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

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Liyanaarachchi, Tilak
Naranpanawa, Athula
Bandara, Jayatilleke S.
Griffith University Author(s)
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Rohde, Nicholas

Naranpanawa, Athula

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2015
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50 pages

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Abstract

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).

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Economics and Business Statistics

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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

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