Aggregate Effect Of China's Wto Accession

1740 words - 7 pages

At the national level, we focus on evaluating the effect of China's WTO accessionon macroeconomic indicators as well as on agricultural trade, including imports andexports. As expected and similar to many other studies, China's WTO accession, byreducing or eliminating import tariffs, would benefit the economy at the aggregate level.The gain comes from a more efficient allocation of current factor endowments, whichallows GDP and the level of consumers' aggregate consumption to rise. While fullyliberalizing agricultural trade only (scenario 2) raises GDP by 0.23 percent, liberalizingboth agricultural and non-agricultural trade (scenario 3) allows the gain in GDP to almosttriple to 0.8 percent. The result is comparable with those from the other studies [e.g.,China's GDP rises by one percent in USITC (1999) and 1.4 - 2 percent in Lejour (2000),in which the long-run cumulative effect of tariff reduction is taken into account]. Withmore imports of foreign goods at lower prices, the domestic price level declines.However, the decline mainly happens in agricultural pric es when agricultural trade isliberalized. Once both agricultural and nonagricultural trade are fully liberalized, thedecline in agricultural prices becomes much smaller and is comparable with the change innonagricultural prices and the consumer price index, as well as the depreciation of thereal exchange rate (Table 4). This comes from the higher demand for agriculturalproducts due to higher income level after full liberalization.If only agricultural trade is liberalized, rural income declines in both nominal andreal terms due to the decline in agricultural income, including returns to labor employedin agriculture as well as to land and agricultural capital. In contrast, urban income risesin the same scenario. If both agricultural and non-agricultural trade are liberalized,agricultural and rural incomes increase both in real and nominal terms, even though theincrease is still smaller than the gain in urban income (Table 4). These results warn usthat the income gap between rural and urban areas may be further widened after Chinajoins WTO, though liberalizing the non-agricultural sectors would help rural income rise.Hence, partially analyzing the WTO effect by just looking at agricultural liberalizationmay overestimate the potential negative effect on the rural sector.As usual, trade liberalization always stimulates trade, both in exports and imports.When the trade surplus is fixed at the base level, agricultural trade liberalization raisestotal trade modestly, as total imports and exports increase by six and four percent,respectively, at the border prices. These increases are mainly due to more agriculturaltrade. However, full trade liberalization allows total imports and exports to increase by35 and 23 percent, respectively (Table 4).Most of the increase agricultural imports comes from grains (except for rice),cotton, vegetable oils and meat products, while the gains in agricultural...

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