Do Regional Trade Pacts Benefit the Poor? An Illustration from the Dominican Republic-Central American Free Trade Agreement in Nicaragua

The main objective of this paper is to provide an ex-ante assessment of the poverty and income distribution impacts of the Central American Free Trade Area agreement on Nicaragua. The authors use a general equilibrium macro model to simulate trade reform scenarios and estimate their price effects, while a micro-module maps these price changes into real income changes at the individual household level. A useful insight from this analysis is that even if the final total impact on poverty is not too large, its dispersion across households-due to their heterogeneity of factor endowments, inputs use, commodity production, and consumption preferences-is significant and should be taken into account when designing compensatory policies. Additionally, growth and redistribution decomposition show that, at least in the short to medium run, redistribution can be as important as growth. The main policy message that emerges from the paper is that Nicaragua should consider enlarging its own liberalization to countries other than the United States to boost trade-induced poverty reductions.

Bibliographic Details

Main Authors:	Niimi, Yoko, Bussolo, Maurizio
Language:	English
Published:	World Bank, Washington, DC 2006-02
Subjects:	ACCESS TO SERVICE MARKETS, ADJUSTMENT PROCESS, AGGREGATE INCOME, AGRICULTURAL COMMODITIES, AGRICULTURAL PRODUCTS, AGRICULTURE, APPAREL, AUTONOMY, BALANCE OF PAYMENTS, BENCHMARK, BENCHMARK EQUILIBRIUM, CAPITAL ACCUMULATION, CAPITAL GOODS, CAPITAL INFLOWS, CAPITAL INPUTS, CENTRAL AMERICA, CENTRAL AMERICAN, COMMERCE, CONCESSIONS, CONSTANT ELASTICITY, CONSTANT ELASTICITY OF SUBSTITUTION, CONSTANT ELASTICITY OF TRANSFORMATION, CONSUMER, CONSUMPTION PATTERNS, CURRENT ACCOUNT, DEPENDENT VARIABLE, DEVELOPING COUNTRIES, DISTRIBUTIONAL EFFECTS, DIVIDENDS, DOMESTIC DEMAND, DOMESTIC MARKET, DOMESTIC PRODUCTION, ECONOMIC STRUCTURE, ELASTICITY, ELASTICITY OF SUBSTITUTION, EMPIRICAL EVIDENCE, ENDOGENOUS VARIABLES, EQUILIBRIUM, EXPENDITURE, EXPLANATORY VARIABLES, EXPORT ORIENTATION, EXPORT SECTORS, EXPORT SUPPLY, EXPORTS, FACTOR ACCUMULATION, FACTOR CONTRIBUTIONS, FACTOR ENDOWMENTS, FACTOR INCOME, FACTOR MARKETS, FACTOR PRICE, FACTOR PRICES, FACTORS OF PRODUCTION, FOOD CONSUMPTION, FOREIGN DIRECT INVESTMENT, FOREIGN MARKETS, FOREIGN PRODUCTION, FREE ACCESS, FREE TRADE, FREE TRADE AREA, FULL LIBERALIZATION, FUNCTIONAL FORMS, GENERAL EQUILIBRIUM MODEL, GEOGRAPHICAL VARIABLES, GOVERNMENT EXPENDITURES, GROWTH COMPONENT, GROWTH RATES, HOUSEHOLD INCOME, HOUSEHOLD INCOMES, HOUSEHOLD MEMBERS, HOUSEHOLD SURVEYS, HUMAN CAPITAL, IMPACT OF TRADE, IMPACT OF TRADE REFORMS, IMPORT, IMPORT PROTECTION, IMPORTS, INCOME, INCOME COMPONENTS, INCOME DISTRIBUTION, INCOME GROUPS, INCOME LEVEL, INCOME LEVELS, INCOME SOURCES, INCOMES, INDIVIDUAL INCOMES, INTERNATIONAL TRADE, LABOR MARKET, LABOR MARKET SEGMENTATION, LABOR MARKETS, LIVING STANDARDS, MARKET IMPERFECTIONS, MARKET PRICES, MARKET REFORMS, MARKET SEGMENTATION, METAL PRODUCTS, NEGATIVE EXTERNALITIES, NEGATIVE SHOCK, NEGATIVE SIGN, POLICY REFORM, POLICY REFORMS, POLICY RESEARCH, POOR HOUSEHOLDS, POOR PEOPLE, POSITIVE EXTERNALITIES, POVERTY IMPACT, POVERTY REDUCTIONS, PREFERENTIAL MARKET ACCESS, PRICE CHANGES, PRICE DECREASES, PRICE INCENTIVES, PRIMARY FACTORS, PRIVATE CONSUMPTION, PRODUCTIVE ASSETS, REAL EXCHANGE RATE, REAL EXCHANGE RATES, REAL INCOME, REGIONAL TRADE, REGIONAL TRADE PACTS, REGRESSION ANALYSIS, RELATIVE CHANGE, RELATIVE IMPORTANCE, RELATIVE PRICES, RESOURCE ALLOCATION, RULES OF ORIGIN, SALES, SENSITIVITY ANALYSIS, SKILLED WORKERS, SOUTH AMERICA, SUBSTITUTES, SURPLUS, TARIFF DATA, TARIFF RATES, TARIFF REDUCTIONS, TARIFF REVENUE, TOTAL CONSUMPTION, TOTAL OUTPUT, TRADE AGREEMENT, TRADE AGREEMENTS, TRADE LIBERALIZATION, TRADE PARTNERS, TRADE POLICY, TRADE REFORM, TRADE REFORMS, TRADE SHOCKS, UNILATERAL LIBERALIZATION, UNILATERAL TRADE, UNILATERAL TRADE LIBERALIZATION, UNSKILLED LABOR, UTILITY FUNCTION, VALUE ADDED, WAGE DIFFERENTIALS, WAGE RATE, WAGES, WORLD PRICES, WTO,
Online Access:	http://documents.worldbank.org/curated/en/2006/02/6600539/regional-trade-pacts-benefit-poor-illustration-dominican-republic-central-american-free-trade-agreement-nicaragua https://hdl.handle.net/10986/8743
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