Assessing Poverty Impact of Trade Liberalization Policies: A Generic Macroeconomic Computable General Equilibrium Model for South Asia

Abstract

The paper uses a dualistic, compact and “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 including large numbers of both urban and rural poor as in India, Pakistan or Bangladesh. The current “generic” model uses CES production functions and Harris-Todaro type migration model together with representative data to generate economy wide results. It is found that a dualistic production structure with sufficient 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 complement other specific policy interventions for poverty reduction.