THE ECONOMY-WIDE IMPACT OF ETHIOPIA’S ACCESSION TO THE WORLD TRADE ORGANIZATION: A RECURSIVE DYNAMIC COMPUTABLE GENERAL EQUILIBRIUM MODEL

Abstract

The study examined the impact of Ethiopia‟s accession to the World Trade Organization on the economy from the market access for trade in goods negotiation perspective by using the Recursive Dynamic Computable General Equilibrium model and identified the possible range of commitment on simple average bound tariffs on agricultural and non-agricultural sectors by using analysis on tariffs. According to the model result; real Gross Domestic Production at factor cost increased by 0.06%, as export and import increased by 0.25% and 0.2% which improves trade balance by 0.04% with the increase in private consumption by 0.04% and a decrease in fixed investment by 0.02%. Total activity production levels has the highest positive percentage change and households become better off because of reduced import price as their consumption expenditure increases but government revenue decreases as a result of import tariff reduction by greater percentage during 2027-2030 as compared to the base. In general, Import tariff reductions to some extent in the long run as part of World Trade Organization accession process and multilateral trade negotiation once become a member have a positive impact on the economy. Based on the commitment on simple average final bound tariffs of the six Least Developed Countries that acceded to the World Trade Organization through accession negotiation; the possible range of commitment on the bound tariff is identified as 28.5% to 44.7% for agriculture while 20.8% to 28.8% for non-agriculture. As the difference between the simple average bound tariff and the simple average applied tariff; the range gives a policy space from 6.4% to 22.6% for agriculture and 4.2% to 12.2% for non-agriculture since Ethiopia‟s simple average applied tariff is 22.1% for agriculture & 16.6% for non-agriculture. Therefore, Ethiopia should use a negotiation strategy that secures higher policy space for its development interests.