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Effects of Food Trade Liberalization on Poverty and Inequality in Bangladesh: A Partial Equilibrium Approach

Received: 3 October 2019     Accepted: 12 November 2019     Published: 6 January 2020
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Abstract

Using a partial equilibrium model, we examine the effects of full tariffs withdrawal from food imports of Bangladesh on its poverty and inequality. We show that if tariffs are withdrawn from food imports, domestic food prices decrease, but the sizes of decreases in prices depend on import demand elasticities. Then we show that decreases in domestic prices affect households’ welfare or income in three channels. As consumers of food items, households gain real income/welfare as their food expenditures reduce. As laborers in the agriculture or food processing sector, households’ members may lose their income, as according to the Stolper-Samuelson theorem, changes in output prices may affect input prices positively. As sellers of food items, households lose their income. From Household Income and Expenditure Survey 2010, we find that the average effect of full tariffs withdrawal from food imports on households’ welfare is positive, as all households are consumers, but all are not laborers and sellers. So, the first channel is stronger than other channels. We have found that food trade liberalization reduces the poverty rate by 2.4 percentage points. However, the main food in Bangladesh is rice, which had no import tariff in our data period. We also produce results for rice trade liberalization. If the rice tariff were the highest ever (e.g., 19.4%) and the government reduced it to zero, the poverty rate would have decreased by 1.74 percentage points. Rice trade liberalization also reduces inequality, but trade liberalization of other foods does not influence inequality.

Published in Journal of World Economic Research (Volume 9, Issue 1)
DOI 10.11648/j.jwer.20200901.12
Page(s) 10-19
Creative Commons

This is an Open Access article, distributed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution and reproduction in any medium or format, provided the original work is properly cited.

Copyright

Copyright © The Author(s), 2020. Published by Science Publishing Group

Keywords

Trade Liberalization, Poverty, Inequality, Partial Equilibrium

References
[1] Ahmed, Sadiq and Zaidi Sattar (2004). Trade Liberalization, Growth and Poverty Reduction: The Case of Bangladesh, Washington, D. C.: World Bank.
[2] Hossain, Mohammad A. (2011). Trade Liberalisation and Wage Inequality in the Bangladesh Manufacturing Sector, 1973-1994, Bangladesh Development Studies 34 (3), 31-53.
[3] Nath, HiranyaK. and Mamun, Khawaja A. (2004). Trade liberalization, Growth and Inequality in Bangladesh: An Empirical Analysis, manuscript presented in 41st Annual Conference of the Missouri Valley Economic Association held in Nashville, TN.
[4] Raihan, S. (2010). Welfare and poverty impacts of trade liberalization: a dynamic CGE microsimulation analysis. International journal of microsimulation, 3 (1), 123-126.
[5] Hanson, G. and A. Harrison (1999): “Trade and wage inequality in Mexico, ” Industrial and Labor Relations Review 52 (2), 271-288.
[6] Pavcnik, N., A. Blom, P. K. Goldberg, and N. Schady (2004). Trade Policy and Industry Wage Structure: Evidence from Brazil, World Bank Economic Review, Vol. 18 (3), pp. 319-344.
[7] Ravallion, M. (2003). The debate on globalization, poverty and inequality: why measurement matters. International Affairs, 79 (4), 739-753.
[8] Nicita, A., Olarreaga, M. And Porto, G. (2011). Pro-Poor Trade Policy in Sub-Saharan Africa, Centrode Estudios Distributivos, Laborales y Sociales.
[9] Cragg, M. I. and M. Epelbaum (1996). Why has wage dispersion grown in Mexico? Is it the incidence of reforms or the growing demand for skills?, Journal of Development Economics, Vol. 51, pp. 99-116.
[10] Attanasio, O., Goldberg P., and N. Pavcnik (2004). Trade Reforms and Wage Inequality in Colombia, Journal of Development Economics 74, 331-366.
[11] Feenstra, R. and G. Hanson (1996). Foreign Investment, outsourcing and relative wages, in R. C. Feenstraet. al. (eds). Political economy of trade policy: essays in honor of JagdishBhagwati: MIT Press, Cambridge, 89-127.
[12] Feenstra, R. C., & Hanson, G. H. (2003). Global production sharing and rising inequality: A survey of trade and wages. Handbook of international trade, 1, 146-85.
[13] Wood, A. (1995). How Trade Hurt Unskilled Workers, Journal of Economic Perspectives, 9 (3), pp. 57-80.
[14] Melitz, M. (2003). The Impact of Trade on Intra-industry Reallocations and Aggregate Industry Productivity, Econometrica 71, 1696-1725.
[15] Deaton, A. (1989). Rice Prices and Income Distribution in Thailand: a Non-parametric Analysis, The Economic Journal, 99 (Supplement), pp. 1-37.
[16] Deaton, A. (1997). The Analysis of Household Surveys - A Microeconometric Approach to Development Policy. Baltimore: Johns Hopkins Press.
[17] Ravallion, M. (1990). Rural welfare effects of food price changes under induced wage responses: theory and evidence for Bangladesh. Oxford Economic Papers, 42 (3), 574-585.
[18] Coello, B., M. Fall and A. Suwa-Eisenmann (2011), Trade liberalization and poverty dynamics in Vietnam 2002-2006, mimeo, INRA, Paris School of Economics.
[19] Porto, G. (2006). Using Survey Data to Assess the Distributional Effects of Trade Policy, Journal of International Economics, 70, 140-160.
[20] Porto, G. (2010). International Market Access and Poverty in Argentina, Review of International Economics, May 2010.
[21] Nicita, A. (2009). The Price Effect of Trade Liberalization: Measuring the Impacts on Household welfare, Journal of Development Economics, vol. 89 (1), pp. 19-27.
[22] Ackerman, F. and Gallagher, Kevin P. (2008). The Shrinking Gains from Global Trade Liberalization in Computable General Equilibrium Models, International Journal of Political Economy 37 (1), 50-77.
[23] Nicita, A., Olarreaga, M., & Porto, G. (2014). Pro-poor trade policy in Sub-Saharan Africa. Journal of International Economics, 92 (2), 252-265.
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    Mohammad Mahbubur Rahman, Cheng Fang. (2020). Effects of Food Trade Liberalization on Poverty and Inequality in Bangladesh: A Partial Equilibrium Approach. Journal of World Economic Research, 9(1), 10-19. https://doi.org/10.11648/j.jwer.20200901.12

