The objective of this study was to analyse the impact of agricultural trade liberalisation
on the welfare of rural households in Bangladesh. The study used both primary and
secondary data and employed multiple models and estimation techniques including the
Data Envelopment Analysis (DEA)-based Malmquist productivity index, Ordinary
Least Square (OLS) regression methods, Two-stage Least Square regression technique,
and index number approaches. It estimated changes in productivity and prices of rice,
income distribution, inequality, and poverty as a result of agricultural trade
liberalisation.
The study found that agricultural trade liberalisation positively influenced total factor
productivity (TFP)-growth of rice, benefiting farm households directly. However,
increased productivity led to a decrease in both producer and consumer prices of rice.
The magnitude of the decrease in producer price was higher than that in consumer
price, implying that farm households experienced loss from this price decrease. Nonfarm
households experienced greater growth in consumption and real income than farm
households. Amongst farm households, large and medium farmers experienced higher
growth in real income than small farmers.
Rural households experienced an increase in inequality – the rich captured a
progressively larger share of income but the poor subsequently received a lower share.
Although all rural households experienced a moderate to high growth rate in real
income and consumption, rich households gained more than poor households,
suggesting that the growth was not pro-poor, thereby resulting in insignificant poverty
reduction during 1985-86 to 2005. Non-farm households experienced greater reduction
in poverty than farm households. Amongst all groups of rural households, small
farmers experienced the lowest reduction in poverty over the same period. The main
reason for the low rate of poverty reduction was attributed to an increase in inequality
along with economic growth. If the inequality was held constant at the 1985-86 level,
the poverty could have been reduced to zero in 2005 with the level of growth
experienced by Bangladesh in the post-liberalisation era.