variation of households’ disposable income 757 ... 757 Figure 29: Vietnam - 2025 - Decomposition of the variation of households’ disposable income 757

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In this first step, we test the model by simulating full trade liberalization at the world7level. As

various studies have already evaluated the potential impact of full trade liberalization7on poverty, this

exercise will allow comparing these first results to results from7past studies. In section 2 we present

the methodological and analytical debate regarding trade and poverty. In section 3 we present the methodological framework developed for this paper: first improvements introduced to MIRAGE to model the public agent and to include disaggregation of households, second the way statistical information coming from households’ survey has been treated and reconciled to the GTAP database on which the MIRAGE model is grounded, and third the micro-accounting procedure to extend the analysis at a micro-level. Section 4 presents the shock implemented, the data used for this exercise and the results obtained, using both the traditional version of MIRAGE with a unique representative agent by country and the new version with household disaggregation. While pointing out the heterogeneity of individual situations we also identify in Section 4 the main channels through which trade liberalization impacts individual situations. We also discuss various rules of indexation of public transfers and closure to the public accounts. Finally, Section 5 concludes.

7Until now we have neglected this aspect and ony included proportional changes in the evolution of strata. We will focus on this aspect in the near future.7

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2.1

Trade and poverty: what theory predicts

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2.2

Trade and poverty: the empirical evidence

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7throughout this enumeration we will envisage the impact of full trade liberalization on developing countries’

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- Short run risks and adjustements costs. The impact of trade liberalization on households’ real income may be negative in the short term, but positive in the long term when considering the capacity of reallocation of productive factors to sectors in expansion. This reallocation takes time and implies adjustment costs in the short term. One of the most significant adjustment costs to the poor is the rise in transitional unemployment.

Nissanke and Thorbecke (2006) also present an analytical framework in which they establish the different channels through which trade liberalization affects poverty, and provide some empirical evidence about the way these channels work. They emphasize the intermediate role of inequality as a link between globalization and poverty. Factors such as differential cross-border mobility, technical progress and information flows (see Nissanke and Thorbecke 2006) might affect negatively inequality and thus not reduce poverty as a consequence of liberalization. They also warn that the most frequently mentioned channel of transmission of liberalization to poverty, the globalization-growth-inequality-poverty, is not automatic and conclude that the pattern and structure of growth obtained from liberalization will be a determinant of the ultimate impact of liberalization on poverty.

consider the positive effect of macroeconomic stabilization policies that usually are implemented together with trade liberalization on domestic prices. The dynamic argument is that openness brings about growth and thus reduces poverty.

Winters, McCulloch and McKay (2004) review the empirical evidence that supports the links between trade and poverty thanks to a meta-analysis. They provide a rigorous review of literature under the analytical framework presented by Winters (2002). Some of the links included in the framework seem to be more empirically supported than others. For example, the link between trade and growth is not very clear, but there is strong evidence supporting a positive effect of trade on productivity. Similarly, there seems to be a weak link between trade and employment and wages of poor workers, as well as low evidence supporting a fall in government spending on the poor. However, in these cases, as well as in others, there is evidence of exceptions. The authors conclude than in general the link between trade and poverty seems to be a positive one, which could be complemented with adjustment policies to boost the positive impacts or mitigate the negative impact on the poor. Finally, some knowledge gaps, such as the effect of trade on poverty dynamics at the household level, should be addressed.

2.3

Trade and poverty: the methodological debate

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2.4

Micro-macro synthesis

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The way and difficulties of applying Bourguignon et al. (2001) approach in a dynamic setting are presented in Bussolo and Lay (2003). The wage equation changes in this context, because now wages have also a temporal determinant. The Ganuza-Paes de Barros-Vos (2002) approach in a dynamic setting was applied in Sanchez and Vos (2004 and 2005). In this context, the methodology makes some unrealistic assumptions, for example that the population structure (such as aging) remains unchanged during the whole simulation period.

