Agricultural Trade Liberalisation, Inequality and Poverty in Bangladesh
Dayal Talukder

The purpose of this study is to investigate the changes in inequality and poverty of rural households in Bangladesh in the post-liberalisation era. The study used household survey data from secondary sources. It estimated generalised entropy to measure inequality and applied Datt and Ravallion (1992) measurement approach for growth inequality decomposition. It calculated headcount index to measure poverty. The study found that income distribution across rural households was uneven in the post-liberalisation period. Although agricultural trade liberalisation generated significant growth, inequality also increased and the rich gained more from this growth than the poor. Therefore, poverty reduction in the postliberalisation period was not as significant as the economic growth. Amongst rural households, non-farm households gained more than farm households from postliberalisation growth because of a relatively large reduction in consumer price compared to increases in productivity of rice. The study suggests that holding inequality constant at the 1985-86 level, rural poverty in Bangladesh could be reduced to zero with the growth experienced during 1985-86 to 2005. However, the total reduction in poverty was insignificant during this period because of a gradually higher increase in inequality and the effects of high economic growth resulting from agricultural trade liberalisation were not fully converted to reduction in poverty. More than 40 percent of the population lived in poverty in 2005. The study argues that a reduction in poverty at a substantial level is a big challenge for policy makers because of the increase in inequality along with economic growth. Therefore, the government should formulate policies to reduce inequality in order to reduce poverty significantly. Policies to reduce inequality may include a progressive income tax to impose higher tax on higher income and income transfer to the poor.

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