Trade and Industry

Notes on Welfare Losses of Tariffs and Tariff Protection: A Partial Equilibrium Application to South African Data

  • Year: 2001
  • Organisation: TIPS and University of Cape Town
  • Publication Author(s): Dirk van Seventer; Lawrence Edwards
  • Countries and Regions: South Africa
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Almost immediately after the first democratic election, South African policy makers embraced the policy of trade liberalisation (see Holden 2000). To many observers, the offer made by South Africa to the World Trade Organisation (WTO) has been very generous. Various attempts to evaluate the impact of trade liberalisation on the South African economy have been undertaken since (see, for example, IDC 1997, Valodia 1998, and Lewis 2001). These attempts have either been of a general equilibrium nature or of a very micro firm level nature.

In this paper, we consider the partial equilibrium effects of trade liberalisation on selected South African sectors and clusters of commodities following Greenaway & Milner (1993). This methodology is somewhere in between the general equilibrium analysis and the firm level analysis, in that it can be conducted right the whole range of imported merchandise but also at a fine level of commodity detail (HS8).

We first present some basic theory on the welfare gains and losses of tariff changes, after which we attempt to operationalise the welfare gains and losses of changes in import tariffs. We conclude by presenting some indicative results based on (relatively old) IDC data for imports and associated tariffs. We also apply the methodology to more recent tariffs, which allows us to evaluate welfare gains and losses of tariff changes at a more detailed level of clusters of commodities.