ACountry level vs. global frameworkA

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3.1

Including households’ heterogeneity in the MIRAGE model

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Figure 1 illustrates these assumptions.7

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RECTAX

( )

r

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(7) F19C354279":764D5673&67B4$49)C7C))44C354274*79)5476,6267<53&7 _g

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CG 76527 46D2E6237 4429E35427 527 6434D7

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+7 F19C35427 9 :7 44E9367 343C)7 *52C)7 4429E3542+7 F19C35427 9#:7 64D567 3&67 F>$BF>7 C))44C35427 4*7 D5C367 *52C)7 4429E3542A7 <&6D67

) , ( ri

cmin 757 3&67 E525EC)7 D5C367 4429E35427 4*7 447

i

7527 *52C)7 6EC27 4*7 D65427rA7AUX(r)757 3&67935)53874*73&67D6D6623C3567D5C367C6237527D65427rA7P(r)7573&67D54674*7935)538A7PC( ri, )7573&67 D5467 4*7 447

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_C7CD67 &CD67 C27 6)C3545387 CDCE636D+7 F19C35427 9-:7 4C)49)C367 3&67 D5467 C445C367 347 D5C367 935)5387 9P(r):7 C27 F19C35427 9@:7 64D567 3&67 D5C367

F_{7&5)673&674423C237&CD67527C)9674*79)5474429E35427876434D7EC876744256D67C7D6C)5354A753757E4D67}

4429E6DE7 9637 9BUDC(r):+7 F19C35427 96:7 57 3&67 9637 4)49D67 4*7 9)547 C623A7 <53&7 )

(r

budgbalO 765273&6746D2E623E79637C)C2467527D44D35427C74E63547BA7C27VA( ri, )7 C27PVA( ri, )765273&67C)967C67C273&67D54674*7C)967C67D664356)8+752C))87619C354279F:7 64D567 3&67 EC4D464424E547 4)49D67 *4D7 44923D87 DA7 <53&7REV(r)76527 3&67 D6542C)7 D66296A7

) (r

soldO 73&6749DD6237C4449237C)C2467527D65427r7C27

PIBMVAL

7<4D)E7B7527C)967+

!AA"57D5E6#AFDC954 7

F)C35453567 4*7 9353935427 527 4429E35427

σ

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(

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7CD67 24<7 6*5267 C37 3&67 &496&4)E7 )66)+7 H4<66D7 <67 57 2437 8637 635EC367 3&667 6&C54DC)7 CDCE636D7 C37 3&67 &496&4)7 )66)+7 67 C)87*4D7C))7&496&4)7<53&527C744923D873&676EC276)C354535673DC53542C))8796752701BFD+ 27C744923D87D&7<53&7&496&4)75CD6C3542A7343C)7*52C)76EC27*4D744EE45387575724<'7

(

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<53&7

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73&67 29E6D7 4*7 &496&4)7 527 4C364D87 &&+7 27 44923D87 D7 &496&4)7 &&7 C)47 D646567 3DC2*6D7

TRANSFh

(

hh

,

r

,

t

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7*D4E7 46D2E623+7 67 5E)6E6237 5**6D6237 E467 4*7 526,C354274*73&6673DC2*6D+7F53&6D7<67&4)73&6E74423C237D6)C356)873472C3542C)7D662967

REV

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7 4D7527D6C)736DE74D7D6)C356)87347&496&4)E75244E6+7;&67*5D37E4674*7526,C354275E)56'

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(12) 7<&6D67

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7573&6752535C)746D2E623E73DC2*6D7347D6D6623C3567&496&4)7 4*74C364D87

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+7&6273&67526,C354274*73DC2*6D757427D5467<6763'7

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(14)

27 3&67 CE67 6527 <67 C93&4D5C67 66DC)7 E467 4*7 636DE52C35427 4*7 9)547 6,62539D67 64)93542+75D379)5476,62539D67EC87674423C237527D44D354274*72C3542C)7D66296'

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r

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75752535C)7 9)547 6,62539D6+7 &627 9)547 6,62539D67 CD67 4423C237 527D6C)736DE7<6763'7

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r

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t

r

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=

,

(16) 752C))8A79)5476,62539D674C27676*5267C74423C23752724E52C)736DE'7 ) ( = ) , (r t BUDGO r BUDG (17) Figure 3 $659D5915B4E2D92+99EA69623456278965A5B2C5D5EAF 7 >49D46'7193&4DE76)C4DC35427

C2C)8574273&67D9)674*7526,C354274*79)5473DC2*6D7C273&673C,79653&6D74429E354273C,74D75244E67 3C,:796734744E62C367*4D73&67)474*74934E7D64653+

27C744923D87<53&7&496&4)75CD6C3542A73&6746D2E623E79637644E6'7

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(18)

