Macro policies and the food sector in Bangladesh: A general equilibrium analysis

Working Paper
[FMRSP Working Paper 27]

Trade liberalization in the early 1990s in Bangladesh has enabled the private sector to respond
 with market-stabilizing inflows of rice and wheat following major production shortfalls. At
the same time, easing of restrictions on foreign investment, combined with substantial
depreciation of the Taka, have enabled exports of the labor-intensive readymade
garment industry to expand significantly. Moreover, recently discovered natural gas
resources might be exploited, creating new revenues for the country. A proper assessment
of the impact of such policies and economic developments on the poor requires a
comprehensive framework to analyze interactions between different sectors, and linkages
between macro and micro levels. In this paper we develop a computable general
equilibrium model (CGE) with special treatment of the rice and wheat sectors, and we
use it to simulate the impact of (i) a decline in rice production due to floods, (ii) a cut in
food aid of wheat, and (iii) increased revenues from the exploitation of natural gas
resources. The results suggest that most households benefit from more liberalized rice
and wheat trade, particularly after rice production shocks. Impacts of a decline in wheat
food aid are relatively modest, as food aid imports are not large enough to have major
macroeconomic effects. The simulations of natural gas export revenues suggest that the
extent of disincentives to agriculture will depend on whether or not the resulting real
exchange rate appreciation is sufficient to lower the import parity price of rice enough so
that domestic prices are affected. Finally, all three simulations show that the effects of
economic shocks on women’s labor and female headed poor households can differ
significantly from the effects on men’s labor and other households

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Date and language
Feb 2001
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