Bazlul Haque Khondker

Implications of WTO Agreements and Unilateral Trade Policy Reforms for Poverty in Bangladesh: Short Versus Long-Run Impacts

The authors examine the effects of WTO agreements and domestic trade policy reforms on production, welfare, and poverty in Bangladesh. They use a sequential dynamic computable general equilibrium (CGE) model, which takes into account accumulation effects, allowing for long-run analysis. The study is based on the 2000 Social Accounting Matrix (SAM) of Bangladesh including 15 production sectors, four factors of production (skilled and unskilled labor, agricultural and nonagricultural capital), and nine household groups (five in rural areas and four in urban areas). To examine the link between the macroeconomic effects and microeconomic effects in terms of poverty, the authors use the representative household approach with actual intra-group income distributions. The study presents five simulations for which the major findings are: (1) The Doha scenario has negative implications for the overall macroeconomy, household welfare, and poverty in Bangladesh. Terms of trade deteriorate and consumer prices, particularly food prices, increase more than nominal incomes, especially among poor households. (2) Free world trade has similar, but larger, impacts. (3) Domestic trade liberalization induces an expansion of agricultural and light manufacturing sectors, favorable changes in the domestic terms of trade. Although the short-run welfare and poverty impacts are negative, these turn positive in the long run when capital has adjusted through new investments. Rising unskilled wage rates make the poorest households the biggest winners in terms of welfare and poverty reduction. (4) Domestic liberalization effects far outweigh those of free world trade when these scenarios are combined. (5) Remittances constitute a powerful poverty-reducing tool given their greater importance in the income of the poor.

Remittances and Household Welfare: A Case Study of Bangladesh

This paper examines the impacts of international remittances on household consumption expenditure and poverty in Bangladesh using computable general equilibrium modeling of the Bangladesh economy and microeconometric analysis at the household level. The former assesses the economic effects and distributional implications of remittances at the macro, sectoral, and household group levels, while the latter shows the association between remittances and household consumption expenditure, including poverty status. The first results show that remittances have positive effects on the economy and reduce poverty. It is estimated that 1.7 out of the 9 percentage point reduction in the headcount ratio during 2000–2005 was due to the growth in remittances. A closer look at the household level further reveals the positive and significant impacts of remittances on the household’s food and housing-related expenditures. The impacts on education and health expenditures are also positive but insignificant. Moreover, the logit regression results suggest that the probability of the household becoming poor decreases by 5.9% if it receives remittances, which further confirms the positive impact of remittances. Given that migration and remittances also bring costs to the society, the study findings call for policies to maximize their benefits. This includes attracting more remittances through formal channels and increasing their productive use.

Welfare and Poverty Impacts of Tariff Reforms in Bangladesh:A General Equilibrium Approach

Our study assesses the impacts of different policy reforms, such as domestic trade liberalisation, implementation of WTO agreements in the textile sector and WTO negotiations on the movement of natural persons, and examines their welfare and poverty implications at the household level in the economy of Bangladesh. We use a comparative static computable general equilibrium (CGE) model based on the 1995-96 Social Accounting Matrix (SAM) of the Bangladesh economy. This study carries out three simulations. The first simulation entails full liberalisation of tariffs and the resultant reduction in government revenues are mobilised by enhancing the existing production taxes and imposing new taxes on construction sector; in the second simulation, export of ready-made garments (RMG) are reduced by 25 percent; and in the third simulation the remittances are increased by 50 percent. Equivalent variations (EVs) and Foster-Greer-Thorbecke (FGT) measures are applied to estimate welfare and poverty changes respectively. The prime observation is that rural poverty, as measured by the head count ratio, is observed to increase under all three simulations. The gap and severity of the rural poor have also worsened in all three simulations indicating worse poverty profiles for the rural poor compared to the base-run scenario. Urban head count poverty has also deteriorated in the first and second simulations, while has improved only in the third simulation. The gap and severity of poverty for the urban population have, however, deteriorated in all three simulations.

The crowding-out effect of tobacco expenditure on household spending patterns in Bangladesh

Background Tobacco consumption constitutes a sizable portion of household consumption expenditure, which can lead to reduced expenditures on other basic commodities. This is known as the crowding-out effect. This study analyzes the crowding-out effect of tobacco consumption in Bangladesh, and the research findings have relevance for strengthening the tobacco control for improving health and well-being. Methods We analyzed data from the Bangladesh Household Income and Expenditure Survey 2010 to examine the differences in consumption expenditure pattern between tobacco user and non-user households. We further categorize tobacco user households in three mutually exclusive groups of smoking-only, smokeless-only, and dual (both smoking and smokeless); and investigated the crowding-out effects for these subgroups. We compared the mean expenditure shares of different types of households, and then estimated the conditional Engel curves for various expenditure categories using Seemingly Unrelated Regression (SUR) method. Crowding-out was considered to have occurred if estimated coefficient of the tobacco use indicator was negative and statistically significant. Results We find that tobacco user households on average allocated less in clothing, housing, education, energy, and transportation and communication compared to tobacco non-user households. The SUR estimates also confirmed crowding-out in these consumption categories. Mean expenditure share of food and medical expenditure of tobacco user households, however, are greater than those of tobacco non-user households. Albeit similar patterns observed for different tobacco user households, there were differences in magnitudes depending on the type of tobacco-use, rural-urban locations and economic status. Conclusion Policy measures that reduce tobacco use could reduce displacement of commodities by households with tobacco users, including those commodities that can contribute to human capital investments.