7<&6D67

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7573&6794423C23:75244E673C,7C)5674274C364D87&&E7&496&4)+7 27C744923D87<53&75CD6C354274*7&496&4)73&6754C)67D6629674*7&496&4)7

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1

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(19)

<53&7NT(hh,r,t)76527 3&67 2637 3DC2*6D7 63<6627 &496&4)A7 6,)C5267 527 3&67 26,37 9643542+

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3&67C527DC3674*7&496&4)7

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27 3&57 6D5427 4*7 01BF7 <53&4937 4D6527 5D6437 263E623A7 3&67 5263E623$C527 6195)5D59E75724<'

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(21)

<53&7

INV

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76527 3&67 5263E6237 87 44923D87r 7527 6434D7

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74*7 44923D87

s

7C27

t r

!!AA$265 D257A923D4%57D5E6A49C3DA34C2D4A

>47 *CDA7 <67 &C67 42)87 44256D67 3DC2*6D7 *D4E7 3&67 9)547 C6237 347 3&67 D5C367 C623+7 H4<66DA7 5*7 <67 44256D7 &496&4)7 5CD6C3542A7 <67 &49)7 C)47 44256D7 523DC$&496&4)7 3DC2*6D7C73&687EC87D6D66237C275E4D3C237&CD674*7343C)75244E67*4D74E67&496&4)A76645C))87 44D7&496&4)+7H4<7CD673&667D6E533C246A74D75236D$&496&4)73DC2*6DA7636DE526M

;&57 57 C7 4423D46D5C)7 5967 <&627 44256D527 3&67 64424E547 )536DC39D6+7 8646D7 9"DF-:7 *4D7 6,CE)679667C)47>3CDA7"D7-:766)47C7E46)7C6742712345673689AB36CD7C274424)9673&C375236D$ &496&4)7 3DC2*6D7 CD67 524D6C527 <53&7 3&67 C7 4*7 5244E67 4*7 3&67 424D7 C27 3&67 D6455623+7 27 3&67 4C67 4*7 C)3D953547 3DC2*6D7 3&67 D6)C3542&57 63<6627 3&67 D6455623E7 D6$3DC2*6D7 5244E67 C27 3&67 3DC2*6D7CE4923757C)<C8726C356+

B4,79"D7F:A7937C)47B4,A7F6D7637%5E626C79"DD7:766)47C7A535129DE8F1D973413D7<&6D67 3DC2*6D7573&67D54674*7C76D5467D626D67873&67D64656D+7;&67)C336D7E46)7576645C))87D6)6C237527 3&674C674*75236D626DC3542C)73DC2*6D79C*6DDND67C274)**A7 !!6:+7273&674C674*7C)3D9535473DC2*6D7 3&67 D6)C3542&57 63<6627 3&67 D6455623E7 D6$3DC2*6D7 5244E67 C27 3&67 3DC2*6D7 CE49237 57 C)<C87 26C3567<&5)67C73DC2*6D7926D7C7A535129DE8F1D973413D7EC87CE537C7453567D6)C3542&5+

G3&6D7 44EE427 E46)7 D6)87 427 73413D689 1AD7 C2C)857 9>3CD7 C27 C2A7 !! :A7 675418D9

73413DA7 AB4129 F1147 9>3CD7 C27 6&CD5A7 "D7 =7 4C62C<657 C27 >3CDA7 "D7D:7 C27 A6ED9 AB36CD77

994C7 C27 >3CDA7 "D7@=7 C27 B4,A7 F6D7 C27 %5E626CA"DD7:+7 1E4237 3&67 E46)7 D6)8527 427 A6ED9

AB36CD7A7 3DAD4D9 1234567AD26F3DD9 7D263D4D737 66)467 87 94C7 C27 >3CD7 9"D7@:7 524)67

43&7C)3D95354744256DC35427C27E939C)76,4&C2673DC3656+

67 66)47 &6D67 C7 E46)7 4*7 54D9 1234567A+7 4))4<527 3&67 *4DE9)C35427 527 94C7 C27 >3CD7 9"D7@:7<53&493744256DC35427*4D73&6729E6D74*76D4275273&67D64556237*CE)5387"!A75*7<676*5267

u

_m7C7 3&67 424DE7 935)538A7

y

_m7&6D(&57 5244E6A7

c

_m7&6D(&57 4429E35427 C27r73&67 CE49237 4*7 3&67 3DC2*6DA7 C27<674C))7

u

_h73&67935)53874*73&67D64556237C27

c

_h7&6D(&574429E3542A73&627<67&C6'

"!

