Beyza Ural Marchand finds trade liberalization in China had a pro-poor impact

Economics Professor Ural Marchand's study will be published in the top journal in international economics

Economics staff - 17 March 2016

Since the 1990s, China has pursued twin policies of liberalizing trade and reforming state-owned enterprises. The country experienced profound tariff cuts following its accession to the World Trade Organization, with an average tariff reduction of 38% from 2000 to 2002. At the same time, China transformed itself from a centrally-planned economy to a market-oriented economy, and the relative size of the private sector in urban China increased from 22% in 1992 to 50% in 2008.

Professor Beyza Ural Marchand and her co-authors Runjuan Liu (University of Alberta), Jun Han (Renmin University), and Junsen Zhang (Chinese University of Hong Kong) find these policies had a pro-poor distributional effect. Poorer households spend a higher proportion of their income on tradeable goods, such as food, clothes, and household appliances. Import tariff reductions were passed through to lower costs of these products, which allowed poorer households to benefit more. The average welfare gain is estimated to be 7.3 percent, but the gain is as high as 13.6 percent of their initial expenditure level for poor households. Further, privatization enhanced the pro-poor impact of tariff reductions, as in cities with a larger private sector there was a higher pass-through of tariff reductions to prices.

For more on this study, which is forthcoming in the Journal of International Economics, see the working paper Market Structure, Imperfect Tariff Pass-Through, and Household Welfare in Urban China.






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