Trade Liberalization and Tariff Pass-through in Ethiopia

The benefit of trade liberalization is both theoretically and empirically inconclusive though literature emphasizes on the direct as well as indirect impacts. Hence, different empirical studies have been conducted to estimate these benefits even if it is rare to find a tariff pass-through which estimates the direct effects of tariff reductions at the border on domestic prices whereby determine the welfare impact on poor households for countries like Ethiopia. Thus, this study situates itself in this category that it estimates the tariff pass-through for six products by employing a competitive pass-through model to verify whether both the tariff and geographical pass-through are significant enough to affect the welfare of households in Ethiopia. The contribution of the study is therefore thriving to the theory of trade liberalization. The results of the model reveal insignificant coefficients which necessitate further analysis and scrutiny which is made in the discussion and explanation part of the study. The study therefore helps policy makers, researchers, trade economists and government advisors to consider a multiple of factors and undertake detail analysis before trade reforms.