Iii age analysis of trade policy reform and environment
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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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III-B

III. AGE analysis of trade, policy reform and environment


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.


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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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.


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)


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?


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.


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Production structure: industry

Output

(Fixed proportions)

Composite primary factorIntermediates

(Flexible function)(CES)

Labor Variable K Fixed K Imported Domestic

SkilledUnskilled


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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


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%


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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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


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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