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Tariff Reduction, Fiscal Adjustment and Poverty in Pakistan: a CGE-Based Analysis

Rizwana Siddiqui, Abdul Razzaq Kemal, Rehana Siddiqui () and Ali Kemal

Working Papers MPIA from PEP-MPIA

Abstract: After more than four decades of protective trade policy, Pakistan undertook substantial trade liberalization beginning in the 1990s. We assess the short- and long-run impacts of trade liberalization (full and partial) on household incomes, welfare, and poverty under various fiscal scenarios. A computable general equilibrium (CGE) model of the Pakistan economy for the year 1990 is used with 10 household categories (identified by employment status in urban areas and by land holdings in rural areas), 12 production activities, and two factors of production. Our general conclusion is that trade reform improves the average welfare of urban households but reduces the welfare of rural households. In both regions, the rich generally benefit, whereas the poor lose out. The fall in urban poverty dominates the increase in rural poverty such that overall poverty is reduced.

Keywords: Trade policy; fiscal adjustment; welfare and poverty; CGE (search for similar items in EconPapers)
JEL-codes: O24 E62 I3 C68 (search for similar items in EconPapers)
Date: 2008
New Economics Papers: this item is included in nep-afr
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Handle: RePEc:lvl:mpiacr:2008-17