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    Mohammad Mahbubur Rahman; Cheng Fang. Effects of Food Trade Liberalization on Poverty and Inequality in Bangladesh: A Partial Equilibrium Approach. J. World Econ. Res. 2020, 9(1), 10-19. doi: 10.11648/j.jwer.20200901.12

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    AMA Style

    Mohammad Mahbubur Rahman, Cheng Fang. Effects of Food Trade Liberalization on Poverty and Inequality in Bangladesh: A Partial Equilibrium Approach. J World Econ Res. 2020;9(1):10-19. doi: 10.11648/j.jwer.20200901.12

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  • @article{10.11648/j.jwer.20200901.12,
      author = {Mohammad Mahbubur Rahman and Cheng Fang},
      title = {Effects of Food Trade Liberalization on Poverty and Inequality in Bangladesh: A Partial Equilibrium Approach},
      journal = {Journal of World Economic Research},
      volume = {9},
      number = {1},
      pages = {10-19},
      doi = {10.11648/j.jwer.20200901.12},
      url = {https://doi.org/10.11648/j.jwer.20200901.12},
      eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.jwer.20200901.12},
      abstract = {Using a partial equilibrium model, we examine the effects of full tariffs withdrawal from food imports of Bangladesh on its poverty and inequality. We show that if tariffs are withdrawn from food imports, domestic food prices decrease, but the sizes of decreases in prices depend on import demand elasticities. Then we show that decreases in domestic prices affect households’ welfare or income in three channels. As consumers of food items, households gain real income/welfare as their food expenditures reduce. As laborers in the agriculture or food processing sector, households’ members may lose their income, as according to the Stolper-Samuelson theorem, changes in output prices may affect input prices positively. As sellers of food items, households lose their income. From Household Income and Expenditure Survey 2010, we find that the average effect of full tariffs withdrawal from food imports on households’ welfare is positive, as all households are consumers, but all are not laborers and sellers. So, the first channel is stronger than other channels. We have found that food trade liberalization reduces the poverty rate by 2.4 percentage points. However, the main food in Bangladesh is rice, which had no import tariff in our data period. We also produce results for rice trade liberalization. If the rice tariff were the highest ever (e.g., 19.4%) and the government reduced it to zero, the poverty rate would have decreased by 1.74 percentage points. Rice trade liberalization also reduces inequality, but trade liberalization of other foods does not influence inequality.},
     year = {2020}
    }
    

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    AU  - Mohammad Mahbubur Rahman
    AU  - Cheng Fang
    Y1  - 2020/01/06
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    JF  - Journal of World Economic Research
    JO  - Journal of World Economic Research
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    UR  - https://doi.org/10.11648/j.jwer.20200901.12
    AB  - Using a partial equilibrium model, we examine the effects of full tariffs withdrawal from food imports of Bangladesh on its poverty and inequality. We show that if tariffs are withdrawn from food imports, domestic food prices decrease, but the sizes of decreases in prices depend on import demand elasticities. Then we show that decreases in domestic prices affect households’ welfare or income in three channels. As consumers of food items, households gain real income/welfare as their food expenditures reduce. As laborers in the agriculture or food processing sector, households’ members may lose their income, as according to the Stolper-Samuelson theorem, changes in output prices may affect input prices positively. As sellers of food items, households lose their income. From Household Income and Expenditure Survey 2010, we find that the average effect of full tariffs withdrawal from food imports on households’ welfare is positive, as all households are consumers, but all are not laborers and sellers. So, the first channel is stronger than other channels. We have found that food trade liberalization reduces the poverty rate by 2.4 percentage points. However, the main food in Bangladesh is rice, which had no import tariff in our data period. We also produce results for rice trade liberalization. If the rice tariff were the highest ever (e.g., 19.4%) and the government reduced it to zero, the poverty rate would have decreased by 1.74 percentage points. Rice trade liberalization also reduces inequality, but trade liberalization of other foods does not influence inequality.
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Author Information
  • School of Health Sciences and Social Works, University of Portsmouth, UK

  • Food and Agriculture Organization of the United Nations, Rome, Italy

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