Trade Liberalization and Income Distribution: A CGE Model for Jordan

The Association Agreement between Jordan and the EU entered into force in 2002. It provides a gradual reduction of import duties on EU products over a period of twelve years. In this paper we investigate the economic implications of induced trade liberalization on aggregate economic performance as well as effects on welfare and income distribution of heterogenous households. This is done by introducing heterogenous households into a standard neoclassical dynamic computable general equilibrium model. Thereby individual households' tax rate, wage rate, initial endowment of assets, transfers from government and abroad, as well as individual preferences, are calibrated by data from a household survey. This paper was presented at the 18th International Conference of the International Trade and Finance Association, meeting at Universidade Nova de Lisboa, Lisbon, Portugal, on May 22, 2008.