Trade Reforms, Poverty and Inequality in Bangladesh

Abstract

Trade liberalisation reforms in Bangladesh have been accompanied by impressive economic growth and substantial reductions in poverty. Nevertheless, there is concern that increasing inequality has limited the poverty-reducing impact of economic growth. Against this backdrop, the present study uses a multi-sectoral, multi-factor and multi-household computable general equilibrium (CGE) model to simulate the short-run and long-run effects of the unilateral elimination of import tariffs on poverty and inequality in Bangladesh. In doing so, the study also explores the effects on macroeconomic performance, on output and employment in individual industries, on employment by gender and skill groups, and on household income and consumption of various socio-economic groups. Recognising the perceived risk that the loss of tariff revenue might lead to unsustainably large fiscal deficits, the study simulates the effects of the removal of tariffs, both with and without an endogenously determined consumption tax to compensate for the loss of tariff revenue. In the long run, in both rural and urban areas, the removal of tariffs without a compensatory consumption tax brings significant reductions in poverty accompanied by declines in inequality. With the introduction of a consumption tax, poverty and inequality still fall in the long run, but in each case to a smaller extent. This book provides a significant contribution to understanding of the trade-poverty-inequality nexus in Bangladesh. Its comprehensive, in-depth, yet accessible analysis should arouse the interest of a wide-ranging readership that includes trade negotiators, policy makers, academics, researchers, students and all who are interested in issues at the heart of the globalisation debate.