Ethiopia's Accession to the WTO and its Implication to Poverty: A Qualitative Analysis Based on a CGE Model

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Ethiopia is on the process of becoming a member of the WTO. to be accepted as a member, the country has to address the supply side constraints and fulfill a number of preconditions including the upgrading of the existing laboratory infrastructure used for regulating imports and exports, strengthening or creating appropriate national institution that can ensure the implementation of and administration of the TBT Agreement in compliance with the WTO TBT principles, the creation or building of local capacity to respond to a National Enquiry Point for the WTO TBT Agreement and the creation of a national system certification service provider for certifying ISO, HACCP, EUREPGAP, BRC and others required for foreign markets. But, fulfilling these requirements incur high costs. The Thesis tries to analyze the impact of implementing the WTO accession requirements on the national economy and evaluates its implication on poverty using a Computable General Economic Model (CGE) and the 2002 Ethiopian SAM CGE models can be used to analyze the impact of macroeconomic policy and external shocks on income distribution, employment and poverty. The result of the analysis shows that if Ethiopia tries to implement the membership requirements for accession without farther looking for compensating measures, the most disadvantaged group of the society will be adversely affected seriously, at least in the short run, as these groups are exposed to price risks. It was further shown that the increase in government consumption on goods and services induced by the need for fulfilling the accession requirements will have the tendency to increase the prices of goods and services consumed by the poor and to the deterioration of the terms of trade of the sector in which they are employed. The result of the analysis has also shown that an attempt to finance the investment necessary for compliance by diverting resources away from the pro poor expenditure sectors would end up adversely affecting the poor. Although trade liberalization may have a positive effect in the long-run for the poor by stimulation growth, increasing demand for unskilled and semi-skilled workers, and increasing government revenues, the poor may also, at the same time, be at a disadvantage in the short run. The policy implication of this is therefore that the movement should {(Ike cautious measures in implementing the requirements for WTO accession. These measures may include implementing the requirements sequentially on priority basis and seeking technical and financial supports from the Standards and trade Development facility of the WTO for compensating the diverted resources and for injecting additional pro-poor spending. The limitation of this Thesis is that focus was given to the analysis of short-term impacts of shocks. Given the dynamic nature of the global economy and the ever changing modalities of trade relationships among countries, however, a more rigorous analysis involving dynamic CGE model and the Incorporation of more disaggregated households in the analysis would have helped to elucidate the impacts of accession on poverty and inequality.



Ethiopia's Accession, Qualitative Analysis