An Empirical Relationship between Trade Liberalization and Poverty: Comparative analysis of Selected SAARC Countries

Abstract

The purpose of this study is to examine the relationship between trade liberalization, economic growth and poverty in four SAARC countries (Bangladesh, India, Pakistan, and Sri Lanka). The quantitative research method is employed on secondary data of four SAARC countries. The data on poverty, trade liberalization and economic growth is collected from World Bank website for the period of 1980-2019. ARDL (Autoregressive Distributed Lag Approach) is used to uncover the relationship between trade liberalization, economic growth, and poverty. In the case of Bangladesh, we find a significant relationship between trade liberalization and poverty in the short run, but insignificant in long run. The results are the same when we used tariffs as a measure of trade liberalization.  In the case of India, no significant relationship exists between trade liberalization and poverty both in long run as well as in the short run.  In the case of Pakistan, no significant relationship exists between trade liberalization and poverty in the short run, but we find a significant relationship in the long run. When we used nominal tariff rate as a measure of trade liberalizations, then the significant relationship exists both in the long as well as in the short run. In the case of Sri Lanka significant relationship exist between the short run as well as in long run. This study has practical implication for policy makers in essence that only trade liberalization is not enough to reduce poverty in SAARC countries, there should be other structural transformational polices also be implement in order to get the full benefits of free trade policies. This study is unique in the sense that time series analysis on trade-poverty nexus in these four countries (Bangladesh, India, Pakistan, and Sri Lanka) is new contribution in existing literature.