GTAP

1. GTAP GTAP Group Presentation GTAP Short Course Heraklion, Crete June 24, 2005 Thirteen Annual short Course on Global Trade Analysis, Crete

2. Introduction Identification of Problem: The Choice Development Strategies in Developing African Countries • Research Questions: Free Trade or Other ways? How can the employment of unskilled labor affect the development strategies? Thirteen Annual short Course on Global Trade Analysis, Crete

3. Group 1Extension Less than Full Reciprocity between EU and SACU Motivation: Look deeper the question of Policy space How? Less than full reciprocity scenario One of the element of the article XXIV of the GATT concerning the FTA Thirteen Annual short Course on Global Trade Analysis, Crete

4. We focus this point on the Welfare effect? • Global welfare decreases for EU and South Africa compared to the FLS. • But….this impact becomes positive for the other regions in Africa, (bwa, RofAf, Naf) • How explained it? • Let’s Look what could we learn from the welfare decomposition? Thirteen Annual short Course on Global Trade Analysis, Crete

5. Essentially, ….Better Allocative efficiency effects Allocative efficiency effect Variation vis a vis the Full Liberalization Scenario (in %) • Better allocative effects explain the welfare gains for Botswana and XSC, especially for Crops, food, tex and hman sectors. • Ceteris Paribus, transfers between EU and the other regions to Btw • For XSC, Huge gains come from ToT effect, net improvement • Important tax pool effect for Botswana (+45%) Thirteen Annual short Course on Global Trade Analysis, Crete

6. LTFR could also provide more space for diversification • LTFR could give more flexibilities for diversification in Botswana but also for South Africa Thirteen Annual short Course on Global Trade Analysis, Crete

7. Unskilled Labor Change in SA($,US) Thirteen Annual short Course on Global Trade Analysis, Crete

8. Change of Uns Labor (000),Exp (mi) and Imp(mil) in SA Thirteen Annual short Course on Global Trade Analysis, Crete

9. Conclusion LTFR • Full reciprocity will be very costly for Africa in terms of revenue losses, adjustment costs associated with de-industrialisation and its undermining effect of regional integration. • With LTFR, the EU RSA FTA will produce welfare gains for the EU and South Africa BUT ALSO FOR BOTSWANA • It would double the allocative efficiency in Botswana • LTFR Agreement could reduce the “beggar my neighbour outcome” Thirteen Annual short Course on Global Trade Analysis, Crete

10. Group 2 Extension Changing Revenue Sharing Agreement between South Africa and Botswana Thirteen Annual short Course on Global Trade Analysis, Crete

11. Table 2: Tax Pool Changes in South Africa and Botswana (%change) Thirteen Annual short Course on Global Trade Analysis, Crete

12. Table 2: Share of Unskilled Labor by Sector in Botswana Thirteen Annual short Course on Global Trade Analysis, Crete

13. Table 4: Percentage Changes in the Price of Unskilled Labour in Botsawana Thirteen Annual short Course on Global Trade Analysis, Crete

14. Group 3 Extension South – South Trade in Africa SACU + MERCUSOR Versus Thirteen Annual short Course on Global Trade Analysis, Crete

15. Welfare and Real GDP Thirteen Annual short Course on Global Trade Analysis, Crete

16. Exports Destinations Thirteen Annual short Course on Global Trade Analysis, Crete

17. Changes in output & VA Thirteen Annual short Course on Global Trade Analysis, Crete

18. Employment of Unskilled labour • Increase in employment of unskilled: • XSC- EU-RSA FTA • Bots & xsc- SACU-MER FTA • All regions –Africa FTA Thirteen Annual short Course on Global Trade Analysis, Crete

19. Group 4 Extension Introducing Technological Change Thirteen Annual short Course on Global Trade Analysis, Crete

20. The experiment: FTA + technical change • A technical change in tradable sectors, i.e. crops, animal agricultural, food, textile, light and heavy manufactures, and services • Why? • Productivity in developing countries, especially in SSA, is low compared to that of developed countries => room for gains • To see whether technology can improve FTA outcomes for third countries Thirteen Annual short Course on Global Trade Analysis, Crete

21. Welfare effects FTA only FTA+10%TC Thirteen Annual short Course on Global Trade Analysis, Crete

22. Structural change in Bwa and SA? • qva increases in tex, lman (and cns) (table) • this due to expansion effect (qo) • Expansion b/c increased domestic but most importantly foreign demand (for Bwa, exports to SA “entirely”) • Note e.g. that SA exports and imports in lman increase, and SA important export market for Bwa (differentiated comm, (Armington)) Thirteen Annual short Course on Global Trade Analysis, Crete

23. Why do exports increase? • For Bwa and SA substitution effect behind demand for their exports (tex, lman). • But for cns from Bwa and SA to SA the effect due to expansion only. • Note, SA world market share is small (except for aag) and Bwa share is small indeed). Thirteen Annual short Course on Global Trade Analysis, Crete

24. Supply side effects? • Producer prices, in Bwa and SA, decrease and therefore demand increases • But, e.g., why decrease in ps (lman, xsc) < 10% ? • Tech change affects pfe and ps  increase in output demand • Output expansion (61 %) requires more inputs • Pushes pfe up • Expanding sectors: pfe = 25 - 36 percent (but pfe (unsklab) = -1,6 to -3,2 percent) • Primary resources mainly drawn from crops, aagr and services, + from pool of unemployed unsklab Thirteen Annual short Course on Global Trade Analysis, Crete

25. Key results • South Africa: • Endowment effect is due to a large increase in unskilled labor employment (+42%) • Services (53%), heavy manufactures (14%) • Botswana: welfare gain, dominated by TOT effects: • BWA import shares from SA are very large (70-85%) => the decrease in SA prices is creating this positive TOT effect • But also an endowment effect from increased unskilled labor employment: services (61%) and construction (23%) Thirteen Annual short Course on Global Trade Analysis, Crete

26. Group 5 Extension Introducing New Closure Thirteen Annual short Course on Global Trade Analysis, Crete

27. Alternative unskilled labor closures • Original closure: unemployment in Africa. • Alternative closure: full employment in Africa. • Does this affect the results of previous extensions? More importantly, does this affect our conclusions about trade and development? • Welfare: Gains greatly diminished for South Africa Thirteen Annual short Course on Global Trade Analysis, Crete

28. Differences in Welfare • Only significant effect: endowment effect (US$ 1,3 billion vs US$ 0). • Services: most significant difference. Expansion effect. • Industry: impact also diminished. • Note: services are quite important in cost structure of firms (7%-23%). Thirteen Annual short Course on Global Trade Analysis, Crete

29. Domestic market dominates effect • Expansion effects: domestic market through intermediate demand. (94% of increased services is explained by domestic demand). • Services account for 57% of unskilled labor employment. • But why did services decrease with full employment ? Price of services went up (0.2%), driven by full employment. Thirteen Annual short Course on Global Trade Analysis, Crete

30. Major findings • Using a trade liberalization exercise, main effect on welfare comes from a non-tradable good (GE vs PE). • Closure really matters in this context Thirteen Annual short Course on Global Trade Analysis, Crete

31. Conclusion Thirteen Annual short Course on Global Trade Analysis, Crete