Development Paper 1501 - Effects of Unilateral Trade Liberalization in South Asian countries: Applications of CGE Models

Development Paper 1501 - Effects of Unilateral Trade Liberalization in South Asian countries: Applications of CGE Models

Date: 
Wednesday, July 15, 2015
Type: 
Public information and advocacy materials
Abstract

This South and South-West Asia Development Paper #1501 explores the economy-wide effects of trade liberalization in five South Asian countries (Bangladesh, India, Nepal, Pakistan and Sri Lanka) using updated Social Accounting Matrices (SAM) and the static Computable General Equilibrium (CGE) models of these countries
for the year 2012. The CGE framework captures the impact of unilateral trade liberalization on macro-economy, trade, employment and household welfare in the selected countries by tracing the price effects of exogenous shocks, where the variations in prices lead to re-allocation of resources among competing activities, which may alter the factorial income and, hence, the distribution of household income.
The results show that trade liberalization measures stimulates growth in employment, for skilled and unskilled labour, as well as real income for all the five
South Asian countries. Tariff elimination increases real GDP at factor cost by 3.1 percent in Bangladesh, by 2.5 percent in India, by 2 percent in Nepal, by 0.9 percent in Pakistan, and by 0.6 percent in Sri Lanka. The relative price and wage changes in these five economies are also observed to culminate in a general depreciation of real exchange rates, making their exports more competitive in the world markets.

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