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III. AGE analysis of trade, policy reform and environment

III. AGE analysis of trade, policy reform and environment. Protection, food policies and the environment: Philippines. After several decades of fitful growth, heavy reliance on NR for incomes continues. Structural change has been slow Additions to the labor force work mainly in agric/services

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III. AGE analysis of trade, policy reform and environment

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  1. III-B III. AGE analysis of trade, policy reform and environment

  2. III-B Protection, food policies and the environment: Philippines • After several decades of fitful growth, heavy reliance on NR for incomes continues. • Structural change has been slow • Additions to the labor force work mainly in agric/services • Poverty (esp. in rural areas) remains high • While problems of urban pollution and infrastructure are severe, degradation of natural resource base (soils, forests, watershed services and fisheries) is the major problem.

  3. III-B Protection, food policies and the environment: Philippines • Forest cover has fallen from >50% to <20% since 1950 • Deforestation continues in spite of huge decline in commercial timber harvesting • Upland population doubled 1960-90, to >18m. • Upland agricultural area increased about sixfold. • Most upland agriculture is cereals, mainly corn. • Intensification and expansion are also associated with rapid land degradation plus off-site damages.

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  5. III-B Spatial dimensions • Population growth in cities and at cultivated frontier (forest margin) • In rural areas, most rapid growth in uplands, where land is ‘freely’ available • The main regions (island groups) are heterogeneous in terms of climate, soils, econ. conditions, etc.

  6. III-B Policy legacies and linkages • ISI as development strategy • Maintained longer than ASEAN neighbors • Protection for capital-intensive mfg; this discouraged agricultural investment and production. • Low labor demand growth in mfg kept real wages low • Persistent poverty and income inequality • Ag. development policy (inc. Green Revolution) benefited mainly lowland ag. • Food policy protected cereals relative to other ag. • Decline of traditional upland crops (e.g. coffee)

  7. III-B Recent policy trends • Reductions in manufacturing protectionism • Relaxation of quantitative restrictions on agricultural trade (WTO compliance) • But QRs mainly replaced by prohibitive tariffs, esp in rice and corn. • Thus cereals excluded from trade liberalization agenda. • What environmental and welfare implications?

  8. III-B The APEX model • Johansen-style AGE model • Main features: • 50 sectors, including 12 agriculture • Ag. production in 3 regions (specific factors) • 5 types of household (by income quintile), with unique asset ownership & consumption patterns • 2 types of labor (skilled and unskilled) • Data are sourced from Philippine Social Accounting Matrix and econometric estimates (for all elasticities) • Includes wide range of taxes and subsidies.

  9. III-B Production structure: industry Output (Fixed proportions) Composite primary factor Intermediates (Flexible function) (CES) Labor Variable K Fixed K Imported Domestic Skilled Unskilled

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  11. III-B Environmental stories • Soil erosion depends mainly on corn area planted • Deforestation for ag. land implied by changes in land and labor prices • Industrial emissions calculated using AHTI

  12. III-B Policy experiments • Except rice and corn, most highly protected sectors are in heavy industry (Table 6.3). • These are also the least L-intensive • And contain the biggest polluters • Experiment 1: reduce non-agricultural tariffs by 25% • Experiment 2: reduce all tariffs by 25%

  13. III-B Closure • Macro closure: • G budget and current account assumed to balance; • Savings and investment fixed; • So burden of adjustment falls on households • This yields a measure of welfare change (marketed goods) based on household expenditures • Micro closure: • Ag. land area is endogenous (allows for expansion, fallow)

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  20. III-B Trade liberalization : summary • Scale effect: very small, as expected • Composition effect: liberalization reduces pressures on NR base, has mixed effects in industry • Real h’hold expenditures on goods: almost no change • Income distribution worsens • Clear env. benefits in agriculture, and reduced pressures for deforestation by farmers

  21. III-B Ongoing policy issues • Philippine poverty and income inequality have deep historical roots • Trade reform alone is not sufficient • Major environmental problems stem from poverty, low non-ag labor absorption, and open access • Trade reforms have indirect environmental benefits, but more is needed • EKC may be ‘too high’ regardless of trade policy; direct environmental policies are also needed • Protecting corn sector (food policy) cancels effects of environmental policies

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