Implications of WTO Agreements and Domestic Trade Policy Reforms for Poverty in Bangladesh: Short vs. Long Run

We examine the impacts of WTO agreements and domestic trade policy reforms on production, welfare and poverty in Bangladesh. A sequential dynamic computable general equilibrium (CGE) model, which takes into account accumulation effects, is used allowing for long run analysis. The study is based on 2000 SAM of Bangladesh including fifteen production sectors, four factors of production (skilled and unskilled labour, agricultural and non-agricultural capital) and mine household groups (five in rural areas and four in urban areas) based on the year 2000 household survey. To examine the link between the macro effects and micro effects in terms of poverty we use the representative household approach with actual intra-group income distributions. The study presents five simulations for which the major findings are: (1) the Doha scenario has negative implications for the overall macro economy, household welfare and poverty in Bangladesh. Terms of trade deteriorate and consumer prices, particularly food prices, increase more than nominal incomes, especially among poor households; (2) Free world trade has similar, but larger, impacts; (3) Domestic trade liberalisation induces an expansion of agricultural and light manufacturing sectors, favourable changes in the domestic terms of trade. Although the short run welfare and poverty impacts are negative, these turn positive in the long run when capital has adjusted through new investments. Rising unskilled wage rates make the poorest household the biggest winners in terms of welfare and poverty reduction; (4) Domestic liberalisation effects far outweigh those of free world trade when these scenarios are combined; (5) Remittances constitute a powerful poverty-reducing tool given their greater importance in the income of the poor.Dynamic CGE model, International trade, Poverty, Bangladesh

Remittances and Household Welfare: A Case Study of Bangladesh

This paper examines the impacts of international remittances on household consumption expenditure and poverty in Bangladesh using computable general equilibrium modeling of the Bangladesh economy and microeconometric analysis at the household level. The former assesses the economic effects and distributional implications of remittances at the macro, sectoral, and household group levels, while the latter shows the association between remittances and household consumption expenditure, including poverty status. The first results show that remittances have positive effects on the economy and reduce poverty. It is estimated that 1.7 out of the 9 percentage point reduction in the headcount ratio during 2000–2005 was due to the growth in remittances. A closer look at the household level further reveals the positive and significant impacts of remittances on the household's food and housing-related expenditures. The impacts on education and health expenditures are also positive but insignificant. Moreover, the logit regression results suggest that the probability of the household becoming poor decreases by 5.9% if it receives remittances, which further confirms the positive impact of remittances. Given that migration and remittances also bring costs to the society, the study findings call for policies to maximize their benefits. This includes attracting more remittances through formal channels and increasing their productive use

Welfare and Poverty Impacts of Policy Reforms in Bangladesh: A General Equilibrium Approach

Our study assesses the impacts of different policy reforms, such as domestic trade liberalisation, implementation of WTO agreements in the textile sector and WTO negotiations on the movement of natural persons, and examines their welfare and poverty implications at the household level in the economy of Bangladesh. We use a comparative static computable general equilibrium (CGE) model based on the 1995-96 Social Accounting Matrix (SAM) of the Bangladesh economy. This study carries out three simulations. The first simulation entails full liberalisation of tariffs and the resultant reduction in government revenues are mobilised by enhancing the existing production taxes and imposing new taxes on construction sector; in the second simulation, export of ready-made garments (RMG) are reduced by 25 percent; and in the third simulation the remittances are increased by 50 percent. Equivalent variations (EVs) and Foster-Greer-Thorbecke (FGT) measures are applied to estimate welfare and poverty changes respectively. The prime observation is that rural poverty, as measured by the head count ratio, is observed to increase under all three simulations. The gap and severity of the rural poor have also worsened in all three simulations indicating worse poverty profiles for the rural poor compared to the base-run scenario. Urban head count poverty has also deteriorated in the first and second simulations, while has improved only in the third simulation. The gap and severity of poverty for the urban population have, however, deteriorated in all three simulations.Agricultural and Food Policy,

Welfare and Poverty Impacts of Policy Reforms in Bangladesh: A General Equilibrium Approach

