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6 Analytical extensions and policy issues

This presentation explores the analytical extensions and policy issues in the development of resource-intensive economies. It discusses models of development, comparative statics, and policy shocks, as well as the effects of price changes and technological progress. The presentation also covers topics such as the green revolution, capital investment, and comparative static experiments, and concludes with a discussion on the implications of the extended model and related research.

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6 Analytical extensions and policy issues

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  1. 875-6.ppt 6 Analytical extensions and policy issues • Model of development in a resource-intensive economy (from class 5) • Model structure • Comparative statics: trade and policy shocks • Analytical extension: H-O manufacturing • Some related topics and papers

  2. 875-6.ppt H-O upland economy Ricardo-Viner lowland economy

  3. 875-6.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

  4. 875-6.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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  10. 875-6.ppt Actual comparative statics • Terms of trade shocks • Tariff policy reforms

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  16. 875-6.ppt Other comparative static experiments • ‘Green revolution’ in lowland agriculture • Other technical change shocks • Exogenous growth of endowments: • Labor • Mfg. capital stocks • Lowland land stocks

  17. 875-6.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. <---

  18. 875-6.ppt Analytical extension: H-O manufacturing sectors • Heckscher-Ohlin manufacturing sector, R-V-J agriculture (Coxhead/Jayasuriya 2003) • Simplification: only one upland sector • Extension: clean and dirty mfg industries • All traded goods (for simplicity!) • Other aspects same as before: • Open access to forests for ag. land • Migration is costless and immediate

  19. 875-6.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. cj = unit cost (i.e. zero profit) frontier for industry j wA wM LF LA LM LH cX cH cF cU rU rF rM 0A L 0M

  20. 875-6.ppt Price increase for upland agriculture wA wM LF LA LM LH cX cH cU cF rU rF rM 0A L 0M Increase in upland agr. price increases upland land demand & returns to upland land, reduces rF, rM and industrial output

  21. 875-6.ppt Tariff reduction for import-competing industry wA wM LF LA LM LH cX cH cU cF rN rT rM 0A L 0M NB.: Assumes large employment share of EOI industry

  22. 875-6.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

  23. 875-6.ppt Some related topics and issues in analytical models • Individual and firm motivations for changes in NR or env. use patterns • Subsistence farmers and ag. land expansion (Indonesia): Angelsen, WD 1995 • ‘Household EKC’ and cooking smoke (Pakistan): Pfaff, manuscript, 2003.

  24. 875-6.ppt Other topics and issues 2. Sectoral policies other than trade measures • Commercial farmers and deforestation (Brazil): Binswanger, WD 1991 • Ag. subsidies, land titling measures • Capital subsidies, poverty interactions (Latin America): Lopez, WD, Feb. 2003

  25. 875-6.ppt Other topics and issues 3. Macro measures and shocks • Structural adjustment and stabilization measures: Munasinghe and Cruz, WB Env. Paper #10, 1995 • Exchange rate instability and depreciations: Sunderlin et al., WD 2001; Coxhead et al., Land Econ. 2001

  26. 875-6.ppt Other topics and issues 4. Voluntary and informal controls • Informal regulation of industrial pollution (Indonesia): Pargal and Wheeler, JPE 1996 • Legal and community institutions in lake management (Philippines): Malayang, 1993

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