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Trade liberalization and income inequality: The case for Pakistan

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  • Khan, Muhammad Aamir
  • Walmsley, Terrie
  • Mukhopadhyay, Kakali

Abstract

Trade liberalization policies have been adopted by many developing countries to increase economic growth and reduce poverty. While the positive relationship between trade liberalization and economic growth is generally well accepted, the impact of trade liberalization on poverty and income inequality is still unclear. The objective of this paper is to use real data and real trade agreements of the state of Pakistan, to examine the predictions made by trade models about the impact of trade liberalization on income inequality. To illustrate, the impacts of several alternative bilateral and regional free trade agreements are simulated on household income and income inequality in Pakistan. The results show that trade liberalization does not always lead to a decline in income inequality in the short run. Trade agreements that do improve income equality, favor agriculture and often hinge on a decline in urban and non-farm household income. In the long run, changes in income equality are more positive, suggesting that efforts might best be applied towards improving the mobility of labor and capital.

Suggested Citation

  • Khan, Muhammad Aamir & Walmsley, Terrie & Mukhopadhyay, Kakali, 2021. "Trade liberalization and income inequality: The case for Pakistan," Journal of Asian Economics, Elsevier, vol. 74(C).
    • Handle: RePEc:eee:asieco:v:74:y:2021:i:c:s1049007821000397
    DOI: 10.1016/j.asieco.2021.101310
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    References listed on IDEAS

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    Cited by:

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    More about this item

    Keywords

    Income inequality; Trade liberalization; CGE modeling; Pakistan;
    All these keywords.

    JEL classification:

    • F11 - International Economics - - Trade - - - Neoclassical Models of Trade
    • F17 - International Economics - - Trade - - - Trade Forecasting and Simulation
    • O19 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - International Linkages to Development; Role of International Organizations
    • C68 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computable General Equilibrium Models

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