Tobacco Free Economy: A SAM-based Multiplier Model to Track Transmission Mechanism of Demand Driven Interventions in Bangladesh
Tobacco use is a major preventable cause of premature death and disease worldwide. The wide-ranging health hazards of tobacco consumption and associated costs call for comprehensive tobacco control programs. To combat tobacco control policies, the tobacco industry often highlights the employment and income implications of reduced consumption asserting that tobacco production constitutes a vital part of the economy and the economy will suffer. However, if tobacco use is eliminated, the resources previously spent on tobacco will not disappear from the economy, but will be put to alternative uses. The redistribution of the resources that would be freed from tobacco consumption to other goods and services will create jobs and generate income in other sectors of the economy, potentially, with larger backward and forward linkages.
In this backdrop, the paper offers a social accounting matrix (SAM) based analysis leading to a better understanding of the way various agents in the real economy interact, the way socioeconomic groups make their living, the channels through which demand driven interventions may affect the poor, and the potential growth-poverty nexus. In the SAM framework the macro (national accounts and input-output table) and micro (national surveys) data are juxtaposed under a unified data matrix to portray the meso-level interactions of various economic agents, that is production sectors (including tobacco and bidi), commodities, factors of production, household groups, and other institutions. Subsequently, the SAM is used to develop a Keynesian-type multiplier simulation model, which enables tracking and quantifying the nature and extent of the linkages among the demand driven shocks (stimuli), economic growth, income generation, and concomitant poverty and distribution implications from the perspective of different socio-economic groups. Therefore the model reveals the structural features and interdependencies of the economy in one hand, and quantitatively traces the transmission mechanism of demand driven interventions on the other hand.
More specifically, the paper will use the latest Bangladesh SAM for the year 2007 (constructed incorporating 86 sectors and 86 commodities, 4 factors of production, and 8 household groups) and a SAM-based multiplier model to portray the transmission mechanism of demand driven interventions in tobacco and bidi industry vis-à-vis other sectors by quantifying (1) backward and forward linkages and leakages, (2) sectoral impacts on gross output, GDP, household income and consumption, (3) ranking of tobacco and bidi industry in terms of various types of multipliers in relation to other sectors, and (4) presenting a hypothetical ‘tobacco-free economy’ scenario by diverting exogenous demand amount from tobacco and bidi into other sectors of the economy proportionately and its impact on output of the various sectors, income generation for the various factors of production, consumption of different commodities and income of different socio-economic groups.