Agricultural Trade Liberalization and Poverty in Rural Bangladesh

Abstract

This study investigated the changes in poverty of rural households in Bangladesh in the post-liberalization era. The study used household survey data from secondary sources and calculated poverty indices, decomposition, and elasticity. The study found that income distribution across rural households was uneven in the post-liberalization period. Although agricultural trade liberalization generated significant growth, inequality also increased and the rich gained more from this growth than the poor. Therefore, poverty reduction in the post-liberalization period was not as significant as the economic growth. Among rural households, non-farm households gained more than farm households from post-liberalization growth because of a relatively large reduction in consumer price compared to increases in productivity of rice. Similarly, net buyers gained more than net sellers from a large reduction in rice price. The study suggests that holding inequality constant at the 1985–1986 level, rural poverty in Bangladesh could be reduced to zero with the growth experienced during 1985–1986 to 2005. The study argues that a reduction in poverty at a substantial level is a big challenge for policymakers because of an increase in inequality along with economic growth. Therefore, the government should formulate policies to reduce inequality in order to reduce poverty significantly.