Impact of trade liberalization and world price changes in Bangladesh: a computable general equilibrium analysis

Mohammad Jahangir Alam,Jeroen Buysse,Guido Van Huylenbroeck,Eric J Wailes,Stephan Nolte,Ismat Ara Begum

doi:10.1186/s40100-016-0045-x

Abstract

The paper analyzes the impact of partial liberalization of trade and changes in world prices of agricultural commodities in Bangladesh using single country Computable General Equilibrium (CGE) model. Since the agricultural sector is sensitive to overall employment, household welfare and food security, the analysis focuses on the changes in agricultural production, consumption, household income and welfare. The results show that trade liberalization increases the welfare of all household groups while world market price increases decrease welfare. It means that although trade liberalization generates a welfare increase for households but this is dependent on the relative level of world commodity prices. Our results are based on the analysis of aggregate household groups, so it may be of future research interest to extend the model with more detailed household groups using a CGE-micro simulation approach.

Highlights

There are many policy debates in Bangladesh whether the country needs to further liberalize its trade, especially after the food commodity price surges during 2007–2008 and the one going on currently, or to go back to a policy of protecting the domestic sectors from foreign competition
One has to keep in mind the results are based on the static Computable General Equilibrium (CGE) model which has limitation to capture the impact in the longer term
The objective of this paper was to analyze the impact of partial liberalization of trade and the increases of world agricultural commodity prices in Bangladesh using a single-country static CGE model

Summary

Introduction

There are many policy debates in Bangladesh whether the country needs to further liberalize its trade, especially after the food commodity price surges during 2007–2008 and the one going on currently, or to go back to a policy of protecting the domestic sectors from foreign competition. The 2007–2008 and the ongoing price surges have initiated the debate especially because the world market supply was found to be unstable making prices more volatile. This may make the country more vulnerable, lead to severe food insecurity both at national and household level, and decreases household welfare and could deepened the poverty. World Trade Organization and International Trade Centre, UNCTAD/WTO, Geneva, Switzerland

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Conclusion