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6 Analytical extensions and policy issues

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 . H-O upland economy.

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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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