minor relative to changes due to exchange rate fluctuations, technological improvements, preference shifts and other economic shocks and structural developments associated with normal economic growth (Anderson et al. 1997).

Estimates of the magnitude of those costs are difficult to generate, but all available estimates suggest they are minor relative to the benefits from reform. An early study by Magee (1972) for the United States estimated the cost of job changes including temporary unemployment to be one-eighth of the benefits from tariff and quota elimination initially. Even assuming that transition took as many as five years, he estimated a benefit/cost ratio of 25. A subsequent study which examined a 50 percent cut in US tariffs (but not quotas) came up with a similar benefit/cost estimate (Baldwin, Mutti and Richardson 1980). In more recent debates about trade and labor, analysts have had difficulty finding a strong link between import expansion and increased unemployment (see Greenaway and Nelson 2002). One example is a study of the four largest EU economies’ imports from East Asia (Bentivogli and Pagano 1999). Another European example is a study of the UK footwear industry: liberalizing that market would incur unemployment costs only in the first year, because of the high job turnover in that industry, and those estimated costs are less than 1.5 percent of the benefits from cutting that protection (Winters and Takacs 1991). A similarsized estimate is provided by de Melo and Tarr (1990) using a CGE model that focuses just on US textile, steel and auto protection cuts and drawing on estimates of the cost of earnings lost by displaced workers (later reported by Jacobson, LaLonde and Sullivan 1993).

For developing countries also the evidence seems to suggest low costs of adjustment, not least because trade reform typically causes a growth spurt (Krueger 1983). In a study of 13 liberalization efforts for nine developing countries, Michaely, Papageorgiou and Choksi (1991) found only one example where employment was not higher within a year. A similar study for Mauritius by Milner and Wright (1998) also found trade opening to be associated with employment growth rather than decline.<sup>27</sup> A survey of 18 Latin American countries for the period 1970 to 1996, by Marquez 27 A further impact of trade policy reform about which concern is often expressed is the loss of tariff revenue for the government. This is of trivial importance to developed and upper middle-income countries where trade taxes account for only 1 and 3 percent of government revenue, respectively. For lower middle-income countries that share is 9 percent, and it is more than 20 percent for more than a dozen low-income countries for which data are available, so how concerned should those poorer countries be? The answer depends on whether/how much that revenue would fall and, if it does fall, on whether/how much more costly would be the next best alternative means of raising government revenue. On the first of those two points, government revenue from import taxes will rise rather than fall with reform if the reform involves replacing, with less-prohibitive tariffs, any of import quotas or bans, or tariffs that are prohibitive (or nearly so) or which encourage smuggling or under-invoicing or corruption by customs officials. It is possible even in a tariff-only regime that lower tariffs lead to a sufficiently higher volume and value of trade that the aggregate tariff collection rises. Examples of recent trade policy reforms that led to increased tariff revenue are Chile and Mexico (Bacchetta and Jansen 2003, p. 15) and Kenya (Glenday 2002). See also Greenaway and Milner (1993) and Nash and Takacs (1998). Since the economy is enlarged by opening up, income and consumption tax collections will automatically rise too. On the second point, about the cost of raising government revenue by other means if tax revenue does fall, Corden (1997, Ch. 4) makes it clear that in all but the poorest of countries it will be more rather than less efficient to collect tax revenue in other ways. Even countries as poor as Cambodia have managed to introduce a value added tax. Hence from a global viewpoint there is no significant cost that needs to be included in response to this concern. To the extent subsidies are also cut as part of the reform, the chances of government revenue rising are even greater. Income and consumption tax revenue also will rise as the economy expands following reform. In any case CGE modellers typically alter those other tax rates when trade tax revenues change so as to keep the overall government budget unchanged.

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