Economic Reforms and Agriculture in Bangladesh: Assessment of Impacts using Economy-wide Simulation Models

Agriculture is a major economic activity in Bangladesh. It currently employs around 50 percent of country’s labor force and contributes around 20 percent of country’s GDP. Growth in agricultural sector has important linkages with the overall economy through various channels. It is important to note that, at the WTO, Bangladesh, as an LDC, is not bound to undertake any liberalisation in its domestic agricultural sector in terms of tariff cut or subsidy withdrawal. However, there are concerns that actions taken by the developed and developing countries in terms of reduction in agricultural domestic support measures might have important negative implications for the net food importing countries like Bangladesh. It is also important to note that under bilateral trading arrangements, such as India-Bangladesh bilateral FTA, there are scopes for increased trade in agricultural products between Bangladesh and India. Bangladesh’s market access for its agricultural exports in India is likely to increase whereas there will be increased imports of agricultural products from India. Therefore, liberalisation in the trade in agriculture has important implications for the agricultural commodities which are either exported or imported. Increased market access of agricultural exports from Bangladesh under such trade agreement will lead to rise in production and employment in those export-oriented sectors; whereas, domestic liberalisation in the agricultural sectors may dampen output and employment in the import-competing agricultural sectors. It thus appears that the growth in the domestic agricultural sector doesn’t only rely on the domestic policies and programs, rather global and regional trade policies have important implications for this sector. Moreover, the various economic policies and programs, such as domestic fiscal policies, import policies and programs for growth in agricultural productivity also affect the development of the agricultural sector in an economy. This study explores the links between major economic policy reforms and growth the agricultural sector in Bangladesh. This study examines how economic policy reforms affect the agricultural sector in Bangladesh in terms of output, import, export and employment. Under a general equilibrium framework, this study explores three trade liberalization scenarios (a global agricultural trade liberalization scenario under WTO-Doha agreement, Bangladesh – India bilateral FTA, and domestic agricultural trade liberalization), one fiscal policy scenario (rise in agricultural subsidy) and one technological change scenario (rise in agricultural productivity).