(

) ( )

[

m m h h

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m

u

c

y

r

u

c

u

=

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;

(22) ;&67D6E533C2467C9E62373&67D6455623E75244E67C273&6D6*4D67&6D(&574429E542'7

[

y

r

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c

c

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=

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+

(23) ;&6D6*4D67<6743C52'7

[

y

m

y

h

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r

r

=

;

(24) <53&7 >0 m y r ∂ ∂ _7C27 0 < h y r ∂

∂ _{+7 ;&6D6*4D67 3&67 D5C367 5236D$&496&4)7 3DC2*6D7 57 524D6C527}

<53&7 3&67 424DE7 5244E67 C27 64D6C527 <53&7 3&67 D6455623E7 5244E6+7 67 C437 3&57 3&64D6354C)7 E54D464424E547 *492C35427 *5D37 64C967 4*7 537 5E)545387 C27 64427 52467 43&6D7 3&64D6354C)7 *DCE6<4D7)567A535129DE8F1D973413D74D73DAD4D91234567AD26F3DD97D263D4D737D6195D67C27 5236D626DC3542C)7CD4C4&7<&54&7)4475**549)373475E)6E6237&6D652+ 67C4373&67*4))4<527*9243542C)7*4DE'7

[

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1 ) , ( ) , ( ) , ( ). ( = ) , ( aNT hhr ARhhhr Re hh Re hh e r hh ARhO r hh ARh r hh ARh r M r hh NT − ∈ ∈ + −

7

7

α (25)

F19C35427 @7 &4)7 *4D7NT(hh,r)>0+7 17 C)D6C87 6,)C5267 ;9&&AD:7 57 3&67 D5C367 5236D$ &496&4)7 3DC2*6D7 C27 52467 527 619C35427 @A7−NT(hh,r)<0A7 &496&4)7

hh

757 C7 424D+7 67 4C))7

Re

73&67 637 4*7 D64556237 &496&4)+7M(r)757 C7 453567 CDCE636DA7 4&CDC436D5C527 5236D$&496&4)7 3DC2*6D752744923D87D+7aNT(hh,r)757C7453567CDCE636D7D6*)643)527&496&4)7&&E7554824DC8+7

α

7 57 C7 CDCE636D7 E6C9D527 3&67 625355387 4*7 D6E533C2467 347 3&67 424DE7 C*36D$3C,7 D6$D6E533C2467 5244E67ARh(hh,r)+7 67 4&4467

α

=

0.05

7<&54&7 5E)567 3&C37 3DC2*6D7 CD67 D6)C356)87 D557 347 3&67 C*36D$3C,7 D6$D6E533C2467 5244E67 4*7 3&67 424D+7 67 <5))7 &C67 347 635EC367 64424E63D54C))87 3&57 CDCE636D7527C726,373C674*73&57<4D+

D6455623E7 C*36D$3C,7 D6$D6E533C2467 5244E67 C7 44ECD67 347 3&67 52535C)7 539C35427 ) , ( )/ , (hh r ARhO hh r ARh _{hh Re} Re hh

7

7

_{∈ ∈} +7;&6D6*4D67<6794673&C37D6E533C246764D6C67<&6273&67 C*36D$3C,7 D6$D6E533C2467 5244E67 4*7 C))7 &496&4)7 D6465527 3DC2*6D7 524D6C6+7 37 E6C27 3&C37 3&67 424D7CA937D6E533C24673473&6764424E547539C354274*7C))7D6455623+7G*7449D673&57C9E35427EC87 5E525&73&67D4)674*73DC2*6D75273&673DC2E554274*7&44A7937<674C224375)C36DC)5C673DC2*6D752467 <67472437637C3C74275)C36DC)7D6E533C246+704D646D73&67*9243542C)7*4DE764D567527619C35427 @7 5E)567 3&C37 3&67 &CD67 4*7 C7 3DC2*6D7 527 3&67 424DE7 C*36D$3C,7 D6$D6E533C2467 5244E67

