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The Impact of Tariff Reforms on Income Distribution in Pakistan: A CGE-based Analysis

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Author Info

  • Rehana Siddiqui

    (Pakistan Institute of Development Economics, Islamabad.)

  • Rizwana Siddiqui

    (Pakistan Institute of Development Economics, Islamabad.)

  • Zafar Iqbal

    (International Monetary Fund, Islamabad.)

Abstract

Like most developing countries, Pakistan has undertaken drastic economic policy reforms since the mid-1980s. Under these structural reforms there is a general shift away from quantitative restrictions and price controls towards liberalisation and privatisation. The empirical studies1 analysing the impact of the reforms report mixed results. Economy wide framework like Computable General Equilibrium (CGE), based on the social accounting matrix, is well suited to analysing the effect of these structural reforms. The CGE models are developed to capture the medium to long-run effects through which adjustment programmes affect income distribution. These models are often used to evaluate the effects of trade and tax policies on income distribution in developing countries. There are three interacting channels through which these adjustment policies affect income distribution, viz., the relative price effect, the asset price effect and the shift in portfolio. However, in this study, we are analysing the effect of changes in relative prices only. The first and more easily quantifiable channel is through analysis of the impact of changes in production prices following changes in tariff. For a given shock in the above mentioned policy variables, the medium to long-run distributional impact of the resulting structural adjustment is determined by the extent of relative price rigidities (fixed real wages, or mark up pricing), the extent of factor mobility (supply elasticity’s) and difference in consumption pattern across socio-economic groups. Difference in assumptions and closure rule play a very important role in market adjustment mechanism in developing countries. Simulation exercises show that assumptions about the macro economic closure and behavioural parameters matter a great deal in determining the productive and distributive effects of a shock and a country’s adjustment to the shock.

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Bibliographic Info

Article provided by Pakistan Institute of Development Economics in its journal The Pakistan Development Review.

Volume (Year): 38 (1999)
Issue (Month): 4 ()
Pages: 789-804

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Handle: RePEc:pid:journl:v:38:y:1999:i:4:p:789-804

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Cited by:
  1. Rizwana Siddiqui, 2005. "Modelling Gender Dimensions of the Impact of Economic Reforms on Time Allocation among Market, Household, and Leisure Activities in Pakistan," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 44(4), pages 615-639.
  2. Siddiqui, Rizwana & Kemal, A R, 2006. "Poverty-reducing or Poverty-inducing? A CGE-based Analysis of Foreign Capital Inflows in Pakistan," MPRA Paper 2283, University Library of Munich, Germany.
  3. Rizwana Siddiqui & A. R. Kemal, 2006. "Remittances, Trade Liberalisation, and Poverty in Pakistan : The Role of Excluded Variables in Poverty Change Analysis," Development Economics Working Papers 22224, East Asian Bureau of Economic Research.
  4. Rehana Siddiqui & Shahnaz Hamid & Rizwana Siddiqui, 2000. "Analysis of Non-conventional Indicators of Gender Relations: Evidence from Pakistan," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 39(4), pages 913-929.
  5. Rizwana Siddiqui & Abdul Razzaq Kemal & Rehana Siddiqui & Ali Kemal, 2008. "Tariff Reduction, Fiscal Adjustment and Poverty in Pakistan: a CGE-Based Analysis," Working Papers MPIA 2008-17, PEP-MPIA.
  6. Butt, Muhammad Shoaib & Bandara, Jayatilleke S., 2008. "National and Regional Impacts of Increasing Non-Agricultural Market Access by Developing Countries – the Case of Pakistan," Economic Analysis and Policy (EAP), Queensland University of Technology (QUT), School of Economics and Finance, vol. 38(2), pages 277-311, September.
  7. Rizwana Siddiqui, 2007. "Modelling Gender Dimensions of the Impact of Economic Reforms in Pakistan," Working Papers MPIA 2007-13, PEP-MPIA.
  8. Zafar Iqbal & Rizwana Siddiqui, 2001. "Critical Review of Literature on Computable General Equilibrium Models," MIMAP Technical Paper Series 2001:09, Pakistan Institute of Development Economics.

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