Employment Effects of FTA Agreements: The Perspectives from Bangladesh

Bangladesh has entered into several regional FTA agreements and is in the process of signing bilateral FTA agreements with a number of countries. The study uses several models such as WITS/SMART global partial equilibrium model, SAM multiplier model, CGE model and an employment satellite matrix to explore the employment effects in Bangladesh out of three different FTA scenarios. In the WITS/SMART model, three FTA scenarios are run which assume full elimination of bilateral tariff between Bangladesh and India (under Bangladesh-India bilateral FTA), full elimination of bilateral tariff between Bangladesh and Malaysia (under Bangladesh-Malaysia bilateral FTA) and full elimination of tariff on trade among the BIMSTEC member countries (under BIMSTEC). The analysis of the macro impacts of the FTA scenarios suggest that such bilateral and regional FTAs would be beneficial for Bangladesh in terms of impact on consumer prices, exports, real wages and employment. At the sectoral level, a number of export oriented sectors would gain from such FTAs. However, the sectoral level impacts also suggest that a large number of sectors would experience fall in production because of large inflow of imports, which will result in loss in employment in these sectors. Therefore, these FTAs have important sectoral implications in terms of production, exports, import and employment. It however appears that at the aggregate level employment would rise which would mean that the loss in employment in some sectors will be more than compensated by rise in employment in other sectors. Therefore, the net effect on employment is likely to be positive

Welfare and Poverty Impacts of Tariff Reforms in Bangladesh: a General Equilibrium Approach

This paper examined welfare and poverty impacts of trade liberalization in Bangladesh. By using a computable general equilibrium model based on a social accounting matrix, an empirical investigation of the transmission channels linking trade liberalisation to the rest of the economy was carried out by conducting three simulations. In the first two simulations full tariff removal was accompanied by respective increase in production tax rates and income tax rate to ensure revenue neutrality. Third simulation resembles the actual tariff reforms undertaken in the country. This entailed the decline in both the spread and effective average duty rates, thereby reducing the mean rates and variance. The patterns of welfare losses are progressive for rural households but regressive for urban households in the first two simulations. In the third simulation, a clear regressive pattern is observed amont the urban households but it is ambiguous for the rural households. Rural poverty declined due to tariff-income tax reforms and tariff rationalization but worsened in the case of tariff-production tax reforms. Except for the second simulation, the urban poverty headcount, gap and severity all worsen in other two simulations. This confirms that the benefits of tariff rationalization accrue more to the urban rich households compared to their poored counterparts.Trade liberalization, Poverty, Bangladesh, Computable General Equilibrium (CGE) Model

Economic Reforms and Agriculture in Bangladesh: Assessment of Impacts using Economy-wide Simulation Models

Agriculture is a major economic activity in Bangladesh. It currently employs around 50 percent of country’s labor force and contributes around 20 percent of country’s GDP. Growth in agricultural sector has important linkages with the overall economy through various channels. It is important to note that, at the WTO, Bangladesh, as an LDC, is not bound to undertake any liberalisation in its domestic agricultural sector in terms of tariff cut or subsidy withdrawal. However, there are concerns that actions taken by the developed and developing countries in terms of reduction in agricultural domestic support measures might have important negative implications for the net food importing countries like Bangladesh. It is also important to note that under bilateral trading arrangements, such as India-Bangladesh bilateral FTA, there are scopes for increased trade in agricultural products between Bangladesh and India. Bangladesh’s market access for its agricultural exports in India is likely to increase whereas there will be increased imports of agricultural products from India. Therefore, liberalisation in the trade in agriculture has important implications for the agricultural commodities which are either exported or imported. Increased market access of agricultural exports from Bangladesh under such trade agreement will lead to rise in production and employment in those export-oriented sectors; whereas, domestic liberalisation in the agricultural sectors may dampen output and employment in the import-competing agricultural sectors. It thus appears that the growth in the domestic agricultural sector doesn’t only rely on the domestic policies and programs, rather global and regional trade policies have important implications for this sector. Moreover, the various economic policies and programs, such as domestic fiscal policies, import policies and programs for growth in agricultural productivity also affect the development of the agricultural sector in an economy. This study explores the links between major economic policy reforms and growth the agricultural sector in Bangladesh. This study examines how economic policy reforms affect the agricultural sector in Bangladesh in terms of output, import, export and employment. Under a general equilibrium framework, this study explores three trade liberalization scenarios (a global agricultural trade liberalization scenario under WTO-Doha agreement, Bangladesh – India bilateral FTA, and domestic agricultural trade liberalization), one fiscal policy scenario (rise in agricultural subsidy) and one technological change scenario (rise in agricultural productivity)

