Trade, Poverty and the Lagging Regions of South Asia

53 Pages Posted: 7 Sep 2010

See all articles by Pravin Krishna

Pravin Krishna

Johns Hopkins University - Paul H. Nitze School of Advanced International Studies (SAIS); Brown University - Department of Economics; National Bureau of Economic Research (NBER)

Devashish Mitra

Syracuse University - Department of Economics; National Bureau of Economic Research (NBER); IZA Institute of Labor Economics

Asha Sundaram

University of Cape Town (UCT)

Date Written: September 2010

Abstract

This chapter studies the differential effects that trade openness may have on leading and lagging regions within a country. Examining data from India, we find that while trade liberalization is associated with reduced poverty, this effect is smaller in lagging states. The expected transmission of international prices to domestic prices with openness to trade is seen to be less perfect in lagging states than in leading ones, especially in the rural sector. This suggests that poverty reduction in lagging regions is impeded by the lack of exposure to international markets as opposed to another commonly argued factor - the competition to domestic production from international trade. Cross-country analysis with a sample of countries in South Asia (Bangladesh, India, Nepal, Pakistan and Sri Lanka) also suggests that countries with a smaller proportion of their populations in lagging regions experience greater reduction in poverty rates following trade liberalization. Our study confirms that though trade liberalization can bring gains, there is scope for policy to ensure that these gains are distributed more equally across sub-national regions. Our results highlight the importance of developing infrastructure including equipped ports, better and more extensive roads and communication links in exploiting gains from international trade.

Suggested Citation

Krishna, Pravin and Mitra, Devashish and Sundaram, Asha, Trade, Poverty and the Lagging Regions of South Asia (September 2010). NBER Working Paper No. w16322. Available at SSRN: https://ssrn.com/abstract=1672556

Pravin Krishna (Contact Author)

Johns Hopkins University - Paul H. Nitze School of Advanced International Studies (SAIS) ( email )

1740 Massachusetts Avenue, NW
Washington, DC 20036-1984
United States

Brown University - Department of Economics ( email )

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National Bureau of Economic Research (NBER)

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United States

Devashish Mitra

Syracuse University - Department of Economics ( email )

The Maxwell School of Citizenship & Public Affairs
133 Eggers Hall
Syracuse, NY 13244-1020
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Asha Sundaram

University of Cape Town (UCT) ( email )

Private Bag X3
Rondebosch, Western Cape 7701
South Africa

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