Gonzalo Salinas

Growth Before and After Trade Liberalization

The empirical study of the impact of trade liberalization has not convinced the skeptics about the economic gains after trade reforms. Some have even argued that trade reforms have led to economic collapse and to deindustrialization. Using a sample that excludes countries that were subject to major exogenous disruptions, the authors note that post-reform economic growth was 1.2 percentage points higher than before the reforms. This is remarkable considering that pre-reform periods were characterized by highly expansionary state policies and large external borrowing, and the crisis years that preceded trade liberalization in the comparisons are eliminated. Through multivariate fixed effects estimations the authors calculate that annual per capita GDP growth rates increased by up to 2.6 percentage points after the trade reforms, compared to a counterfactual that takes into consideration the evolution of several growth determinants. Moreover, trade liberalization has been followed by an acceleration of growth in investment, exports of goods and services, and manufacturing exports, and as opposed to common belief, outward orientation did not lead to significant deindustrialization and actually seems to have increased export diversification. Growth acceleration occurred irrespective of income per capita level and was quite significant in Sub-Saharan Africa. As expected, small countries benefited most from the reforms.

Hiv/Aids: The Impact on Poverty and Inequality

Using available data on the distribution of HIV/AIDS prevalence across population groups for four sub-Saharan African countries and transposing this information to household income and expenditure surveys, we simulate the impact of HIV/AIDS on poverty and inequality. We find that the epidemic lowers average income and increases poverty, and that the jump in poverty is larger than expected from the fall in average income. This disproportionate increase in poverty reflects the large share of the population living on the threshold of poverty and the higher HIV prevalence rates in those segments of the population.

The Macroeconomic Impact of Scaled-Up Aid; The Case of Niger

We develop a simple macroeconomic model that assesses the effects of higher foreign aid on output growth and other macroeconomic variables, including the real exchange rate. The model is easily tractable and requires estimation of only a few basic parameters. It takes into account the impact of aid on physical and human capital accumulation, while recognizing that the impact of the latter is more protracted. Application of the model to Niger - one of the poorest countries in the world - suggests that if foreign aid as a share of GDP were to be permanently increased from the equivalent of 10 percent of GDP in 2007 to 15 percent in 2008, annual economic growth would accelerate by more than 1 percentage point, without generating significant risks for macroeconomic stability. As a result, by 2020 Niger’s income per capita would be 12.5 percent higher than it would be without increased foreign aid. Moreover, the higher growth would help Niger to cut the incidence of poverty by 25 percent by 2015, although the country will still be unable to reach the Millennium Development Goal of poverty reduction (MDG 1).

Growth in Africa Under Peace and Market Reforms

Economic stagnation in Sub-Saharan Africa (SSA) has led several economists to question the region’s ability to attain sustained economic growth, some of them arguing for the need to shift away from natural resource - based exports. Yet, we find that low growth has not been common to all SSA countries and that those that achieved political stability and significantly liberalized their economies experienced high growth in income per capita, as high as ASEAN-5 countries. This group of SSA countries attained high growth while maintaining their specialization in natural resource exports. Our analysis also rejects the hypothesis of reverse causality: that good growth performance allowed countries to attain political stability or liberalize their economies.

Trade Liberalization in Peru : Adjustment Costs Amidst High Labor Mobility

While trade integration has been an engine of global growth and prosperity some sectors have been negatively affected by increased imports competition, as expected in theory. Higher labor mobility could lower these adjustment costs. This paper measures the cost of trade integration in a context of high internal migration. Specifically, we focus on the 2004- 14 period of trade liberalization in Peru (a major beneficiary of trade integration). Despite significant migration in response to lower tariffs, we find a significant negative relation between tariff reduction and socioeconomic indicators of imports-competing districts. This underscores the need for policy action to support the “losers from trade liberalization†.