SAFTA and the South Asian Countries: Quantitative Assessments of Potential Implications

This paper has examined the implications of SAFTA for the South Asian countries. In doing so it has reviewed the pattern of intra-regional trade in South Asia. The paper has reviewed a number of studies which conducted qualitative and quantitative assessments of SAFTA. Using the global general equilibrium model the paper has also explored the welfare implications of tariff liberalisation under SAFTA and increased trade facilitation in South Asia. The simulation results suggest that the gains from trade facilitation in South Asia are much higher than the gains from mere reduction in tariff in goods. Therefore, in order to make SAFTA effective, trade liberalization is a necessary condition, but not a sufficient one. Utmost priority should be given to developing trade infrastructure facilities (hardware) and trade facilitation (software)

Rules of Origin and Sensitive List under SAFTA and Bilateral FTAs among South Asian Countries: Quantitative Assessments of Potential Implications for Nepal

This study analyzes the implications of the proliferation of ROO and sensitive list under SAFTA and bilateral FTAs among South Asian countries with particular reference to Nepal. In this regard this study makes a comparative assessment of different ROO arrangements under different bilateral FTAs as well as under SAFTA and BIMSTEC with a view to finding out the relative flexibility of SAFTA ROO vis-à-vis ROO in other regional and bilateral FTAs in South Asia. In addition, this study also explores the impact of the sensitive list maintained by India, under SAFTA, on the rise in exports from Nepal to India. The study uses a partial equilibrium model, namely the WITS/SMART model, to simulate different scenarios. It appears that when there is no ROO requirement and there is no sensitive list, the South Asian countries, under a full SAFTA scenario, are able to increase their exports within the region quite substantially. India appears to be the largest gainer from such scenario. However, Nepal also turns out to be important gainer as her exports to the South Asian region as whole increase by around US$90 million. Interestingly almost all of hear export increase would be targeted to Indian market (99 percent) under such a scenario. The analysis on trade creation and trade diversion for Nepal suggests that under a full SAFTA scenario, the trade creation effect (US$ 160821 thousand) will be higher than the negative trade diversion effect (US$19454 thousand) resulting in a net trade effect equal to US$ 141367. It also appears that the revenue loss and welfare gains for Nepal, resulting from such a scenario, would be US$90881 thousand and US$ 20486 thousand, In the second scenario, because of ROO (and assuming no sensitive list in India) 34 percent of the potential rise in exports from Nepal to India appears to be unrealized. In the third simulation, because of SAFTA sensitive list in India (and assuming no ROO) as high as 47 percent of the potential rise in exports from Nepal to India appears to be lost. In the final simulation, it appears that SAFTA ROO and sensitive list in India eats up more than two-third of the potential rise in exports from Nepal to India. It can therefore, be argued that since the value-additions of most of Nepal’s export products are very low, a 30 percent value-addition requirement under SAFTA as well as under the India-Nepal Trade Treaty would act as a significant barrier for her export expansion in India. This is also true for other LDCs in South Asia. Therefore, the problem of ROO will need to be resolved, keeping an eye on the manufacturing/processing capability of the LDCs. In addition, the other criteria of the ROO, namely the change in tariff head, under SAFTA should also be made consistent with those that are currently in force in the bilateral trade agreements within the SAARC region, which happen to be more liberal than the prevailing SAFTA rules. It also appears that SAFTA sensitive list is too stringent to allow significant rise in exports from the LDCs (in this case Nepal) to the Indian market. In almost all the cases, the products, which are included in the sensitive list, have significantly high export potentials. It can thus be concluded that if these sensitive lists are not phased out, there will be very little to gain from SAFTA by Nepal and other LDCs in this region

Trade Liberalization and Poverty in Bangladesh

The impact of trade liberalization on growth and employment is a much debated and controversial issue. In theory, trade liberalization results in productivity gains through increased competition, efficiency, innovation and acquisition of new technology. Trade policy works by inducing substitution effects in the production and consumption of goods and services through changes in price. These factors, in turn, influence the level and composition of exports and imports. In particular, the changing relative price induced by trade liberalization causes a more efficient reallocation of resources. Trade liberalization is also seen as expanding economic opportunities by enlarging the market size and enhancing the impact of knowledge spillover. However, empirical evidence to support these propositions is far from conclusive. Both cross-country and country-specific studies have failed to suggest any conclusive evidence to support the claim that trade liberalization promotes economic growth and aids net employment generation. There have been concerns over whether the impact of trade liberalization has been favourable to the domestic economy in Bangladesh. There is a lack of consensus on the issue. There is also continuing debate over the future direction of trade liberalization in Bangladesh. Questions have been raised over whether Bangladesh ought to undertake further drastic wholesale liberalization of trade or adopt a more gradual approach. Against this backdrop, this paper assesses trade liberalization in Bangladesh and examines its impact on growth and employment in the country