) , ( )/ , (hh r ARh hh r NT − 757C75E457*924354274*73&67424DE7C*36D$3C,7D6$D6E533C24675244E6A743&6D7 3&527 6527 619C)'7 3&6D6*4D67 3&57&CD6757 C7 4426,73&627 C7 4424C67 *92435427 4*7 3&575244E6A7 <53&7 C7 EC,5E9E7&CD67M(r)7D6*)643527C744563C)74&CDC436D535476,53527*4D7C))7&496&4)7C27aNT(hh,r)7 3&6749DC39D674*73&67*92435427645*547347&496&4)7

hh

+767&49)7243673&C37<67CD6742)8744256D527 523DC7&496&4)73DC2*6D7<53&527426744923D8A7243763<6627&496&4)7)44C3675275**6D623744923D56+

3.2 The data

EC3B5939 B52B49A293E78994F4A5AE,9D89+755E759AB5A5DA9+2B99C72792857

!AA98456C3CAA

49D46'7 BA7 B7 6D7 4C53CA7 3D9439D67 4*7 49)C35427 9<65&37 4*7 6C4&7 &496&4)7 3867 527 343C)7 49)C3542:A7C2746D387DC36+

0437 &496&4)7 9D687 D4567 52*4DEC35427 427 6,62539D67 C37 4429E6D7 D546+7 ;DC67 ECD527CD67524)9675273&6744EE45387D546+7>524673&67B;17C3CC676CDC3673DC67ECD5279C7 6D546:7 C27 926D)8527 C)967 4*7 447 527 3&67 4429E35427 3D9439D6A7 <67 2667 347 44))6437 6434DC)7 52*4DEC35427 427 3DC67 ECD527 527 4D6D7 347 67 C)67 347 D644E9367 6,62539D67 3D9439D67 9527 3&67 CE6724E624)C39D6+

C))4<:A7C275244E67*D4E73DC2*6D79C)47<53&73&67&5&63745)67)66)74*763C5):+7;&62A75273&67I96J7 4*7 3&67 &496&4)7 D649D46A7 <67 524)967 6,62539D67 527 447 C27 6D5467 9527 3&67 D49437 4467 6*5267 87 6C4&7 &496&4)7 9D68:A7 3DC2*6D7 347 43&6D7 C623A7 C8E6237 4*7 3C,6A7 C27 C52+7 FC4&7 &496&4)E7 D649D467 C27 967 E937 C)C246+7 52C))8A7 3&67 *5)67 C)47 524)967 52*4DEC35427 427 3DC67 ECD52787D4943A7C373&67D49437)66)73&C373&67CC5)C)6752*4DEC35427C))4<+

!AA&E73D492 AC2CE99

;&67)C37D4465273C6757347CD6C3673&67C3C75273&67CE676434DC)724E624)C39D67C73&67 E46)79C28796374*73&67B;1724E624)C39D6:7C27629D673&C372C3542C)7>445C)714449235270C3D5467 9>10:7CD67442536237<53&73&67&496&4)7C3C63+7;&67*4))4<527CDCDC&763C5)73&57D4469D6+7 1275E4D3C2376)6E6237347667527E527573&C37<67472437)5E53749D6)67347*5373&67&496&4)79D687 937 <67 C))7 *4D7 4&C2527 4E67 C6437 4*7 3&67 B;17 >10A7 527 CD3549)CD7 427 4E67 C6437 4*7 3&67 C3CC673&C37CD67)CD6)87D6D446679D5273&6795)5274*73&67B;17C3CC6796++7217&CD675273&67 CD549)39DC)7 6434D:+7 ;&67 52*4DEC35427 D6D44667 527 3&67 F,46)7 <4D447 94)936D67 &496&4)7 C3C637C27EC52:7575E4D36752347C7*533527D4469D67D927527B10>+7;&57D44675E)567EC527 4E67 C9E35427 C27 3D6C3527 4E675244253624567 4*7 C3C7 63<6627 3&6752*4DEC35427 D4567 527 3&67&496&4)79D687C27B;17C3C+

