Brexit and Global Value Chains: Beyond the UK and the EU (2021)
The discussion on Brexit has focused more on the future trade relationship between the EU and the UK. However, Brexit will also have significant impacts on the rest of the world, most often ignored in the public debate, particularly in countries with the UK as their major trading partner. Besides, some of these countries rely heavily on the larger EU markets for imports. Primarily, in this paper, I estimate the impact of several post-Brexit trade policies on global value chain participation and positioning and the welfare gains from trade - in the UK, EU27, and the rest of the world. First, I build a multi-country multi-sector static general equilibrium model of trade policy shock, which is a variant of the Armington model, to quantify the impact of these different post-Brexit scenarios. Second, for counterfactual exercises, I calibrate the model to match Eora input-output data and the state of the world before Brexit. The various potential post-Brexit scenarios include Hard Brexit, Soft Brexit, UK-USA FTA, and UK-EU-USA FTA. I find hard Brexit to be the worst-case, with losses ranging from 0.005 to 0.4385 percent and an average loss of 0.2166 percent in total consumption-equivalent welfare of households. Also, I find that the UK-USA bilateral agreement has a gain for the USA and a loss of 0.0367 percent for the UK. Effect on GVC participation and positioning is significant for other countries than the UK and the EU. Some countries affected most are Japan, India, Hong Kong, and Kenya. The USA is the only large economy found to be less integrated into GVCs.
Universal Basic Income, Targeted Cash Transfers, and Progressive Taxation: Reducing Income Inequality in South Africa (2019)
South Africa has one of the world’s most progressive tax systems, yet income inequality continues to be a significant challenge for the country. Several fiscal policy initiatives have been implemented since the end of apartheid to reduce inequality and poverty. Despite this, there has been no significant reduction in inequality in post-apartheid South Africa. Universal basic income (UBI) and better progressive taxation can be a new way to address the limited strength of fiscal policies in South Africa. In developing countries, however, data on income is limited for most of the population working in the informal sector - informal labor is about to 86% in Africa (ILO, 2018). Additionally, inclusion in the formal tax system is low. This paper compares the magnitude by which UBI versus targeted cash transfer (TCT) funded by progressive taxation can reduce income inequality in South Africa. Empirically, I conduct a policy simulation exercise to analyze how additional revenue generated from tax progressivity can be used to finance UBI and TCT and to what extent this can reduce income inequality. Results show that UBI and TCT reduce income inequality by more than 30% when these policies are accompanied and financed through progressive taxation; however, UBI performs better in reducing inequality than TCT.
The Impact of Education Reforms on Household Adult Welfare Outcomes in Ethiopia: The 1994 Free Primary Education (FPE) Reform (2018)
This study examines the effect of free primary education reform on years of schooling and various conceptions of welfare measures in Ethiopia. Welfare is measured using multiple poverty indicators, including per adult equivalent consumption expenditure, relative deprivation in terms of consumption expenditure, and poverty gap. Using variation in individuals’ date of birth at the time of the reform as a source of exogenous variation in education, a cohort of age 14 and younger in 1994 who were either in pre-school or primary school are presumed to be exposed to the reform. In contrast, those above age 14 are not exposed. I used both difference-in-differences (DID) and instrumental variable estimation strategy to estimate the impact of the reform on education and the causal effect of education on adult welfare outcomes. Preliminary results show that the reform led to an increase in years of schooling by 0.795 (without controls) and 0.77 (with controls) years and improved the welfare of individuals who were age eight or younger in 1994. Therefore, the reform generally affected the education and welfare outcomes of individuals aged eight or younger in 1994, who were likely to be in preschool or the first cycle of primary school.
School Resources and Education Outcomes in Developing Countries. Glewwe, P., Siameh, C., Sun, B., & Wisniewski, S. (2021). The Routledge Handbook of the Economics of Education, edited by Brian McCall.