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Effects of Unilateral Trade Liberalization in South Asian countries: Applications of CGE Models

Selim Raihan ()

No 1501, Development Papers from United Nations Economic and Social Commission for Asia and the Pacific (ESCAP) South and South-West Asia Office

Abstract: This paper 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.

Keywords: South Asia; Unilateral Trade Liberalization; Computable General Equilibrium Models; Trade and Employment; Household Income Distribution (search for similar items in EconPapers)
JEL-codes: F14 F16 (search for similar items in EconPapers)
Pages: 41 pages
Date: 2015-07
New Economics Papers: this item is included in nep-cmp and nep-int
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