Impact of trade liberalisation on labour market and poverty in Sri Lanka. An integrated macro-micro modelling approach

Tilak S. Liyanaarachchi, Athula Naranpanawa and Jayatilleke S. Bandara

Economic Modelling, 2016, vol. 59, issue C, 102-115

Abstract: This paper revisits the long standing controversy of trade and poverty linkage using a macro-micro modelling approach based on general equilibrium and microsimulation analytical frameworks. Sri Lanka, the first country in South Asia which undertook trade reforms more than three decades ago, is taken as a case in point in this study. The paper analyses the effects of trade liberalisation on income distribution and poverty in the urban, rural and estate sectors in Sri Lanka using the first ever microsimulation model built for the country in combination with a multi-household computable general equilibrium (CGE) model. The results reveal that without any fiscal policy adjustments a 100% tariff cut would lead to an increase in economic growth and a reduction in poverty incidence both in the short run as well as in the long run. However, when the tariff cut combined with the fiscal policy adjustments to maintain the budget neutrality, poverty outcomes showed mixed results. In contrast, results show that trade liberalisation increases the income inequality in Sri Lanka.

Keywords: Poverty; Trade liberalisation; Computable general equilibrium model; Microsimulation; Income distribution; South Asia; Sri Lanka (search for similar items in EconPapers)
JEL-codes: C53 C68 F14 I32 (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:59:y:2016:i:c:p:102-115

DOI: 10.1016/j.econmod.2016.07.008

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