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Tariff Reduction and Income Distribution: A CGE-based Analysis for Urban and Rural Households in Pakistan

  • A. R. Kemal

    (Pakistan Institute of Development Economics, Islamabad)

  • Rehana Siddiqui

    (Pakistan Institute of Development Economics, Islamabad)

  • Rizwana Siddiqui

    (Pakistan Institute of Development Economics, Islamabad)

The study, based on SAM-based CGE model, examines the impact of reduction in tariff on industrial imports on urban and rural households and on other broad macroeconomic aggregates. Based on simulation exercises for 40 percent, 60 percent and 80 percent reduction in tariff on industrial imports, the results suggest that tariff reduction lowers price of imported goods, affects domestic relative price structure, and supply and demand of goods. The results show that the impact of these changes in relative prices is disproportionately higher for the low-income groups. The returns to labour and capital have declined in nominal terms. The share of capital in total GDP increases from 0.72 to 0.73 while the share of labour declines from 0.28 to 0.27. This has negative welfare implications as poor households receive higher percentage of their income from wages and salaries. Results also reveal that tariff reduction increases the gap between the rich and the poor. The Gini coefficient indicates worsening of income distribution, however, the difference between the pre- and post-reform Gini coefficient is very small.

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File URL: http://www.pide.org.pk/Mimap/Report11.pdf
File Function: First Version, 2001
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Paper provided by Pakistan Institute of Development Economics in its series MIMAP Technical Paper Series with number 2001:11.

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Length: 36 pages
Date of creation: 2001
Date of revision:
Handle: RePEc:pid:mimaps:2001:11
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  1. De Melo, Jaime, 1988. "CGE models for the analysis of trade policy in developing countries," Policy Research Working Paper Series 3, The World Bank.
  2. A.R. Kemal, 1994. "Structural Adjustment, Employment, Income Distribution and Poverty," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 33(4), pages 901-914.
  3. White, H., 1997. "The economic and social impact of adjustment in Africa : further empirical analysis," ISS Working Papers - General Series 18987, International Institute of Social Studies of Erasmus University Rotterdam (ISS), The Hague.
  4. Rizwana Siddiqui & Zafar Iqbal, 2001. "Tariff Reduction and Functional Income Distribution in Pakistan: A CGE Model," MIMAP Technical Paper Series 2001:10, Pakistan Institute of Development Economics.
  5. Rizwana Siddiqui & Zafar Iqbal, 1999. "Social Accounting Matrix of Pakistan for 1989-90," PIDE-Working Papers 1999:171, Pakistan Institute of Development Economics.
  6. 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.
  7. repec:ner:tilbur:urn:nbn:nl:ui:12-73593 is not listed on IDEAS
  8. Lambert, Sylvie & Schneider, Hartmut & Suwa, Akiko, 1991. "Adjustment and equity in Cote d'Ivoire: 1980-86," World Development, Elsevier, vol. 19(11), pages 1563-1576, November.
  9. Zafar Iqbal & Rizwana Siddiqui, 1998. "The Impact of Structural Adjustment on Income Distribution in Pakistan A SAM-based Analysis," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 37(4), pages 377-397.
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