2015-05: The impact of trade liberalisation on labour markets and poverty in Sri Lanka (Working paper)

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Author(s)
Liyanaarachchi, Tilak
Naranpanawa, Athula
Bandara, Jayatilleke S.
Griffith University Author(s)
Year published
2015
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This paper revisits the long standing controversy of trade and poverty linkage using a macro-micro 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 ...
View more >This paper revisits the long standing controversy of trade and poverty linkage using a macro-micro 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.
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View more >This paper revisits the long standing controversy of trade and poverty linkage using a macro-micro 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.
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Copyright © 2010 by author(s). No part of this paper may be reproduced in any form, or stored in a retrieval system, without prior permission of the author(s).
Note
Economics and Business Statistics
Subject
I32 - Measurement and Analysis of Poverty
C68 - Computable General Equilibrium Models
F14 - Country and Industry Studies of Trade
C53 - Forecasting Methods; Simulation Methods
Poverty
Trade liberalisation
Computable general equilibrium model
Microsimulation
Income distribution
South Asia
Sri Lanka