| Abstract: |
Rutherford, Tarr, and Shepotylo use a computable general equilibrium
comparative static model of the Russian economy to assess the impact of
accession to the World Trade Organization (WTO) on income distribution and the
poor. Their model is innovative in that they incorporate all 55,000 households
from the Russian Household Budget Survey as “real” households in the model.
This is accomplished because they develop a new algorithm for solving general
equilibrium models with a large number of agents. In addition, they include
foreign direct investment and Dixit-Stiglitz endogenous productivity effects
in their trade and poverty analysis. In the medium term, the authors find that
virtually all households gain from Russian WTO accession, with 99.9 percent of
the estimated gains falling within a range between 2 and 25 percent increases
in household income. They show that their estimates are decisively affected by
liberalization of barriers against foreign direct investment in business
services sectors and endogenous productivity effects in business services and
goods. The authors use their integrated model to assess the error associated
with a “top down” approach to micro-simulation. They find that approximation
errors introduced by failing to account for income effects in the conventional
sequential approach are very small. However, data reconciliation between the
national accounts and the household budget survey is important to the results.
Despite the estimated gains for virtually all households in the medium term,
many households may lose in the short term because of the costs of transition.
So, safety nets are crucial for the poorest members of society during the
transition. This paper—a product of the Trade Team, Development Research
Group—is part of a larger effort in the group to assess the impact of trade on
poverty. |