South-South Trade: A Quantitative Assessment

The share of North-North trade in global trade declined from 55.5 percent in 1990 to around 32 percent in 2010. Such fall in North-North trade had been accompanied by rising trade involving the South countries. The South-North trade share increased from 13.9 percent to 16.5 percent during the same time. However, the most spectacular phenomenon was the rise in South-South trade, which increased from only 6.4 percent to 19.4 percent during this period. Such rise in South-South trade has not been uniform across different South countries. During 1990 and 2010, though all categories of South countries (all South, LDCs, SVEs, advanced South and South excluding advanced South) experienced rises in their shares in global trade, trade involving the advanced South countries was the major contributor to the changing landscape in global trade, which resulted in remarkable rise in the South-South trade. When it comes to country-wise shares in South-South export, there are some gainers and losers. Out of the 135 South countries, 50 countries experienced rise in their shares in South-South export while 85 countries experienced fall in shares. The structures of the export of the South countries are not uniform. Many of the South countries’ export are agriculture based, many of them are extraction based and the rest are manufacturing oriented. The destinations of the export from South countries are primarily the developed countries. A comparison among the sizes of coefficients of different variables under the basic gravity models suggests that as far as intra-South trade is concerned, among the continuous variables, the largest positive effect stems from the per capita GDP of the home country, and largest negative effect comes from the distance. Among the dummy variables, the common border dummy has the largest positive effect, whereas the island dummy of the partner country has the largest negative effect. However, these variables have differential effects when it comes to trade between different groups of South countries. Gravity modeling results suggest that when considering South countries as the home, there are marked differences among different groups of countries as far as the impact of per capita GDP of home country (in this case the South countries) on exports from these groups of countries to the South countries are concerned. Per capita GDP of the South countries has the largest positive effect on the export from the North countries; and among different South countries such positive effect is the largest for the export from the Emerging South countries. For SVEs the effect is positive but is the smallest among all country groups. Now, while considering South as the source of export, the per capita GDP of the emerging South countries has the largest positive effect among all country groups on the export from South. Interesting, the per capita GDP of the North countries doesn’t have any significant effect. Also, though the per capita GDP of LDCs has a positive effect on the export from South that of the SVEs doesn’t have any statistically significant effect. Gravity modeling results also suggest that, considering South as the home, the distance factor has the largest negative effects on exports from the Emerging South countries and SVEs to South countries; and distance factor has the largest negative impact on South’s export to Emerging South among all country groups as destinations for South’s export. In the case of common language dummy, while considering exports to South from all country groups, this dummy has the largest positive effect on export from North countries, and while considering export from South, common language has the largest positive effect on the export to South Excluding Emerging South countries. In the case of land lock dummy for home country, considering South as the home, this dummy has mixed effects on exports from different country groups; for example, it has negative impacts on exports from LDCs and North, while it has a positive impact on export from South Excluding Emerging South. Also, this dummy has only negative effect on the export from South to North among all country groups as destinations for South’s export. In the case of land lock dummy for partner country, when South is the home, among all country groups, this dummy has the largest negative effect on the export from the South; however, when South is the export source, this dummy has the largest negative effect on South’s export to Emerging South countries. In the case of island dummy for home country, considering South as the home, the export from the island countries will be reduced, if those countries are either North or SVEs. Also, South’s export to Emerging South countries will be reduced most of the South countries are the island countries. In the case of island dummy for partner country, considering South as the home, the export from LDCs is mostly affected among exports from all country groups if LDCs are island countries. Also, if South countries are island countries, then their export is mostly affected in the Emerging South countries. When South is the export destination, common border dummy has the largest positive effect on the export from South countries in general, and among different groups of South countries, this dummy has the largest positive effect on the export from LDCs. However, this dummy has a negative effect on the export from North to South. Augmented gravity modeling results suggest that, in general, South’s tariff rate has the largest negative effect on the export from SVEs. North’s tariff is most restrictive on the export from South in general and South Excluding Emerging South in particular. LDCs’ tariff rate affects mostly the export from SVEs and LDCs. SVEs’ tariff rate affects mostly the export from South Excluding Emerging South counters. Tariff rates of Emerging South and South Excluding Emerging South have the largest negative effect on export from SVEs. As far as South is considered as the export destination, trade cost in South affect mostly the export from South. Trade cost in North has the largest negative effect on export from LDCs, and it seems that such negative effect is higher than the negative effect on export from North to LDCs due to trade cost in LDCs. While the trade costs between LDCs and Emerging South countries are compared, trade costs in Emerging South countries seem to be more restrictive on export from LDCs, as compared to the negative effect of trade cost in LDCs on the export from Emerging South. Similar observations are hold for SVEs, while comparing the restrictive effect of their trade cost with those of North and Emerging South. CGE modeling results suggest that a scenario of LDCs and SVEs receiving duty-free market access in emerging south countries would lead to some significant rise in welfare for all LDCs and SVEs, which would, for some countries, in terms of the percent of their GDPs, be quite high. For example, for Nepal such welfare gain would be 3.2 of its GDP. The least benefitted country in this regard would be Botswana and its welfare gain would be only 0.01 percent of its GDP. All LDCs and SVEs would also experience rise in exports. However, different LDCs and SVEs would experience rise in export by different magnitudes. The largest rise in export, in terms of percentage change, would be for Nepal followed by Rest of South Asia. The lowest rise in export would be for Botswana. . All LDCs and SVEs would experience some re-direction of their exports towards the Emerging South countries. Such as scenario would not lead to large rise in export from LDCs and SVEs, which indicates to the fact that tariff preferences in the Emerging South countries alone would not be enough to help LDCs and SVEs to increase their export to the Emerging South countries. Such a scenario would lead to marginal effects on the export from other developing countries, some countries would experience very small rise and some counties would experience very small fall. The CGE modeling results also suggest that the welfare effects of a scenario of FTA among Emerging South, LDCs and SVEs and other developing countries would lead to some large welfare gains, both in terms of volume and percent share of GDP, for most of the Emerging South countries. There would be mixed effects among the other developing countries. LDCs and SVEs would also see mixed effects. Such a scenario would lead to some significant rise in exports from most of the Emerging South, other developing countries and LDCs and SVEs. Such a scenario would enhance South-South trade significantly. Most of the South countries would experience rise in export to other South countries. The incremental rises in exports of these countries would be destined to other South countries

