Employment Effects of FTA Agreements: The Perspectives from Bangladesh

Abstract

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