An Integrated Approach to Trade Policy, Poverty and Income Distribution in the Democratic Republic of Congo: A CGE-Microsimulation Analysis

Abstract

Theory of international trade has underscored the positive effect of trade liberalization on economic growth and poverty reduction. However, the empirical application remains mixed, depending on the experiments, data, models and underlying assumptions. In the long run, trade liberalization can be expected to have a positive impact on growth and poverty but its impact may be negative in the short run, depending on the source of income of the poor and the impact on prices of goods and services that the poor consume. From the policy standpoint, it has been argued that complementary and compensatory policies to trade reforms play a crucial role in maximizing the potential benefit of trade liberalization and addressing the costs associated with trade reforms. Thus, this paper connects a CGE model and a microsimulation model to illustrate how trade liberalization can be combined with domestic complementary and compensatory policies in the Democratic Republic of Congo.