Trade Liberalization and Spatial Inequality: a Methodological Innovation in a Vietnamese Perspective

Authors

  • Henning Tarp Jensen,

    1. Institute of Economics, University of Copenhagen, Studiestræde 6, DK-1455 Copenhagen K, Denmark. Tel: (45) 35324402 and 35323041; Fax: 35323064; E-mail: Henning.Tarp.Jensen@econ.ku.dk and Finn.Tarp@econ.ku.dk.
    Search for more papers by this author
  • Finn Tarp

    1. Institute of Economics, University of Copenhagen, Studiestræde 6, DK-1455 Copenhagen K, Denmark. Tel: (45) 35324402 and 35323041; Fax: 35323064; E-mail: Henning.Tarp.Jensen@econ.ku.dk and Finn.Tarp@econ.ku.dk.
    Search for more papers by this author
    • The authors are grateful to participants at the University of Quebec and Montreal (UQAM) and World Institute of Development Economics Research (WIDER) conferences held in October 2002 and March 2003, for useful comments. Special thanks are due to Bob Baulch, Kwan Choi, Ravi Kanbur, Tony Shorrocks, Erik Thorbecke, and Guanghua Wan for suggestions on how to improve the paper. The same goes for excellent comments by two anonymous referees. The usual caveats apply.


Abstract

The authors calibrate two static computable general-equilibrium (CGE) models with 16 and 5999 representative households. Aggregated and disaggregated household categories are consistently embedded in a 2000 social accounting matrix (SAM) for Vietnam, mapping on a one-to-one basis. Distinct differences in poverty assessments emerge when the impact of trade liberalization is analyzed in the two models. This highlights the importance of modeling micro-household behavior and related income and expenditure distributions endogenously within a static CGE model framework. The simulations indicate that poverty will rise following a revenue-neutral lowering of trade taxes. This is interpreted as a worst-case scenario, which suggests that the government should be proactive in combining trade liberalization measures with a pro-poor fiscal response to avoid increasing poverty in the short to medium term.

Ancillary