679676196235C))875**6D62374D47623D487D4469D67347*5375**6D62374423DC523+727C7*5D37 36A7 <67 CA937 3&67 6,62539D67 3D9439D67 43C5267 *D4E7 3&67 &496&4)7 9D687 347 *537 B;17 EC4D47 *59D6+72753674*73&5A76C4&7&496&4)7667537&CD675273&6746DC))76,62539D674*73&6764424E8+7 >6442A7 <67 3D6C37 *CDE7 5244E67 C27 <6))527 95D39C)7 D623C)7 C8E623:+7 27 3&57 36A7 C3C7 427 C)967 C67*D4E7B;17C3CC67EC8767E45*56+74D73&673C,7DC3673D6C3E623A7<673C673&67*C434D7645*547 3C,7DC367*D4E7B;17C3CC6+767EC73&667DC367<53&73&673C,67*D4E73&67&496&4)79D68796++7 D46D3873C,:A7<6744E93673&6746DC))73C,67C674275244E67*C434D73D9439D6A7C27*52C))87<67D64C)67 &4E46249)873&67E46)75274D6D7347EC523C527B;172C3542C)73C,7)66)+

3.3 Poverty analysis9

;47523D4946746D387C2C)857<53&52701BF7E46)A7<67C)87C7E54D4$C444923527CD4C4&7 C7 64D567 527 1624D7 637 C)7 9 !!#A7 +7 F:A7 <53&7 4E67 E45*54C3542+7 ;&57 CD4C4&7 C9E67 3&C37 6C4&7D6D6623C3567&496&4)79H:75273&67E46)757D6D6623C35674*7C))7&496&4)7527537D49A7C27 3&67&496&4)79D6874C2767*67<53&743&7C3C74275244E6787H7C2744EE45387D54675274D6D7347 44E93673&674&C267527D6C)75244E67*4D7C))7&496&4)74*73&679D68A7C27347C)47CA9373&67C)9674*7 3&6746D387)526+7;&57CD4C4&7C9E673&C37<53&52$D49753D5935427CD6792C**64367873&67&447 926D7 44256DC3542+7 ;&57 449)7 67 C7 D4)6EA7 937 3&67 4)936D527 D4469D67 C)567 347 4D6C367 &496&4)7 D497 9CDC23667 6D87 &4E462497 D497 4*7 &496&4)7 527 36DE7 4*7 5244E67 53D593542+

3.4 Advantages of the new methodological framework9

;&6726<7C9E354274423539367ECA4D75ED46E62375273&6701BF7E46)+

5D37 3&67 5352435427 63<6627 D5C367 C27 9)547 C6237 5E)567 C7 E94&7 6336D7 E46))527 4*7 *52C)76EC27<&5)673&67D6D6623C354274*79)5476EC2787C7B4$49)C7575E)67937D6C)5354+737 C)47 C))4<7 3C527 52347 C4449237 &4<7 6,36D2C)7 &447 C**6437 9)547 D662967 C27 3DC2*6D7 347 &496&4)+

>64427 EC527 C7 5352435427 63<6627 C7 &5&7 29E6D7 4*7 &496&4)7 C))4<7 347 6336D7 926D3C273&675EC4374*73&67CD5C354274*7*C434D7D5467427&496&4)E75244E67C27*52C)76EC2+717 E45*54C354275273&6753D59354274*75244E6A7926D74423C2372C3542C)75244E6A7EC875E)87C7CD5C35427527 *52C)7 6EC27 937 C)47 4*7 D5C367 C527 C7 4C364D567 4*7 &496&4)7 5**6D7 2437 42)87 527 36DE7 4*7 4429E35427 3D9439D67 937 C)47 527 36DE7 4*7 C527 DC36+7 ;&57 57 C27 5E4D3C237 26<7 64424E547 E64&C25E73&C375724<7524)9675273&67E46)+

;&5DA73&67624625CC34274*75236D$&496&4)7D5C3673DC2*6D7C))4<7973473C6752347C4449237 C275E4D3C237D653D593567E64&C25E7*4D7&496&4)7*C4527C2764424E547&44+

C3C7 3D6C3E6237 57 C)47 C7 ECA4D7 5ED46E623A7 C7 <67 524)967 C27 5236DC367 4334E$97 CD4C4&7<&54&73C67C3C7C373&67&496&4)7)66)73475244D4DC3673473&67E46)7C27<67524)9674&647 3&C379CDC23667C74425362375236DC354274*73&67E54D47C3C7C273&67>10+7;&67E63&475E)6E62367 347 CD6C367 &496&4)7 *D4E7 3&67 &496&4)7 9D687 9CDC23667 C7 )4<7 523DC$&496&4)7 CD5C2467 4*7 5244E6+

