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Poverty-reducing or Poverty-inducing? A CGE-based Analysis of Foreign Capital Inflows in Pakistan

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Author Info

  • Rizwana Siddiqui

    (Pakistan Institute of Development Economics, Islamabad)

  • A. R. Kemal

    (Pakistan Institute of Development Economics, Islamabad)

Abstract

Foreign capital inflows (FKI) help an economy by financing the imbalance between income and expenditure. However, their impact on poverty in the recipient economy is a controversial issue. In this study, we examine the impact on poverty in two different scenarios (1) labour is homogeneous (2) labour is heterogeneous. The Computable General Equilibrium model for Pakistan is used to conduct simulations in order to assess the impact of an increase in foreign capital on poverty both in the presence and in the absence of trade liberalisation. Several interesting results emerge from the study. First, FKI tends to reduce poverty in the presence as well as in the absence of trade liberalisation when labour is homogeneous. However, poverty reduction appears to be larger in the presence of trade liberalisation. Second, when labour is differentiated according to qualification and is assumed to be sector-specific, in the absence of trade liberalisation a higher proportion of benefits of FKI accrue to skilled labour and poverty increases by all measures for both urban and rural households. In the presence of trade liberalisation, FKI benefits unskilled labour more, and poverty is decreased irrespective of the choice of poverty indicators

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Paper provided by Pakistan Institute of Development Economics in its series PIDE-Working Papers with number 2006:2.

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Length: 43 pages.
Date of creation: 2006
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Handle: RePEc:pid:wpaper:2006:2

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Keywords: Capital inflow; Poverty; Pakistan;

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References

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  1. John Cockburn, 2004. "Trade Liberalisation and Poverty in Nepal A Computable General Equilibrium Micro Simulation Analysis," Development and Comp Systems 0409012, EconWPA.
  2. Foster, James & Greer, Joel & Thorbecke, Erik, 1984. "A Class of Decomposable Poverty Measures," Econometrica, Econometric Society, vol. 52(3), pages 761-66, May.
  3. A. R. Kemal, 1981. "Substitution Elasticities in the Large- Scale Manufacturing Industries of Pakistan," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 20(1), pages 1-36.
  4. Ashfaque H. Khan, 1997. "Foreign Direct Investment in Pakistan: Policies and Trends," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 36(4), pages 959-985.
  5. Buffie, Edward, 1985. "Quantitative restrictions and the welfare effects of capital inflows," Journal of International Economics, Elsevier, vol. 19(3-4), pages 291-303, November.
  6. Natalia T. Tamirisa, 1999. "Exchange and Capital Controls as Barriers to Trade," IMF Staff Papers, Palgrave Macmillan, vol. 46(1), pages 4.
  7. Wood, Adrian, 1998. "Globalisation and the Rise in Labour Market Inequalities," Economic Journal, Royal Economic Society, vol. 108(450), pages 1463-82, September.
  8. Wood, Adrian, 1995. "How Trade Hurt Unskilled Workers," Journal of Economic Perspectives, American Economic Association, vol. 9(3), pages 57-80, Summer.
  9. Sohail J. Malik & Mohammad Mushtaq & Hina Nazli, 1989. "An Analysis of Production Relations in the Large-scale Textile Manufacturing Sector of Pakistan," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 28(1), pages 27-42.
  10. Rehana Siddiqui & Rizwana Siddiqui & Zafar Iqbal, 1999. "The Impact of Tariff Reforms on Income Distribution in Pakistan: A CGE-based Analysis," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 38(4), pages 789-804.
  11. White, H., 1995. "How much aid is used for poverty reduction?," ISS Working Papers - General Series 1765018903, International Institute of Social Studies of Erasmus University (ISS), The Hague.
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  1. Siddiqui, Rizwana & Kemal, A.R., 2002. "Remittances, trade liberalisation, and poverty in Pakistan: The role of excluded variables in poverty change analysis," MPRA Paper 4228, University Library of Munich, Germany, revised Oct 2006.
  2. Asmat Ullah & Syed Waqar Hussain & Zahoor Khan, 2012. "Micro-econometric Analysis of Impact of Remittances on Household’s Welfare: Empirical Evidence from District Peshawar," Oeconomics of Knowledge, Saphira Publishing House, vol. 4(1), pages 2-13, January.
  3. Paul Dorosh & Abdul Salam, 2006. "Wheat Markets and Price Stabilisation in Pakistan : An Analysis of Policy Options," Microeconomics Working Papers 22188, East Asian Bureau of Economic Research.
  4. Mughal, Mazhar, 2008. "Boon or bane- role of FDI in the economic growth of Pakistan," MPRA Paper 16468, University Library of Munich, Germany.
  5. 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.

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