The potential cost and benefits of WTO membership for Ethiopia: A CGE model Approach
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Date
2008-06
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A.A.U
Abstract
This paper presents a structuralist CGE mode l for Ethiopia 's to assess the potential costs and benelit s
of WTO membership . The analyses is made based on Ethiopian social accounting matrix (SAM) of
200112002 constructed b y World Bank. The model is simulated for alternative policies scenarios
(import tariff reduction) depicting full and in discriminating liberalization. Gradual and
rationalized
liberalization and instantaneous tariff liberalization. The simulation experiment suggest that the impact
of trade liberalization ha s mixed effect on the Ethiopian economy
.
Import tariff reduction is likely to increase domestic production and expo rt of commodities particularly
produced in agriculture and service sector. It also increase gross domestic product of the country but it
is not large as stated by man y financial institutes Such as World bank. IMF and WTO .
On the other hand . tariff reduction has negative effect on government revenue investment and on terms or trade.
The result shows there is reduction in investment which is opposite to the expectation.
There is a cap it al flight form the country and it is al so disincentive for investors. The
Government
\Revenue reduction in the short run is high. In addition to this the industrial sector shows reduction
in
production because of more competition from abroad (due to protection reduced in this sector
An import ant policy implication o f this analysis is that the successes of trade liberalization
critically
depend on strategic the government should set and improvements in the institution of the country.
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Keywords
A CGE model Approach, WTO membership for Ethiopia