Import Response to Tariff Reductions in an African Sample

Policy-makers and analysts are often concerned with the effect of tariff reductions, as part of trade liberalisation, on the volume of imports, and in particular adverse effects on domestic import-competing sectors. While there is limited evidence at an aggregate country level that imports increase following trade liberalisation, there is very little empirical evidence at a sector level. In the 1990’s (and 1980’s) many African countries reduced tariffs, often significantly, although since the mid 1990s there are countries that did not alter tariffs. This allows us to analyse the effects of tariff reductions on the change in imports using Difference-in-Differences techniques to evaluate the impact at the general and sector-specific level. During the period we study (1996-2004) and countries for which data are available, Algeria, Egypt, Ethiopia, Tanzania and Uganda all reduced tariffs. These countries act as a ‘treatment’ group. Cameroon, Gabon and Madagascar all left their tariffs unchanged, and act as our ‘control’ group. We compare the effects on imports for tariff-reducing countries relative to nonliberalising countries, controlling for the timing of tariff reductions, trends in import capacity (country effects) and in sector imports across countries (product market effects). Overall, using value and volume measures of imports, there is little evidence (except for Ethiopia) that suggests imports increased for the treatment group countries relative to the control group countries. This is true at the general and sector-specific levels. JEL Classification: F13, O55