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GTAP Resource #4858

"Does Indo-Sri Lanka Free Agreement (ISFTA) Reduce Poverty in Sri Lanka; A CGE analysis "
by Bandara, Seetha and Anna Strutt

Although strong economic relations between India and Sri Lanka originate in pre-colonial times, economic links began to gain momentum in the 1990s with closer bilateral economic ties. Sri Lanka and India signed a bilateral free trade agreement (FTA) in 1998, which came into operation March 2000; this was a pioneering effort towards trade liberalization in the South Asia region (Kelegama, 2014).

This study examines the potential poverty changes under Indo-Sri Lanka Free Trade Agreement (ISFTA), through modelling the impact of various income strata of households in Sri Lanka. First, the poverty headcount in seven population stratum was calculated, along with poverty elasticities using Household Income and Expenditure Survey (HIES) 2006/7 data. Secondly, these data were calibrated with the Global Trade Analysis Project (GTAP) database (version 8.1). Finally, we used poverty measures and AIDADS calculations to calculate poverty changes in Sri Lanka under ISFTA. We model the poverty impact of the ISFTA, under two simulations: First the elimination of all bilateral tariffs for all trade between Sri Lanka and India; and second, the elimination of all bilateral tariffs just for agricultural trade between Sri Lanka and India.

Our results indicate a negligible impact on overall real GDP but an impact on poverty reduction. It is estimated that full trade liberalization between India and Sri Lanka tends to reduce extreme poverty by 0.95 million and US$2/day poverty by 4.09 million while the agricultural trade liberalization reduces extreme poverty by 0.32 million and US$2/day poverty by 1.13 million. Thus, it can be concluded that further liberalization under ISFTA take more people out of poverty in Sri Lanka.

Keywords: CGE Analysis, Indo-Sri Lanka Free Trade Agreement, Poverty Changes, Sri Lanka

Resource Details (Export Citation) GTAP Keywords
Category: GTAP Application
Status: Published
By/In: Seetha Ranathunga and Anna Strutt
Date: 2015
Created: Bandara, S. (1/7/2016)
Updated: Batta, G. (1/7/2016)
Visits: 1,108
- Calibration and parameter estimation
- Agricultural policies

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Comments (1 posted)
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Posted by: Bandara, Seetha   1/7/2016 12:18:00 PM
Full paper is still in progress