Trade Liberalization and Poverty Reduction in General Equilibrium: The Role of Labor Market Structure

The paper uses a dualistic, compact and "generic" (macroeconomic) computable general equilibrium (CGE) model specially constructed for the purpose of investigating the implications of trade liberalization for poverty reduction in South Asia under different labor market specifications. The model is a stylized representation of economies with large populations including large numbers of both urban and rural poor as in India, Pakistan or Bangladesh. The current "generic" model uses CES production functions and Harris-Todaro type migration model together with Indian data to generate economy wide results. The model's general equilibrium results allow us to test a number of hypotheses regarding the role of labor markets in inducing poverty reduction when trade liberalization policies are adopted.