TABLE A.1 Methodological Approaches Applied in the Case Studies
Ex post analysis Main purpose
Questions that can be addressed with the methodology
Assess the short- and long-run response of local and regional labor market employment and wages to a greater exposure to trade.
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Overview of methodology and key assumptions
What are the channels through which trade affects local poverty rates and labor market dynamics? What are the effects that trade exerts through wage differentials and job opportunities across industries, occupations, and regions on the welfare of workers? How big are the mobility costs related to labor or capital? Which policy interventions are associated with better local socioeconomic outcomes?
Ex ante medium- and long-term analysis CGE-GIDD
Ex ante short-term analysis HIT Assess the first-order short-term distributional impacts of trade policy changes.
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What are the aggregate gains in welfare from changes in tariffs and other import taxes? How are these gains distributed across households? To what extent do these gains reflect consumption gains or income losses?
Assess medium- to long-term implications of comprehensive trade policy reforms that affect the economy as a whole and where second-order effects through input-output linkages are likely to be significant. ■■
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What are the potential impacts of trade policy changes (tariffs, nontariff measures, trade facilitation reforms, regulatory barriers in services) on macroeconomic aggregates such as economic growth and international trade? What are the impacts on poverty and the income distribution? What are the impacts on wages and employment of skilled/ unskilled and female/male workers at the sectoral and subnational levels?
Partial equilibrium approach.
Partial equilibrium approach.
General equilibrium approach combined with microsimulations.
Impacts of trade on local labor markets within the same country may differ because of differences in their initial sectoral composition and are thus not equally exposed to nationwide sectoral changes in trade exposure.
Households in different parts of the income distribution consume different goods and derive their income from different sources. Price changes resulting from a change in tariffs will affect different households differently. When tariffs are reduced (increased), households typically face lower (higher) prices for consumption goods, but they may also face a reduction (increase) in their incomes when they are selling such goods. The overall impact on a given household is the sum of the product-specific impacts.
Trade policy changes lead to changes in comparative advantage across sectors and countries affecting bilateral sectoral trade and output patterns in line with the availability of factors of production and technological capabilities. The resulting changes in household income, employment, and wages are transferred as shocks to microsimulations.
Assumptions: (a) highly concentrated or localized production and (b) the existence of adjustment costs that limit the mobility of workers across regions.
Assumptions: shocks to tariffs are fully transmitted to changes in prices faced by households and their wages.
Assumptions: (a) demographics and education evolve in line with UN projections, (b) labor mobile across sectors with flexible wages, (c) investment endogenous with capital semi-mobile, (d) fixed trade balance, (e) exogenous unemployment, and (f) fixed government expenditures.
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The Distributional Impacts of Trade
