Abstract:
South Africa has undergone significant trade liberalization since the end of apartheid.
Average protection has fallen while openness has increased. However, economic
growth has been insufficient to make inroads into the high unemployment levels.
Poverty levels have also risen. The country’s experience presents an interesting
challenge for many economists that argue that trade liberalization is pro-poor and
pro-growth. This study investigates the short and long term effects of trade
liberalization using a dynamic microsimulation computable general equilibrium
approach. Trade liberalization has been simulated by a complete removal of all tariffs
on imported goods and services, and by a combination of tariff removal and an
increase of total factor productivity. The main findings are that a complete tariff
removal on imports has negative welfare and poverty reduction impacts in the short
run which turns positive in the long term due to the accumulation effects. When the
tariff removal simulation is combined with an increase of total factor productivity, the
short and long run effects are both positive in terms of welfare and poverty reduction.
The mining sector (highest export orientation) is the biggest winner from the reforms
while the textiles sector (highest initial tariff rate) is the biggest loser. African and
Colored households gain the most in terms of welfare and numbers being pulled out
of absolute poverty by trade liberalization.
