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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
875-6.ppt6 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
slide2
875-6.ppt

H-O upland economy

Ricardo-Viner lowland economy

cerebral comparative statics
875-6.pptCerebral 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
a mathematical statement
875-6.pptA 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
actual comparative statics
875-6.pptActual comparative statics
  • Terms of trade shocks
  • Tariff policy reforms
other comparative static experiments
875-6.pptOther comparative static experiments
  • ‘Green revolution’ in lowland agriculture
  • Other technical change shocks
  • Exogenous growth of endowments:
    • Labor
    • Mfg. capital stocks
    • Lowland land stocks
concluding remarks
875-6.pptConcluding 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.

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analytical extension h o manufacturing sectors
875-6.pptAnalytical 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
two regions four sectors
875-6.pptTwo 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

price increase for upland agriculture
875-6.pptPrice 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

tariff reduction for import competing industry
875-6.pptTariff 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

some conclusions
875-6.pptSome 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
some related topics and issues in analytical models
875-6.pptSome 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.
other topics and issues
875-6.pptOther 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
other topics and issues1
875-6.pptOther 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
other topics and issues2
875-6.pptOther 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