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5 Analytical extensions and policy issues

5 Analytical extensions and policy issues. Development strategy and agriculture Stylized facts for resource-intensive developing economies Model of development in a resource-intensive economy. Dev’t strategy & agriculture. Ag. policy goals: food security, export revenues, gov’t revenues

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5 Analytical extensions and policy issues

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  1. 875-5.ppt 5 Analytical extensions and policy issues • Development strategy and agriculture • Stylized facts for resource-intensive developing economies • Model of development in a resource-intensive economy

  2. 875-5.ppt Dev’t strategy & agriculture • Ag. policy goals: food security, export revenues, gov’t revenues • Self-sufficiency as expression of food security policy • Infrastructural and Green Revolution investments • Input subsidies and price support/stabilization • Taxation of exportable crops (export taxes, marketing boards) • Belief in low supply responsiveness of farm sector

  3. 875-5.ppt Dev’t strategy & agriculture • Intersectoral consequences of other dev. policies (Kreuger et al) • Indirect taxation of all agriculture relative to industry (Lerner symmetry) • Land frontier as outlet for ‘surplus’ labor • Protection policies reduced labor absorption in industry • Land colonization as remedy for poverty and political dissent

  4. 875-5.ppt Resource use implications • Uplands: expansion and intensification • Land expansion at expense of forest • Intensification due to protection for cereals • Lowlands: intensification • Environmental costs of biological innovations • E.g. pesticides; see Rola and Pingali 1993 • But Gr. Rev. reduced pressures on upland ag., frontier

  5. 875-5.ppt Stylized facts of deforestation and soil depletion • Large economic magnitudes in SE Asia (Jha and Whalley 1999) • Disproportionately large involvement of the poorest households • Strong spatial elements: uplands, watersheds & forests • Institutional issues - market failures • ‘Open access’ to forests • Free disposal of soil runoff and other pollutants • Apparent economy-wide ‘drivers’ • Commodity prices and policies • Intersectoral and interregional labor markets

  6. 875-5.ppt Country variation • Stylized facts may be widely shared, but proportions/intensity vary with economic structure • Hence appeal of approach based on ‘representative economies’ as already seen

  7. 875-5.ppt A stylized upland-lowland model • Lowland economy: • Manufacturing and ‘lowland food’ production • Upland economy: • ‘upland food’ production and non-food crop • Land produced by forest clearing • Interregional linkages: • Labor market • Food market (food is non-traded)

  8. 875-5.ppt H-O upland economy Ricardo-Viner lowland economy

  9. 875-5.ppt Cerebral comparative statics • Effects of price changes, e.g.: • Tree crops in uplands (H-O prediction?) • Manufacturing price increase, e.g. tariff. (Cf. Deacon, JEEM 1995). • Effects of tech. progress and factor endowment growth • ‘Green revolution’ in lowland food sector • Capital investment in manufacturing

  10. 875-5.ppt A mathematical statement • Fundamental assumptions about technology, preferences • General equilibrium • Intersectoral and interregional market-clearing conditions • Spatial: labor market & migration • Food market clearing when non-traded • Open access to forest resource for land

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  16. 875-5.ppt Actual comparative statics • Esp. tariff change prediction

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  22. 875-5.ppt Concluding remarks • U-L model combines two ‘small’ models to obtain richer specification and results • Predictions of comparative static effects depend on key parameter values • Can define different economic ‘types’ based on alternative parameter sets (see OEE Chapter 3) • Empirical and micro research should guide structural and parameter assumptions.

  23. 875-5.ppt Extensions: two non-ag sectors • Heckscher-Ohlin manufacturing sector, R-V-J agriculture (as in Coxhead and Jayasuriya 2003) • All traded goods (for simplicity!) • Open access to forests for ag. land • Migration is free and immediate

  24. 875-5.ppt Two regions, four sectors A= agricultural ‘region’, producing upland (U) and food (F) crops. M = manufacturing ‘region’, producing labor-intensive (X) and capital-intensive (H) goods. wA wM LF LA LM LH cX cH cF cU rU rF rM 0A L 0M

  25. 875-5.ppt Price increase for upland ag. wA wM LF LA LM LH cX cH cU cF rU rF rM 0A L 0M

  26. 875-5.ppt Tariff reduction for import-competing industry wA wM LF LA LM LH cX cH cU cF rN rT rM 0A L 0M

  27. 875-5.ppt Some conclusions • Extended model provides different prediction on NR effect of tariff change • More generally, issue of multiple env./NR problems • And added complexity of establishing welfare results in economy with multiple distortions, insufficient instruments

  28. 875-5.ppt Lerner symmetry • In a two-commodity economy, an export tax on one good and an import tariff on the other have identical effects on relative prices and resource allocation. • Let pi be domestic price, pi* be border price, and ti be tax or tariff rate. • Then • E.g. agriculture v. manufactures <---

  29. 875-5.ppt Economic & policy heterogeneity <---

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