Purpose
There is a large body of literature on the link between trade liberalisation, growth and poverty. However, less attention has been paid to the relationship between trade and regional disparities. The purpose of this paper is to identify and quantify the regional impacts of trade liberalisation, particularly in the war-affected regions and to understand to what extent trade reforms can contribute to the post-war recovery process and long-term economic and political stability in Sri Lanka.
Design/methodology/approach
The authors developed a single country multi-regional computable general equilibrium (CGE) model for the Sri Lankan economy to meet the need for a detailed country study as emphasised in the recent literature.
Findings
Both short-run and long-run results suggest that all regions including war-affected regions in the country gain from trade liberalisation, although gains are uneven across regions. Furthermore, the results suggest that war-affected regions gain more relative to some other regions in the long run.
Originality/value
According to the best of the authors’ knowledge within country regional impact of trade liberalisation using a multi-regional CGE model has never been attempted for Sri Lanka. The results of this study, even though based on Sri Lankan data, will be relevant to other developing countries engulfed in internal conflicts with regional economic disparities.
According to Paul Streeten [101, the relationship between
poverty eradication and reducing income inequalities is still an
unsettled question. He mentions empirical studies of eleven countries.
In ten of these countries, poverty and inequality move in the same
direction, both increasing (Brazil, Mexico, Indonesia) or both declining
(Korea, Taiwan, Sri Lanka, Costa Rica, Yugoslavia, China and Israel).
The only exception is perhaps Kuwait, where poverty (of Kuwaiti
citizens, but not of the large group of immigrant workers) has been
reduced, while inequality has increased (explanation: oil
wealth).
The Impact of Trade Liberalisation on Poverty and Welfare in South Asia: A Special Reference to Sri Lanka