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Abstract
This paper examined the impact of trade liberalization on the Zimbabwean economy under the AfCFTA. A standard single country, static CGE (PEP-1-1) model with 2013 as the base period is presented and used to generate simulation results of removing tariffs. Given the generalization of the trade data, the results are necessarily representative of what could be the situation after liberalizing trade under the AfCFTA. The results show that trade liberalization causes import prices to decrease, with paper & paper products (-75.8%), rubber & plastic products (-14.5%), glass and glass products (-12.7%), machinery (-10.7%) and other grains (-10.6%) having notable decreases. The results also show that trade liberalization favours export-oriented sectors that use imported commodities intensively in their production. Consumers will experience low prices in the market due to the removal of tariffs on imported commodities. From the results, the products that have notable consumer price decreases are paper & paper products (-44.1%), machinery (-10.5%), and other livestock (-9.4%). The fall in prices affects domestic production and will cause the wage rates of the unskilled labour force to decrease by 1.7%, although the skilled labour force’s wage rates will increase by 0.3%. This could mean that sectors laying off workers are unskilled labour intensive, leading to a drop in the corresponding wages, while sectors that are hiring are skilled labour intensive, hence the increase in the wage rate. For example, the results show that demand for labour in smallholder farms will decrease, which could be causing the demand for unskilled labour to decrease. The revenue collected by the government from import duties and other taxes will fall by 10.6%. Thus, export-oriented sectors should be promoted to compensate for the revenue losses through an increase in production which will cause a rise in labour demand and ultimately wage rate increases as sectors compete for the available workforce.