sources of price impacts – for example, the effect of a change in the terms of trade between agriculture and other sectors on real household incomes in all sectors – our approach does not take into account. Unfortunately, in the absence of a CGE model to link up to, it is nearly impossible to explicitly model for changes in terms of trade between sectors.

The _final_ limitation, related to validation of hypothesis, applies to _all_ ex‐ante approaches including ours. The only validation or test for our simulation model is to combine ex‐ante and ex‐post analysis (see Bourguignon and Ferreira, 2003). Since ex post data will not be available for some time, some uncertainty about the validity of the simulations generated by this ex‐ante method is bound to remain.

# **4. The Bangladesh case study**

Bangladesh is a good case study for our model for a number of reasons. Most importantly, it is a low‐ income, high‐growth country with an export sector that is significant but not predominant. As a result, its exposure to the direct impact of the crisis is on the moderate to low side, which is typical of a majority of developing countries. The relatively low exposure also makes it possible to see how the model predicts the impact of relatively small shocks to the economy and how sensitive the results are to changes in macroeconomic projections and assumptions. Bangladesh also has a reasonably balanced economy, with all three principal sectors contributing positively to GDP growth. The importance of agriculture has been declining gradually over the last 15 or so years (Paci and Sasin 2008), similar to what is seen for most developing countries. In sum, Bangladesh appears to have many of the features that are typical to a developing country. It is also an important country from a global poverty perspective, given its relatively high poverty rate and large population, which translate to a large number of poor people.

In terms of data availability, Bangladesh measures up quite well to most low‐income countries. A fairly recent household survey is available (Household Income and Expenditure Survey/HIES of 2005), which is the latest in a long series of surveys that have been used to track poverty and related estimates. The availability of a recent Poverty Assessment report, based primarily on HIES 2000 and 2005, is an added plus since it provides information on poverty and labor market that can inform the specifications of our empirical models. The available macroeconomic information is however limited, with disaggregated output growth projections available at the sectoral level but not for key sub‐sectors. Moreover, while the household survey is detailed enough to apply our model, the base year (2005) is far enough from the target years for projections (2009 and 2010) that we cannot rule out structural changes not captured by our model.

## **_4.1 Background: poverty reduction in Bangladesh_**<sup>**_15_**</sup>

**Growth and Poverty in Bangladesh** . Bangladesh has enjoyed a fairly stable macroeconomic environment with high growth and significant poverty reduction over the past 15 years. Poverty headcount rate declined from 57% in the early 1990s to 49% in 2000 and 40% in 2005. The rate of

> 15 The discussion in this sub‐section is based on findings from World Bank (2007, 2008) and Paci and Sasin (2009). All figures cited are from World Bank (2008).

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