IDEAS home Printed from https://ideas.repec.org/p/eab/develo/22224.html
   My bibliography  Save this paper

Remittances, Trade Liberalisation, and Poverty in Pakistan : The Role of Excluded Variables in Poverty Change Analysis

Author

Listed:
  • Rizwana Siddiqui

    (PIDE)

  • A. R. Kemal

Abstract

This study attempts to assess the impact of two shocks - trade liberalisation and a decline in remittances from abroad- on poverty in Pakistan using a CGE framework. It is found that tariff reduction in the absence of a decline in remittances reduces poverty, as measured by the head count, poverty gap, and severity ratios (FGT indicators) in both the rural and urban areas of Pakistan. In terms of welfare, all households appear to gain. The results show that the gain in welfare is larger for urban households than for rural households. We conclude from this that trade liberalisation reduces the gap between urban and rural households. In a second set of experiments, it was found that trade liberalisation in the presence of a decline in remittances reduces welfare in urban households but rural household still show an increase over the base year. According to all FGT indicators, poverty increases in urban households but not in rural households. The combined stock is more harmful to households in the urban areas than in the rural areas. However, this welfare gain and poverty reduction in the presence of trade liberalisation only. Aggregate statistics show that the negative impact of remittance decline dominates the positive impact of trade liberalisation in urban areas. On the other hand, in the case of rural areas, the positive impact of trade liberalisation dominates the negative impact of decline in remittances. It shows that the decline in remittance inflows is a major contributory factor in explaining the increase in poverty in Pakistan.This study attempts to assess the impact of two shocks - trade liberalisation and a decline in remittances from abroad- on poverty in Pakistan using a CGE framework. It is found that tariff reduction in the absence of a decline in remittances reduces poverty, as measured by the head count, poverty gap, and severity ratios (FGT indicators) in both the rural and urban areas of Pakistan. In terms of welfare, all households appear to gain. The results show that the gain in welfare is larger for urban households than for rural households. In addition, poverty reduces by a larger percentage in urban households than in rural households. We conclude from this that trade liberalisation reduces the gap between urban and rural households. In a second set of experiments, it was found that trade liberalisation in the presence of a decline in remittances reduces welfare in urban households but rural household still show an increase over the base year. According to all FGT indicators, poverty increases in urban households but not in rural households. The combined stock is more harmful to households in the urban areas than in the rural areas. However, this welfare gain and poverty reduction in the presence of trade liberalisation only. Aggregate statistics show that the negative impact of remittance decline dominates the positive impact of trade liberalisation in urban areas. On the other hand, in the case of rural areas, the positive impact of trade liberalisation dominates the negative impact of decline in remittances. It shows that the decline in remittance inflows is a major contributory factor in explaining the increase in poverty in Pakistan.

Suggested Citation

  • 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.
    • Handle: RePEc:eab:develo:22224
    as

