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122 CHAPTER 5


percent relative to the base year, while real consumption would grow by 2.6 percent, indicating an additional gain of 0.5 percentage points compared to Simulation 2. Total imports would increase by 22 percent, while exports would grow by 32 percent, a significant increase relative to the previous simulation. The elimination of tariffs on imports from the rest of the world would increase the demand for imports and, hence, foreign exchange. The resulting depre- ciation would make exports more competitive. This reform would induce a complete (100 percent) loss in tariff revenue. The model compensates by increasing the VAT from 4.2 percent in the base scenario to 10.5 percent. At the sectoral level, this reform would entail a drop in domestic pro- duction in most agricultural activities. This decrease is explained by the lower prices associated with agricultural import liberalization, the increase in unskilled wages, and the limited mobility of land between agricultural activities.


The effect of this reform on poverty would be similar to that of Simulations 1 and 2 except that the decline in rural poverty would be slightly greater. The number of poor people would fall by 5.7 percent (about 42,000 people) com- pared to the base scenario. Farmers’ incomes would be improved by higher prices for exports, lower costs for imported consumer goods, and lower costs for imported inputs such as seed and cattle feed.


Simulation 4


Along with the import liberalization in Simulation 3, this last scenario simu- lates an increase in the prices of the main basic agricultural products as a result of a multilateral liberalization of trade in agricultural products. Agricultural protectionism in importing countries and production subsidies in high-income countries would depress world agricultural prices, which would penalize all surplus farmers. Here we simulate a 15 percent increase in the world prices of basic agricultural products, assumed to be the result of global trade liberalization and the removal of all producer subsidies. This is a plau- sible change in light of previous studies of the impact of removing all distor- tions in the agricultural sector (see Chapter 3).


In this simulation we see that total output in Tunisia would rise by 5.2 percent relative to the base year, a reduction of 0.4 percentage points compared to Simulation 3. Real GDP would rise by 0.2 percent, while total consumption would rise by 2.9, the largest gain among the four simulations. Total imports would rise by 22 percent and exports increase by 34 percent relative to the base year.


Global agricultural trade liberalization would enhance the competitive- ness of “other crops” and sugar, causing a sharp increase in production. The increase in world prices would be transmitted to local markets, resulting in a


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