Trade Policy and Poverty Reduction in Brazil

Abstract

A multiregion computable general equilibrium model is used to evaluate the regional, multilateral, and unilateral trade policy options of Mercosur from the perspective of the welfare of all potential partners in several proposed agreements. The focus for Brazil is on poverty impacts. The results show that the poorest households in Brazil experience gains of 1.5-5.5 percent of their consumption, which are about three to four times the average gains for Brazil. Protection in Brazil favors capital-intensive manufacturing relative to unskilled labor-intensive agriculture and manufacturing. So trade liberalization raises the return to unskilled labor relative to capital and disproportionately helps the poor. Brazil has several trade policy options. This study evaluates those options from the perspective of the welfare of all potential partners in several proposed trade agreements, looking particularly at the impacts on poor people to determine which trade policy contributes most to poverty reduction in Brazil. The objective is to determine whether there is a tradeoff between aggregate welfare gains to Brazil from trade liberalization and the welfare gains to the poor. The article concludes that there is no tradeoff and explains why. As part of the Mercosur customs union with Argentina, Paraguay, and Uruguay, Brazil is engaged in negotiations to implement the Free Trade Agreement of the Americas (FTAA). Mercosur is also negotiating a potential free trade

Who in Brazil Will Gain from Global Trade Reforms?

“…As a result, any adverse impact on the distribution of income is likely to be modest, and non‐linear with respect to existing income levels. In this respect, our results differ somewhat from those of Bento and Horridge (2005) and Harrison et al (2004), who predict that reforms will cause incomes of all groups to rise, but also find that global trade reforms will on balance cause Brazil's income distribution to improve, albeit slightly. In both the Bento and Horridge and Harrison et al papers, trade reform raises the returns to unskilled labour relative to capital, which helps the poor more than other groups.…”

“…This is not the first study of Brazil to use such techniques. Harrison et al (2004) used a variant of the GTAP model, in which the single private household for Brazil in the GTAP database was disaggregated into ten rural and ten urban representative household groups. The authors concluded that various preferential trade agreements would be particularly good for Brazil's poor, because the agreements would benefit agriculture – the main source of employment for the poor.…”

Estimating Risk Attitudes in Denmark: A Field Experiment*

“…Households were differentiated by interactions of income, family structure, and occupation. More recent efforts to include multiple households in such models have been driven by concerns about the impacts of trade reform on poverty in developing countries, since one can only examine those by identifying the poorest households: see Harrison, Rutherford and Tarr [2003] and Harrison, Rutherford, Tarr and Gurgel [2004]. Clearly one would expect risk aversion to be a particularly important factor for households close to or below the absolute poverty line.…”

Comparison of deep integration in the Melitz, Krugman and Armington models: The case of The Philippines in RCEP

“… Baldwin, Forslid and Haarland (2000) assessed the investment impacts of the single market.10 Harrison, Rutherford,Tarr and Gurgel (2004) found comparable results for Brazil and Uruguay.…”