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)

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

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)

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)

Impact of Food Price Rise on School Enrollment and Dropout in the Poor and Vulnerable Households in Selected Areas of Bangladesh

This study has explored the impact of the rise in food prices on the education of children in the poor and vulnerable households in Bangladesh. It appears that during early 2008 the prices of rice, pulses and edible oil increased tremendously which threatened the status of food security of these poor and vulnerable households in Bangladesh. As a result of the price hike, significant percent of households were forced to cut their consumption of rice, pulses and edible oil. The households who could maintain the level of consumption of rice unaffected, they could do so at the cost of reduced consumption of other non-rice food items or/and by reducing the non-food expenditure, i.e., expenses on their children education. High percentage of households experiencing dropout of their children were observed because of the price hike of food items as most of the households could not continue to bear the expenses on their children’s education. A significant proportion of these dropped out children were engaged in different jobs with the aim of contributing to their household income. In this sense, the opportunity cost of sending children from these poor and vulnerable households appeared to be high. In all cases, the female headed households turned out to be affected more than their male counterparts. The poor and vulnerable households under consideration employed several coping strategies to combat the adverse effects of food price hike, and ‘becoming more indebted by taking loans’ turned out to be the most widely used coping strategy

Infrastructure and Growth and Poverty in Bangladesh

This paper has explored the relationship between infrastructure and growth and poverty in the context of the Bangladesh economy and in this context the paper has used three different techniques. The general conclusion is that infrastructure plays extremely significant role in promoting growth and alleviating poverty in Bangladesh. The construction of the district-wise Infrastructure Development Index (IDI) and ranking of the districts on IDI suggest that the districts which are close to the capital city are having higher IDIs than the districts which are far from the capital city. The cross-section regression results suggest that the district-wise variation in head-count poverty is well explained by the variation in the IDI and the district with higher IDIs are associated with lower head-count poverty. The SAM multiplier model indicates significant rise in gross output, household consumption and value-addition because investment in physical and social infrastructure. A 20 percent increase in infrastructural investment demand would lead to 8.17 percent rise in gross output, 8.07 percent rise in value-added or gross domestic product, and 7.12 percent rise in household consumption. The exercise using the CGE model suggests that 25 percent reduction in the transport margin in the sectors would lead to rise in the real GDP by 0.57 percent, fall in the general price index by 1.43 percent, rise in exports and imports by 0.83 and 0.95 percent, and rise in national welfare by 0.39 percent. Also, the national head-count poverty would fall by 1.24 percent. The poorer household groups are likely to experience higher reduction in poverty indices compared to their non-poo