    Download full text from publisher

    File URL: http://www.eaber.org/node/22224
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. John Cockburn, 2002. "Trade Liberalisation and Poverty in Nepal: A Computable General Equilibrium Micro Simulation Analysis," CSAE Working Paper Series 2002-11, Centre for the Study of African Economies, University of Oxford.
    2. Rizwana Siddiqui & Zafar Iqbal, 1999. "Social Accounting Matrix of Pakistan for 1989-90," PIDE Research Report 1999:171, Pakistan Institute of Development Economics.
    3. Foster, James & Greer, Joel & Thorbecke, Erik, 1984. "A Class of Decomposable Poverty Measures," Econometrica, Econometric Society, vol. 52(3), pages 761-766, May.
    4. Azizur Rahman Khan, 1997. "Globalisation, Liberalisation, and Equitable Growth: Lessons from Contemporary Asian Experience," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 36(4), pages 915-928.
    5. Usman Qadir & Muhammad Ali Kemal & Hasan Mohammad Mohsin, 2000. "Impact of Trade Reforms on Poverty," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 39(4), pages 1127-1137.
    6. A. R. Kemal, 1981. "Income Distribution in Pakistan: A Review," PIDE-Working Papers 1981:123, Pakistan Institute of Development Economics.
    7. 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.
    8. A.R. Kemal & Rehana Siddiqui & Rizwana Siddiqui, 2001. "Triff Reduction and Income Destribution A CGE-based Analysis for Urban and Rural Households in Pakistan," PIDE-Working Papers 2001:181, Pakistan Institute of Development Economics.
    9. Clarete, Ramon L. & Whalley, John, 1988. "Interactions between trade policies and domestic distortions in a small open developing country," Journal of International Economics, Elsevier, vol. 24(3-4), pages 345-358, May.
    10. 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.
    11. Mohammad, Irfan, 1999. "Emigration from Pakistan - 1947-97," MPRA Paper 38623, University Library of Munich, Germany.
    12. Decaluwe, B. & Patry, A. & Savard, L. & Thorbecke, E., 1999. "Poverty Analysis Within a General Equilibrium Framework," Cahiers de recherche 9909, Université Laval - Département d'économique.
    13. 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.
    14. 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.
    15. Hans De Kruijk, 1987. "Sources of Income Inequality in Pakistan," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 26(4), pages 659-672.
    16. Rashid Amjad & A.R. Kemal, 1997. "Macroeconomic Policies and their Impact on Poverty Alleviation in Pakistan," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 36(1), pages 39-68.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Rizwana Siddiqui & A. R. Kemal, 2006. "Poverty-reducing or Poverty-inducing? A CGE-based Analysis of Foreign Capital Inflows in Pakistan," PIDE-Working Papers 2006:2, Pakistan Institute of Development Economics.
    2. 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.
    3. Rizwana Siddiqui, 2004. "Modelling Gender Dimensions of the Impact of Economic Reforms on Time Allocation among Market Work,Household Work, and Leisure," PIDE-Working Papers 2004:185, Pakistan Institute of Development Economics.
    4. A. R. Kemal & Rehana Siddiqui & Rizwana Siddiqui & M. Ali Kemal, 2003. "An Assessment of the Impact of Trade Liberalisation on Welfare in Pakistan: A General Equilibrium Analysis," MIMAP Technical Paper Series 2003:16, Pakistan Institute of Development Economics.
    5. Bodrun Nahar & Mahinda Siriwardana, 2013. "Trade Opening, Fiscal Reforms, Poverty, and Inequality: A CGE Analysis for Bangladesh," The Developing Economies, Institute of Developing Economies, vol. 51(2), pages 145-185, June.
    6. 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.
    7. Boccanfuso, Dorothée & Richard, Patrick & Savard, Luc, 2013. "Parametric and nonparametric income distribution estimators in CGE micro-simulation modeling," Economic Modelling, Elsevier, vol. 35(C), pages 892-899.
    8. Céline DE QUATREBARBES & Luc SAVARD & Dorothée BOCCANFUSO, 2011. "Can the removal of VAT Exemptions support the Poor? The Case of Niger," Working Papers 201106, CERDI.
    9. Dorothée Boccanfuso & Bernard Decaluwé & Luc Savard, 2008. "Poverty, income distribution and CGE micro-simulation modeling: Does the functional form of distribution matter?," The Journal of Economic Inequality, Springer;Society for the Study of Economic Inequality, vol. 6(2), pages 149-184, June.
    10. Ramos Mabugu & Margaret Chitiga, 2009. "Liberalising Trade In South Africa: A Survey Of Computable General Equilibrium Studies," South African Journal of Economics, Economic Society of South Africa, vol. 77(3), pages 445-464, September.
    11. Agenor, Pierre-Richard & Chen, Derek H.C. & Grimm, Michael, 2004. "Linking representative household models with household surveys for poverty analysis : a comparison of alternative methodologies," Policy Research Working Paper Series 3343, The World Bank.
    12. Nabil Annabi & Fatou Cissé & John Cockburn & Bernard Decaluwé, 2005. "Trade Liberalisation, Growth and Poverty in Senegal: a Dynamic Microsimulation CGE Model Analysis," Cahiers de recherche 0512, CIRPEE.
    13. Dorothée Boccanfuso & Luc Savard, 2005. "Analyse d’Impact de la Construction de l’Autoroute Dakar-Thies : un Modèle Equilibre Géneral Calculable Multi-Ménages Intégrés," Cahiers de recherche 05-11, Departement d'économique de l'École de gestion à l'Université de Sherbrooke.
    14. Behrman, Jere R., 2009. "Analyzing the Distributional Impact of Reforms, Volume Two: A Practitioner's Guide to Pension, Health, Labor Market, Public Sector Downsizing, Taxation, Decentralization, and Macroeconomic Modeling. A," Journal of Pension Economics and Finance, Cambridge University Press, vol. 8(3), pages 396-397, July.
    15. Khan, Muhammad Aamir, 2017. "Regional Trade and Economic Development: Options for Pakistan," Conference papers 332899, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    16. A.R. Kemal & Rehana Siddiqui & Rizwana Siddiqui, 2001. "Triff Reduction and Income Destribution A CGE-based Analysis for Urban and Rural Households in Pakistan," PIDE-Working Papers 2001:181, Pakistan Institute of Development Economics.
    17. Céline de Quatrebarbes & Savard Luc & Boccanfuso Dorothée, 2011. "Can the suppression of VAT exemption support the poor? The case of Niger," EcoMod2011 3227, EcoMod.
    18. Prakash Raj Sapkota & John Cockburn, 2008. "Trade Liberalization and Poverty in Nepal: an Applied General Equilibrium Analysis," Working Papers MPIA 2008-13, PEP-MPIA.
    19. Siddiqui, Rizwana, 2006. "Modelling Gender Dimensions of the Impact Of Economic Reforms in Pakistan," Conference papers 331468, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    20. Ravallion, Martin, 2006. "Looking beyond averages in the trade and poverty debate," World Development, Elsevier, vol. 34(8), pages 1374-1392, August.

    More about this item

    Keywords

    Trade Liberalisation; remittance; poverty; households;
    All these keywords.

    JEL classification:

    • R28 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Government Policy
    • H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household
    • I32 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Measurement and Analysis of Poverty

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eab:develo:22224. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Shiro Armstrong (email available below). General contact details of provider: https://edirc.repec.org/data/eaberau.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.