Commercial liberalization and its impacts on poverty and income distribution in Brazil

Abstract

This study evaluates the impacts of reduction in import tariffs in Brazil, related to recent free trade area agreements, on regional indicators of poverty and income distribution in the short/medium run. The results from a computable general equilibrium model show that, on one hand, trade can reduce interregional income inequality, but on the other hand poor urban households face adverse effects from trade liberalization, that is, there exists a trade-off on welfare gains between the aggregate economy and low income households in urban areas. The exclusive use of trade policies is not enough to improve the income distribution both at global and regional levels in Brazil.