52C))8A7 3&67 E54D4$C444923527 D4469D67 5236DC367 D69)37 *D4E7 3&67 BBF7 E46)7 C47 347 &496&4)7 9D687 E49)6A7 527 4D6D7 347 C4449237 *4D7 4&C267 527 46D387 C27 5244E67 53D5935427 5254C34D+

'2ACE98C3952A5A3DA2DA1(')$%""A56DE*A9C83A7EEA

-+

34C6DAE9FD4CE9C3952A52A57D5E6#ADEC4DAC26A5D439

Table 1. )5,A2B79%E4CCB5CAE2D9

>49D46'7C93&4DE76)C4DC3542

4.1 Database, disaggregation of households and simulation scenario9

674C)5DC36749D7E46)7<53&73&67B;1F7C3CC6A7<&54&757C7442536237D6D6623C354274*73&67 <4D)764424E87527 !!FA7524)952752*4DEC35427427""#7D65427C27@F744EE45356" +767CD6C367 B;1F752347C7D69467C3CC674*7

23

7D65427C27

19

76434DA7<&54&7CD67654367427;C)67"7C27 +

1E4273&67D65427524)9675273&67E46)A7<67524)967*56766)452744923D567*4D7<&54&7<67 C)87 &496&4)7 5CD6C35427 C7 D662367 527 3&67 D65497 643542'7 .D99C8A7 8DCC5)A7 25632CEA7 C53C27C27;C2CC25C+7;&6729E6D74*7D6D6623C3567&496&4)7CD5675276C4&744923D87C7C7D69)374*7 3&67 4)936D527 D4469D6A7 3&C37 D4567 5**6D6237 435E9E7 29E6D7 4*7 4)936D7 527 6C4&7 4C6+7 27 C287 4C6A7 <67 CD67<4D527 <53&7 63<6627 "#$#D7 &496&4)7 D497 527 6C4&7 44923D8+7;C)67 #7 D662373&67 523DC7 C27 5236D7 &496&4)7 5244E67 CD5C2467 C7 C7 44261962467 4*7 3&67 4)936D527 E63&4+7 17 <67 4C27

"

Table 4. 123456278943B15F493458

>49D46'7C93&4DE76)C4DC35427

67 967 C7 9D649D56:7 82CE547 6D5427 4*7 01BF7 <&6D67 64424E547 D4<3&7 57 D6D662367 3&D49&7 3&67 C449E9)C35427 4*7 D5ECD87 *C434D7 96,46249)87 44246D2527 )C4DA7 6246249)87 44246D2527 )C27 C27 4C53C):7 C27 CA93E6237 4*7 343C)7 *C434D7 D494355387 347 4C39D67 364&254C)7 D4D6+

173&67E46)7574C)5DC367527 !!F7C27C7*9))73DC67)56DC)5CC35427575E)6E623673CD3527427 !""A7 <67 66)47 C7 D6$6,6D5E6237 63<6627 !!F7 C27 !""7 926D7 <&54&7 C))7 3DC67 CD66E6237 CD667527 !!F7937243786379*9))8:75276,6D4567CD675E)6E6236+"#

675E)6E6237C7D6E4C)74*7C))75E4D3793567527C))7 44923D5673&D49&49373&67<4D)7)526CD)87 *D4E7 !""7 347 ! !+7 27 4D6D7 347 4C39D67 *9))7 5E)6E623C35427 4*7 C))7 6**6437 <67 99C))87 *4497 427 86CD7 ! @A7 *4D7<&54&7 <67 44ECD67 3&67 462CD547 9<53&7 *9))7 3DC67 )56DC)5CC3542:7 <53&73&67 C6)5267 9<53&4937 *9))73DC67)56DC)5CC3542:+

4.2 Impact of full trade liberalization with the traditional model with a single

household in each country9

67 *5D37 D927 3&67 01BF7 E46)7 <53&7 42)87 4267 D6D6623C3567 &496&4)7 527 6C4&7 D6542(44923D87 9937 <53&7 5CD6C35427 63<6627 9)547 C27 D5C367 C623:+7 ;C)67 @7 567 87 &4<7 E94&73&67&496&4)E7<6)*CD6757C**6436787*9))73DC67)56DC)5CC35427527 ! @75273&67*56744923D567*4D7

"#