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GTAP Resource #3388

"Poverty Impacts of Trade Integration with the EU: lessons for Ecuador"
by Wong, Sara

This research proposes to measure the effects of a trade agreement with the European Union on poverty in Ecuador. Both poverty and the signing of a trade agreement with the EU are issues under discussion in Ecuador. Ecuador is seeking to sign a trade agreement with the EU due to their complementary trade: the EU is a major market for Ecuadorian agricultural and fish products, and Ecuador imports mainly manufacturing goods from the EU. In particular, the EU is the main market for the main agricultural export product of Ecuador: bananas.
The transmission mechanisms to study these issues include changes in commodity prices, wages and earnings, and labor market demands. This research combines a reduced-form micro household income and occupational choice model with a standard single-country computable general equilibrium model (CGE) for Ecuador, using a top-down approach. This study highlights that a trade agreement with the EU may have a different impact on poverty depending on the degree of initial tariff reduction, on labor market considerations (employment, unemployment, labor market segments), and on whether better access to Ecuadorian bananas is granted by the negotiations or not. Through trade liberalization there is a significant increase in imports from the EU, particularly in protected sectors. With better access for bananas to the EU market, investment constraints may mean that increasing banana export and production can be achieved by pulling resources (namely production and labor) out of other sectors. Nearly every scenario of a trade agreement leads to a decline in extreme poverty in rural regions. In contrast, extreme poverty in urban regions may increase.

Resource Details (Export Citation) GTAP Keywords
Category: GTAP Application
Status: Not published
Date: 2010
Version: April 2010
Created: Wong, S. (4/15/2010)
Updated: Batta, G. (5/11/2010)
Visits: 665
- Calibration and parameter estimation
- South America

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