Trade Liberalisation and Income Distribution: Evidence from a Small Open Economy

Abstract: Over the last few decades there has been a great deal of interest in investigating the link between trade liberalisation and income distribution in developing countries. Although there is a significant amount of empirical evidence to support the positive link between trade liberalisation and growth, the evidence on the relationship between trade liberalisation and income distribution among different household groups has been inconclusive. This study investigates the effects of trade liberalisation on income distribution in the Sri Lankan economy using a computable general equilibrium model. In terms of income distribution it can be observed that tariff reduction in manufacturing industries tends to widen the income gap between the low and the high income earners. Understanding these distributional effects of trade liberalisation will help in designing better targeted and robust welfare programmes in order to mitigate the adjustment costs of further liberalisation in developing countries like Sri Lanka

Trade Liberalisation and Regional Disparities: Evidence from a Multi-Regional General Equilibrium Model of India

Recent focus on poverty alleviation under the United Nation’s Millennium Development Goals has led to a renewed interest in understanding the link between trade reforms and regional disparities, particularly, within emerging and developing countries. India makes a fascinating case study to understand this linkage as it has the largest concentration of poor people in the world despite being one of the world’s fastest growing economies and also trade reforms were carried out in the early nineties (Topalova, 2008). In this study, in contrast to the partial equilibrium framework adopted in the existing literature, we identify and quantify the regional impact of trade liberalisation within a general equilibrium framework and develop the first ever single-country multi-regional computable general equilibrium (CGE) model for the Indian economy. In addition, this model incorporates economies of scale and imperfect competition. Overall, our results suggest that, in the short-run, trade liberalisation has a beneficial impact on the rich and fast growing middle income states and marginal or negative impact on the poor states. Thus, in the short-run, trade liberalisation would tend to widen the gap between the rich and the poor states in India. We suggest that trade reforms should be complemented by other policy measures that would promote regional equality

Trade Liberalisation and Regional Disparities: Evidence from a Multi-Regional General Equilibrium Model of India

Recent focus on poverty alleviation under the United Nation’s Millennium Development Goals has led to a renewed interest in understanding the link between trade reforms and regional disparities, particularly, within emerging and developing countries. India makes a fascinating case study to understand this linkage as it has the largest concentration of poor people in the world despite being one of the world’s fastest growing economies and also trade reforms were carried out in the early nineties (Topalova, 2008). In this study, in contrast to the partial equilibrium framework adopted in the existing literature, we identify and quantify the regional impact of trade liberalisation within a general equilibrium framework and develop the first ever single-country multi-regional computable general equilibrium (CGE) model for the Indian economy. In addition, this model incorporates economies of scale and imperfect competition. Overall, our results suggest that, in the short-run, trade liberalisation has a beneficial impact on the rich and fast growing middle income states and marginal or negative impact on the poor states. Thus, in the short-run, trade liberalisation would tend to widen the gap between the rich and the poor states in India. We suggest that trade reforms should be complemented by other policy measures that would promote regional equality

Poverty and Growth Impacts of High Oil Prices: Evidence from Sri Lanka

The “twin shocks” of rising food and oil prices in 2007 and 2008 caused negative impacts on developing countries in terms of poverty reduction and economic growth. Many analysts believe that a similar crisis is looming on the horizon after the world food price index hit the 2008 peak in December last year and the oil price in the UK reached the price level it had two years ago in January 2011. However, there is a limited body of empirical evidence available from developing countries on the impact of high oil prices on growth in general and household poverty in particular. In this study, Sri Lanka is used as a case study and a computable general equilibrium (CGE) approach is adopted as an analytical framework to explore the growth and poverty impacts of high oil prices. The preliminary results suggest that urban low income households are the group most adversely affected by high global oil prices, followed by low income rural households. In contrast, estate low income households are the least affected out of all low income households. The energy intensive manufacturing sector and services sector are affected most compared to the agricultural sector

Globalisation, Poverty and disparities: the Case of Sri Lanka

Griffith Business School, Department of Accounting, Finance and EconomicsNo Full Tex

Poverty and Growth Impacts of High Oil Prices: Evidence from Sri Lanka

The “twin shocks” of rising food and oil prices in 2007 and 2008 caused negative impacts on developing countries in terms of poverty reduction and economic growth. Many analysts believe that a similar crisis is looming on the horizon after the world food price index hit the 2008 peak in December last year and the oil price in the UK reached the price level it had two years ago in January 2011. However, there is a limited body of empirical evidence available from developing countries on the impact of high oil prices on growth in general and household poverty in particular. In this study, Sri Lanka is used as a case study and a computable general equilibrium (CGE) approach is adopted as an analytical framework to explore the growth and poverty impacts of high oil prices. The preliminary results suggest that urban low income households are the group most adversely affected by high global oil prices, followed by low income rural households. In contrast, estate low income households are the least affected out of all low income households. The energy intensive manufacturing sector and services sector are affected most compared to the agricultural sector

Climate change adaptation, agriculture and poverty: A general equilibrium analysis for Nepal

This paper presents a model of climate change adaptation in the Nepalese economy and uses it to simulate long-run impacts of climate change and cropland re-allocation on household poverty. We develop a computable general equilibrium (CGE) model for Nepal, with a nested set of constant elasticity of transformation (CET) functional forms to model the allocation of land within different agricultural sectors. Supply of land depends on the magnitude of effects of climate change on different crops. Land transformation elasticities in the CET functions reflect the ease of switching from one crop to another based on their agronomic characteristics and degree of impacts of climate change. The distinguishing feature of the model is flexibility of CET values. Use of a set of CET values at the sectoral level thus captures the transformation effects of agronomic feasibility and profitability of crops while, at the same time, retaining the role of price relativity in the demand side of land along with other factors of production. The results suggest that, in the long run, farmers tend to allocate land to crops that are comparatively less impacted by climate change, such as paddy. Furthermore, the results reveal that land re-allocation tends to reduce income disparity among household groups and poverty by significantly moderating the income losses of marginal farmers

A Quantitive Evaluation of the Potential Effects of Trade Policy Reversal in Sri Lanka: A Computable General Equilibrium (CGE) Analysis

In recent years there has been a trend in rising protectionism and a reversal of trade policy reforms in some developed and developing countries, particularly after the global financial crisis. Although some researchers and practitioners have discussed recent trends in trade policy reversal in both developed and developing countries in recent years, no serious attempts have been made to examine the effects of trade policy reversal in a developing country within an economy-wide framework. The current paper attempts to fill this research gap by answering the question: Can developing countries benefit from trade policy reversals? The study focuses particularly on the case of Sri Lanka. To address this central research aim the paper first reviews recent trends in import duty and para-tariffs in Sri Lanka, particularly after the global financial crisis. An economy-wide computable general equilibrium (CGE) model was then used to evaluate the effects of trade policy reversal on the Sri Lankan economy. The results of the Sri Lankan case study presented suggest that developing countries will not benefit from trade policy reversal at either the macro level or industry level