Backward and Forward Linkages in the Bangladesh Economy: Application of the Social Accounting Matrix Framework

A Social Accounting Matrix (SAM) is a generalization of the production relations and extends this information beyond the structure of production to include: (a) the distribution of value added to institutions generated by production activities; (b) formation of household and institutional income; (c) the pattern of consumption, savings, and investment; (d) government revenue collection and associated expenditures and transactions; and (e) the role of the foreign sector in the formation of additional incomes for households and institutions. In particular, the accounting matrix of a SAM identifies the economic relations through six accounts: (1) total domestic supply of commodities; (2) activity accounts for producing sectors; (3) main factors of productions (e.g., labor types and capital); (4) current account transactions between main institutional agents such as households and unincorporated enterprises, corporate enterprises, government and the rest of the world, and the use of income by the representative households; (5) the rest of the world; and (6) one consolidated capital account (domestic and rest of the world) to capture the flows of savings and investment by institutions and the rest of the world, respectively. Social accounting matrices can serve two basic purposes: (i) as a comprehensive and consistent data system for descriptive analysis of the structure of the economy; and (ii) as a basis for macroeconomic modeling. As a data framework, a SAM is a snapshot of a country at a point in time (Pyatt and Thorbecke 1976). To provide as a comprehensive picture of the structure of the economy as possible, a particular novelty of the SAM approach has been to bring together macroeconomic data (such as national accounts) and microeconomic data (such as household surveys), within a consistent framework. The second purpose of a SAM is the provision of a macroeconomic data framework for policy modeling. The framework of a SAM can often help in establishing the sequence of interactions between agents and accounts which are being modeled. A SAM provides an excellent framework for exploring both macroeconomic and multi-sectoral issues and is a useful starting point for more complex models (Robinson 1989). Against this backdrop, this study produces an updated SAM for Bangladesh for 2012 using the newly constructed Input-Output Table 2012, which supplemented with institutional accounts, macroeconomic aggregates, and the Household Income and Expenditure Survey. Using the updated SAM, this study develops the SAM multiplier model and explores the growth impact of injection into selected activities in the economy through that multiplier model.

Exchange Rate and Economic Growth: An Empirical Assessment for Bangladesh

This article aims to understand the effects of exchange rate movements on economic growth in Bangladesh. Using a suitable analytical framework to derive an empirical specification, we construct a real exchange rate series and employ cointegration techniques to determine the output response to Bangladeshi currency depreciations. Our results suggest that in the long run, a 10 per cent depreciation of the real exchange rate is associated with, on average, a 3.2 per cent rise in aggregate output. However, a contractionary effect is observed in the short run so that the same magnitude of real depreciation would result in about a half per cent decline in GDP. While the long-run expansionary effect of real depreciations may be appealing for considering exchange rate policy as a development strategy, the likelihood of rising inflationary pressures needs to be kept in mind while pursuing this policy option.

Tobacco-free Economy: A SAM-based Multiplier Model to Quantify the Impact of Changes in Tobacco Demand in Bangladesh

In Bangladesh, where tobacco use is pervasive, reducing tobacco use is economically beneficial. This article uses the latest Bangladesh social accounting matrix (SAM) multiplier model to quantify the economy-wide impact of demand-driven changes in tobacco cultivation, bidi industries and cigarette industries. First, we compute various income multiplier values (i.e., backward linkages) for all production activities in the economy to quantify the impact of changes in demand for the corresponding products on gross output for 86 activities, demand for 86 commodities, returns to 4 factors of production and income for 8 household groups. Next, we rank tobacco production activities by income multiplier values relative to other sectors. Finally, we present three hypothetical ‘tobacco-free economy’ scenarios by diverting demand from tobacco products into other sectors of the economy and by quantifying the economy-wide impact. The simulation exercises with three different tobacco-free scenarios show that, compared to the baseline values, total sectoral output increases by 0.92, 1.3 and 0.75 per cent. The corresponding increases in the total factor returns (i.e., gross domestic product, GDP) are 1.57, 1.75 and 1.75 per cent. Similarly, total household income increases by 1.40, 1.58 and 1.55 per cent. JEL Classification: E1, C6, O2