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Working Paper

Poverty and Shared Prosperity Implications of Deep Integration in Eastern and Southern Africa

TARIFFS URUGUAY ROUND EXPORT MARKETS MARKET STRUCTURE MULTILATERAL TRADE WORLD TRADE ORGANIZATION PRODUCTION ELASTICITY OF SUPPLY TRADE NEGOTIATIONS STOCK FOREIGN INVESTORS INCOME PROJECTIONS TRADE BARRIERS BENCHMARK EQUILIBRIUM DISCOUNT RATE UNILATERAL LIBERALIZATION EXPORTS ELASTICITY MARGINAL PRODUCT POLITICAL ECONOMY PREFERENTIAL REDUCTION WELFARE SUPPLY CURVES ECONOMIC IMPLICATIONS OPTIMIZATION MARKET SHARES ECONOMIC POLICY EQUILIBRIUM DISTRIBUTION FREE TRADE AGREEMENTS MARKET ACCESS OPPORTUNITIES VARIABLES TRADE REFORMS FOREIGN DIRECT INVESTORS CAPITAL STOCK PREFERENTIAL MARKET ACCESS TARIFF EQUIVALENT REAL INCOME INPUTS RETURNS TO SCALE REDUCTION OF BARRIERS EXTERNAL TRADE MARKET ACCESS FREE TRADE AGRICULTURAL OUTPUT TRADE AGREEMENTS DOMESTIC CONSUMPTION DEVELOPMENT PER CAPITA INCOMES PREFERENTIAL TRADE AGREEMENTS FOREIGN TRADE LIBERALIZATION OF TRADE IN GOODS COSTS PER CAPITA INCOME DEVELOPMENT ECONOMICS REGIONAL TRADE LIBERALIZATION CENTRAL ELASTICITIES TELECOMMUNICATIONS TRADE INTEGRATION FOREIGN SUPPLIERS REGULATORY BARRIERS PRIMARY FACTORS RENT REGIONAL TRADE TARIFF REDUCTION MACROECONOMIC MODELS TARIFF BARRIER IMPERFECT COMPETITION CAPITAL GOOD MARKETS WTO TARIFF REDUCTIONS OPEN ECONOMY PREFERENTIAL TARIFF REDUCTION ACCESS WELFARE GAINS PREFERENTIAL AGREEMENTS TRADE POLICY ELASTICITY OF SUBSTITUTION GENERAL EQUILIBRIUM MODEL UTILITY TRADE AGREEMENT NATURAL RESOURCES PREFERENTIAL TRADE LIBERALIZATION TRADE POLICIES ECONOMIC RESEARCH EQUILIBRIUM ANALYSIS UNEMPLOYMENT BORDER TRADE LIBERALIZATION OF TRADE CONSUMPTION VALUE ADDED UNILATERAL TRADE CAPITAL WAGES TRADE PREFERENCES INTERNATIONAL TRADE TRADE COSTS VALUE FOREIGN DIRECT INVESTMENT PRODUCT DIFFERENTIATION PURCHASING POWER CONCESSIONS TRADE REFORM AGRICULTURE CONSUMERS TARIFF BARRIERS TRADE AREA TRADE FACILITATION RETURN ON CAPITAL MEASUREMENT WAGE RATE UNILATERAL REDUCTION BENCHMARK ECONOMIC THEORY TRADE LIBERALIZATION TERMS OF TRADE REGULATORY REGIMES TRADE DIVERSION TRADE DATA REGIONAL INTEGRATION MACROECONOMIC SHOCKS AGRICULTURAL PRODUCTS TRADE ECONOMIC INTEGRATION GDP GOODS THEORY AGGREGATE TRADE GENERAL EQUILIBRIUM ANALYSIS GLOBAL TRADE MARKET SHARE BILATERAL TRADE MULTILATERAL TRADE REFORM INVESTMENT REGIONAL TRADE INTEGRATION DOMESTIC PRODUCTION CUSTOMS UNIONS PREFERENTIAL TRADE TERMS OF TRADE LOSS TARIFF FREE TRADE AREA WORLD TRADE UNILATERAL TRADE LIBERALIZATION UNSKILLED WORKERS PREFERENTIAL TARIFF BENCHMARK DATA MACROECONOMIC POLICIES ECONOMIC GEOGRAPHY APPAREL PRICE INDEX AGGREGATE EXPORTS IMPORT VALUE UNSKILLED LABOR PRICES UNILATERAL REFORMS MULTILATERAL LIBERALIZATION DEVELOPMENT POLICY GENERAL EQUILIBRIUM MODELING
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World Bank, Washington, DC
Africa | East Africa | Southern Africa
2016-06-13T20:00:11Z | 2016-06-13T20:00:11Z | 2016-05

Evidence indicates that trade costs are a much more substantial barrier to trade than tariffs are, especially in Sub-Saharan Africa. This paper decomposes trade costs into: (i) trade facilitation, (ii) non-tariff barriers, and (iii) the costs of business services. The paper assesses the poverty and shared prosperity impacts of deep integration to reduce these three types of trade costs in: (i) the East African Customs Union–Common Market of East and Southern Africa–South African Development Community "Tripartite" Free Trade Area; (ii) within the East African Customs Union; and (iii) unilaterally by the East African Customs Union. The analysis employs an innovative, multi-region computable general equilibrium model to estimate the changes in the macroeconomic variables that impact poverty and shared prosperity. The model estimates are used in the Global Income Distribution Dynamics microsimulation model to obtain assessments of the changes in the poverty headcount and shared prosperity for each of the simulations for the six African regions or countries. The paper finds that these reforms are pro-poor. There are significant reductions in the poverty headcount and the percentage of the population living in poverty for all six of the African regions from deep integration in the Tripartite Free Trade Area or comparable unilateral reforms by the East African Customs Union. Further, the incomes of the bottom 40 percent of the populations noticeably increase in all countries or regions that are engaged in the trade reforms. The reason for the poor share in prosperity is the fact that the reforms increase unskilled wages faster than the rewards of other factors of production, as the reforms tend to favor agriculture. Despite the uniform increases in income for the poorest 40 percent, there are some cases where the share of income captured by the poorest 40 percent of the population decreases. The estimated gains vary considerably across countries and reforms. Thus, countries would have an interest in negotiating for different reforms in different agreements.

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