Trade Liberalization and Poverty in the Middle East and North Africa

188 CHAPTER 8

lose in terms of trade because it is a net importer. On the other hand, it would gain from domestic liberalization due to efficiency gains. The combined effect is likely to be positive for Tunisia as a whole because most estimates show that efficiency gains are larger than terms-of-trade effects. The net effect on agricultural prices and, hence, on farmers is ambiguous because domes- tic trade liberalization would reduce domestic agricultural prices relative to world prices, while multilateral trade liberalization would increase world prices. The effect of trade liberalization on labor markets and the returns to unskilled labor in particular would also influence the poverty impact. In order to study the distributional impact of trade liberalization in Tuni- sia, we used a CGE model linked to data on 397 representative households from a household expenditure survey. The CGE simulated the effect of various policies on prices, wages, and returns to other factors, while the household survey data were used to simulate the effects of these changes on poverty and income distribution. Four simulations were examined: the removal of tar- iffs on industrial imports from the E.U., the removal of all tariffs on imports from the E.U., the removal of all tariffs on imports from any country, and the removal of all Tunisian tariffs combined with global trade liberalization, which it is assumed would raise agricultural prices by 15 percent. According to these simulations, the removal of industrial tariffs on imports from the E.U. (which approximates Tunisian import liberalization under the EMP agreement) would cause both imports and exports to expand significantly, although almost all the change would be in nonagricultural trade. Real GDP would increase slightly (0.2 percent) because of the efficiency gains associ- ated with the removal of distortions. Poverty would decline from 8.1 to 7.7 percent. Significant gains in rural poverty reduction would more than offset the small increase in urban poverty. Eliminating all tariffs on imports from the E.U. (approximating the Tuni- sian side of an extended EMP agreement) would cause large increases in imports of meat, beverages and tobacco, fruit, dairy products, and vegetable oil as import barriers on these goods were lifted. The effect on GDP and pov- erty would be similar to that in the first simulation. Removing tariffs on imports from all countries would increase the imports of almost all agricultural commodities, as well as stimulate agricultural exports to maintain the trade balance. The reduction in poverty would be slightly greater than in the first two simulations: poverty would decline from 8.1 percent in the base scenario to 7.6 percent. The rural poor would again be the main beneficiaries of these changes in trade policy. Finally, the elimination of all Tunisian tariffs plus global trade liberalization (represented by a 15 percent increase in world agricultural prices) would not do much for the overall economy. This is partly because, as a net agricultural

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