MACRO POLICIES AND THE FOOD SECTOR IN BANGLADESH: A GENERAL EQUILIBRIUM ANALYSIS

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