Assessing Poverty Impact of Trade Liberalization Policies: A Generic Macroeconomic Computable General Equilibrium Model for South Asia
What is the impact of trade liberalization on poverty reduction? This paper tries to answer this by using a "generic" (macroeconomic) computable general equilibrium (CGE) model specially constructed for the purpose of investigating the implications of trade liberalization for poverty reduction in South Asia.
The model is a stylized representation of economies with large populations and large numbers of urban and rural poor as in India, Pakistan, or Bangladesh. It is found that a dualistic production structure incorporating both the formal and informal activities and enough details on the labor markets and household side can capture some of the effects of trade liberalization on poverty reduction. The model's general equilibrium results suggest that trade liberalization can lead to some poverty reduction in South Asia. However, trade liberalization is not a substitute for other specific poverty reduction policies.
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