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The Macroeconomic, Industrial and Distributional Effects of Removing Tariffs in Bangladesh

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  • Serajul Hoque

Abstract

This paper examines the economic effects of removing tariffs in Bangladesh using a computable general equilibrium (CGE) modelling approach. The results of the simulations indicate that in the short-run a funded tariff cut with fixed real national savings would increase employment slightly and hence would expand GDP. There would be a small economy-wide welfare gain as measured by real consumption. The sectoral results showed that export-oriented industries would experience an expansion in output and employment. There also would be positive effects on the suppliers to these industries. Lightly-protected industries, which rely heavily on imported intermediate inputs, are projected to show robust expansion as they would benefit from a cost reduction. However, highly-protected, import-competing industries would suffer a contraction in output and employment as they would face increased competition from imports due to the removal of tariffs. The simulation results also indicate that there would have some noticeable effects on the distribution of real consumption between different household groups. Overall, urban households would experience an expansion in real consumption and rural households would suffer a contraction as a consequence of the funded tariff cut with fixed real national savings.

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Bibliographic Info

Paper provided by Victoria University, Centre of Policy Studies/IMPACT Centre in its series Centre of Policy Studies/IMPACT Centre Working Papers with number g-170.

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Date of creation: Jan 2008
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Handle: RePEc:cop:wpaper:g-170

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Keywords: CGE model; trade liberalisation; income distribution; Bangladesh;

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  1. Decaluwe, Bernard & Martens, Andre, 1988. "CGE modeling and developing economies: A concise empirical survey of 73 applications to 26 countries," Journal of Policy Modeling, Elsevier, vol. 10(4), pages 529-568.
  2. Fontana, Marzia & Wobst, Peter & Dorosh, Paul A., 2001. "Macro policies and the food sector in Bangladesh," TMD discussion papers 73, International Food Policy Research Institute (IFPRI).
  3. Bandara, Jayatilleke S, 1991. " Computable General Equilibrium Models for Development Policy Analysis in LDCs," Journal of Economic Surveys, Wiley Blackwell, vol. 5(1), pages 3-69.
  4. David Dollar & Aart Kraay, 2004. "Trade, Growth, and Poverty," Economic Journal, Royal Economic Society, vol. 114(493), pages F22-F49, 02.
  5. Peter B. Dixon & Maureen T. Rimmer & Marinos E. Tsigas, 2004. "Macro, industry and state effects in the U.S. of removing major tariffs and quotas," Centre of Policy Studies/IMPACT Centre Working Papers g-146, Victoria University, Centre of Policy Studies/IMPACT Centre.
  6. Nabil Annabi & H. Khondker Bazlul & Selim Raihan & John Cockburn & Bernard Decaluwe, 2005. "Implications of WTO Agreements and Domestic Trade Policy Reforms for Poverty in Bangladesh: Short vs. Long Run," Working Papers MPIA 2005-02, PEP-MPIA.
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