ABSTRACT
The effects of China’s entry to the World Trade Organisation (WTO) have been vigorously studied in recent years. A rich body of literature estimating the effects of China’s accession commitments in tariff reductions using CGE models has emerged (for examples see Zhai and Li 2000, Li and Lejour 2001, Lejour 2001, Fan and Zheng 2001, Ianchovichina and Martin 2001, Li et al. 2001, François and Spinanger 2002, Mayes and Wang 2002, and Mai et al. 1998). In these analyses, the estimated benefits from reductions in tariff and non-tariff barriers are generally low. For example, the tariff reductions are estimated to elevate China’s real GDP by only 0.8 per cent in Li and Lejour (2001), 0.08-1.66 per cent in Lejour (2001), 0.06-0.62 per cent in Fan and Zheng (2001), 2.2 per cent in Ianchovichina and Martin (2001), and about 1 per cent (in real Gross National Expenditure) in Mai et al. (1998). The absence of endogenous productivity growth has been listed in the literature as one possible reason for the generally low estimates (Ianchovichina and Martin 2001, and Mai et al. 1998). However, not much work on the effects of trade liberalization under an assumption of endogenous productivity growth has yet been published. This study is therefore devoted to comparing the effects of China’s WTO tariff commitments with and without the assumption of endogenous productivity growth. The study shows that the percentage increase in real GDP due to the tariff reductions could be doubled when endogenous productivity growth is assumed. Furthermore, this study shows that the impact of the tariff reductions on employment in different regions in China can be quite different with and without the assumption of endogenous productivity growth.
