Welfare and Poverty Impacts of Tariff Reforms in Bangladesh: A General Equilibrium Approach

MPIA Working Paper No. 2006-05

33 Pages Posted: 14 May 2007

See all articles by H. Khondker Bazlul

H. Khondker Bazlul

University of Dhaka

Mustafa Mujeri

Bangladesh Institute of Development Studies (BIDS) - General Economics Division

Selim Raihan

University of Dhaka

Date Written: March 2006

Abstract

This paper examined welfare and poverty impacts of trade liberalization in Bangladesh. By using a computable general equilibrium model based on a social accounting matrix, an empirical investigation of the transmission channels linking trade liberalisation to the rest of the economy was carried out by conducting three simulations. In the first two simulations full tariff removal was accompanied by respective increase in production tax rates and income tax rate to ensure revenue neutrality. Third simulation resembles the actual tariff reforms undertaken in the country. This entailed the decline in both the spread and effective average duty rates, thereby reducing the mean rates and variance.

The patterns of welfare losses are progressive for rural households but regressive for urban households in the first two simulations. In the third simulation, a clear regressive pattern is observed among the urban households but it is ambiguous for the rural households. Rural poverty declined due to tariff-income tax reforms and tariff rationalization but worsened in the case of tariff-production tax reforms. Except for the second simulation, the urban poverty headcount, gap and severity all worsen in other two simulations. This confirms that the benefits of tariff rationalization accrue more to the urban rich households compared to their poorer counterparts.

Keywords: Trade liberalization, Poverty, Bangladesh, Computable General Equilibrium (CGE) model

JEL Classification: D33, D58, E27, F13, F14, I32, O15

Suggested Citation

Bazlul, H. Khondker and Mujeri, Mustafa and Raihan, Selim, Welfare and Poverty Impacts of Tariff Reforms in Bangladesh: A General Equilibrium Approach (March 2006). MPIA Working Paper No. 2006-05, Available at SSRN: https://ssrn.com/abstract=985552 or http://dx.doi.org/10.2139/ssrn.985552

H. Khondker Bazlul (Contact Author)

University of Dhaka ( email )

University of Dhaka
Ramna, Dhaka, 1000
Bangladesh

Mustafa Mujeri

Bangladesh Institute of Development Studies (BIDS) - General Economics Division ( email )

Dhaka, 1207
Bangladesh

Selim Raihan

University of Dhaka ( email )

University of Dhaka
Ramna, Dhaka, 1000
Bangladesh

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