Our study assesses the impacts of different policy reforms like domestic trade liberalization, implementation of WTO agreements in textile sector and WTO negotiations of service liberalisation like free movement of natural persons and examines their welfare and poverty implications for the economy of Bangladesh. We use a comparative static computable general equilibrium (CGE) model based on 1995-96 Social Accounting Matrix (SAM) of the Bangladesh economy. The 1995-96 SAM of Bangladesh is characterised by 26 production sectors, 7 factors of production and 7 household groups. The household groups differ with respect to employment status, income levels and expenditure patterns. Since poverty outcomes are manifested and measured at the household level, we concentrate on how the meso-environment facing the households, particularly the poor households, is affected by these policy reforms. The direct effect of trade liberalization through the price channel depends on how changes in prices of importable due to tariff changes, affect the prices faced by households of the imported commodities and get transmitted to other commodities as well. On the other hand, implementation of WTO agreements for textile and apparels (T&A) and thus phasing out of MFA regime from 2005 will likely to affect the prices of T&A in the international market and, therefore, may affect the volume of export of Bangladesh ready-made garments (RMG), which may have important impact on poverty and welfare of the households in Bangladesh. Finally, if free movements of natural persons are allowed, which is an agenda for many developing countries under the WTO negotiations, it may raise the remittances for the Bangladesh economy significantly, which may have important poverty and welfare implications. Our study carries out three simulations to examine the welfare and poverty impacts of policy reforms on the 7 representative household groups. Equivalent variations (EVs) and FGT measures are applied to estimate welfare and poverty changes respectively. The first simulation entail full liberalisation of tariffs and resultant reduction in government revenues are mobilized by enhancing (i.e. by 55 percent) the existing production taxes and imposing new taxes on construction sector such that pre-simulation budgetary position of the government is retained; in the second simulation export of RMG is reduced by 25 per cent; and in the third simulation the remittances are increased by 50 per cent. The summary of the simulation outcomes is as follows: (1) In the first simulation, it is observed that, EVs are negative for all household groups. The values of the EVs of rural households envisage relatively larger losses for the well-off groups (e.g. large farmer and non-farm) compared to the poor household groups (e.g. labour and small farmer). The pattern is however reverse in the case of urban group with the EV of poor household group (i.e. worker low skilled) fell more than that of urban rich household groups (e.g. medium-skilled and professional). It also appears that welfare losses are larger for rural household groups compared to their urban counter parts. In the first simulation, poverty status of all household groups has deteriorated. The loss, however, is marginally higher for the urban households compared with the households who reside in the rural location. (2) In the second simulation (fall in export of RMG by 25 per cent), interestingly though incomes of all households decline, equivalent variations and consumption growth of all households increase indicating improvements in welfare. This result may seem to be counter-intuitive. The possible explanation behind such result may be the fact that in our static CGE setting due to the fall in export of RMG, there is an increase in the domestic supply, which results in fall in the domestic prices of goods. This fall in prices may be higher than the fall in income, which results in increase in real income. However, this improvement may not sustain in the long-run. There are improvements in poverty profiles for the rural households, and, except for the head-count poverty measure, the gap and severity of urban poverty increase. (3) In the third simulation, a 50 per cent increase in remittances raises welfare for all the household groups and the welfare improvement is higher for urban professional household, rural large-farm and non-farm households. On the other hand, the poverty profiles of the rural households deteriorate, and though there is an improvement in urban head-count index the gap and severity of urban poverty increase

Welfare and Poverty Impacts of Policy Reforms in Bangladesh: A General Equilibrium Approach

Our study assesses the impacts of different policy reforms, such as domestic trade liberalisation, implementation of WTO agreements in the textile sector and WTO negotiations on the movement of natural persons, and examines their welfare and poverty implications at the household level in the economy of Bangladesh. We use a comparative static computable general equilibrium (CGE) model based on the 1995-96 Social Accounting Matrix (SAM) of the Bangladesh economy. This study carries out three simulations. The first simulation entails full liberalisation of tariffs and the resultant reduction in government revenues are mobilised by enhancing the existing production taxes and imposing new taxes on construction sector; in the second simulation, export of ready-made garments (RMG) are reduced by 25 percent; and in the third simulation the remittances are increased by 50 percent. Equivalent variations (EVs) and Foster-Greer-Thorbecke (FGT) measures are applied to estimate welfare and poverty changes respectively. The prime observation is that rural poverty, as measured by the head count ratio, is observed to increase under all three simulations. The gap and severity of the rural poor have also worsened in all three simulations indicating worse poverty profiles for the rural poor compared to the base-run scenario. Urban head count poverty has also deteriorated in the first and second simulations, while has improved only in the third simulation. The gap and severity of poverty for the urban population have, however, deteriorated in all three simulations

Remittances and Household Welfare: A Case Study of Bangladesh

This paper examines the impacts of international remittances on household consumption expenditure and poverty in Bangladesh using computable general equilibrium modeling of the Bangladesh economy and microeconometric analysis at the household level. The former assesses the economic effects and distributional implications of remittances at the macro, sectoral, and household group levels, while the latter shows the association between remittances and household consumption expenditure, including poverty status. The first results show that remittances have positive effects on the economy and reduce poverty. It is estimated that 1.7 out of the 9 percentage point reduction in the headcount ratio during 2000–2005 was due to the growth in remittances. A closer look at the household level further reveals the positive and significant impacts of remittances on the household’s food and housing-related expenditures. The impacts on education and health expenditures are also positive but insignificant. Moreover, the logit regression results suggest that the probability of the household becoming poor decreases by 5.9% if it receives remittances, which further confirms the positive impact of remittances. Given that migration and remittances also bring costs to the society, the study findings call for policies to maximize their benefits. This includes attracting more remittances through formal channels and increasing their productive use.International migration and remittances; Household welfare; Poverty; CGE Model; Microeconometrics; Bangladesh