What does data on functional income distribution tell us about trends in and correlates of income inequality in the Asia-Pacific?

This paper presents an analysis of the trend and patterns of the share of labour in GDP, the gap between wage and productivity, and inequality with a focus on Asia-Pacific countries for the period between 2004 and 2017. Descriptive analysis confirms a downward trend in labour income shares during the study period in most of the countries in the Asia-Pacific. Our analysis also shows that majority of the Asia-Pacific countries additionally witnessed a rise in the gap between labour productivity and wage, defined as the shortfall of wage from labour productivity as a percentage of wage. Furthermore, inequality, measured through the income Gini index also increased in these countries. Panel econometric regression results suggest that trade openness and FDI have a negative association with the labour share in GDP in the Asia-Pacific countries while being positively associated with the gap. Economic growth and structural transformation processes have also not been favourable in raising the labour share in GDP. Among other findings, technological development has not been labour-friendly in most of these countries. Non-agricultural employment share in total employment has a negative association with the labour share in GDP and is positively associated with the gap. Yet our analyses have confirmed that the reduction in labour share in income is associated with rising inequality in the Asia-Pacific countries. We conclude by discussing the role of two related major instruments of government policies -- revenue generation, and public expenditure on social sectors -- for addressing challenges related to widening inequality in the region

Services Trade Liberalisation in South Asia

Over the last three decades, the services sector has boomed in the South Asian countries. Alongside the growth, liberalisation of the services trade too has become a critical economic agenda for these economies. Some of their services sectors have been liberalised as part of their commitment under GATS. Under the request-offer process of GATS, there have been requests from other developing and developed countries to open up services sectors of the South Asian countries. Additionally, they have also taken steps for the unilateral liberalisation of the sector. South Asian countries have also taken initiatives to liberalise trade in services among themselves. The latest development of these initiative is the South Asian Agreement on Trade in Services (SATIS) in 2010. This paper looks at the major issues related to the services trade liberalisation in South Asia

SAFTA and the South Asian Countries: Quantitative Assessments of Potential Implications

This paper has examined the implications of SAFTA for the South Asian countries. In doing so it has reviewed the pattern of intra-regional trade in South Asia. The paper has reviewed a number of studies which conducted qualitative and quantitative assessments of SAFTA. Using the global general equilibrium model the paper has also explored the welfare implications of tariff liberalisation under SAFTA and increased trade facilitation in South Asia. The simulation results suggest that the gains from trade facilitation in South Asia are much higher than the gains from mere reduction in tariff in goods. Therefore, in order to make SAFTA effective, trade liberalization is a necessary condition, but not a sufficient one. Utmost priority should be given to developing trade infrastructure facilities (hardware) and trade facilitation (software)