Impact of import liberalisation on poverty: a dynamic computable general equilibrium and microsimulation analysis for Ghana

Incidence of poverty for Ghana has reduced from about 52% in 1991/92 to 28.5% in 2005/06. This is a remarkable drop in the incidence of poverty, but the current level is still high. Equally high are the levels of the depth and severity of poverty. This means that any policy pursued by the country must aim at further reducing the incidence, depth and severity of poverty. A number of policies and programmes have been implemented to reduce extreme in Ghana. On such policy, liberalisation of import trade has been implemented extensively in the country even though its long run contribution to poverty reduction is not clear in the trade literature. Therefore, this study examined the long run impact of import liberalization on the incidence, depth and severity of poverty at the national and household levels. The investigation was carried out using a recursive dynamic computable general equilibrium and a microsimulation model calibrated to the 2005 Social Accounting Matrix (SAM) of Ghana. In spite of the strong criticism against import liberalisation as being anti-growth and poverty enhancing, the results showed that the net effect of import liberalisation leads to reduction in the incidence, depth and severity of poverty at the national and household levels in the long run. However, the benefits of import liberalisation accrue more to urban households than rural households. This finding is due to the fact that urban households, generally, are net consumers of imported goods and services than rural households. In addition, the urban areas have the necessary economic infrastructure and so are economically vibrant, thereby offering huge opportunities for people to participate in international trading activities. The study recommends that import liberalisation must continue to be part of the poverty alleviation strategy of government for Ghana Post 2015 and that government focuses poverty alleviation policies more in the rural areas.