Can trade liberalisation in South Africa reduce poverty and inequality while boosting economic growth?: macro-micro reflections

SOURCE: Development Southern Africa
OUTPUT TYPE: Journal Article
PUBLICATION YEAR: 2014
TITLE AUTHOR(S): R.Mabugu, M.Chitiga Mabugu
KEYWORDS: ECONOMIC GROWTH, INEQUALITY, POVERTY ALLEVIATION, TRADE
DEPARTMENT: Economic Perfomance and Development (EPD)
Print: HSRC Library: shelf number 8060

If you would like to obtain a copy of this Research Output, please contact Hanlie Baudin at researchoutputs@hsrc.ac.za.

Abstract

South Africa is trapped in a cycle of modest growth, unacceptable poverty levels and record unemployment. This has led to renewed interest on the relationship between macro (growth) and micro (poverty and distribution) issues. This paper uses a macro-micro tool that couples a computable general equilibrium model with micro simulation models to examine the impact of further unilateral trade policy reforms on growth, poverty and welfare. Trade liberalisation alone has very minimal short-run macroeconomic consequences while its long-term impacts are positive and magnified by technical factor productivity (TFP) effects. Trade liberalisation has no appreciable impact on poverty in the short run even if we allow for trade-induced TFP increases. In the long run, however, poverty reduces even in the case when we do not allow for TFP increases. Trade liberalisation policy has been found to be progressive despite the low level of tariff protection remaining in South Africa.