Chapter 14 Structural Adjustment- Agriculture, Trade, and the .ppt

1、1,Chapter 14 Structural Adjustment: Agriculture, Trade, and the Labor Market, Pierre-Richard Agnor,The World Bank,2,Price Reform in Agriculture Trade Liberalization Trade and Regional Economic Integration Reforming Labor Markets,3,Structural Adjustment,Structural reforms: policy measures that increa

2、se productive capacity or degree of flexibility of the economy. Structural policies have implications on both micro and macro dynamics: micro: ultimate objective is to improve efficiency in resource allocation by reducing various distortions; macro: make markets more flexible and enhance the economy

3、s ability to absorb domestic and external shocks.,4,Price Reform in Agriculture,5,A common argument: agricultural policy has a high implicit tax burden. Subsides: government marketing boards pay domestic producers less than world market prices for output. Logic: alter the distribution of income in t

4、he economy. Two problems with food subsidies: Inefficient means of redistributing income relative to direct and well-targeted transfers. Lower food prices artificially reduce domestic production, increase migration to urban areas urban unemployment.,6,Result: policy not only may impose a direct drai

5、n on the budget buy also exacerbate balance of payment and unemployment difficulties. Taxation leads to similar effects: Export tax: for a long time the principle mechanism through which agriculture was taxed. Price ceiling: effective tax on output and subsidy on consumption. Deaton and Benjamin (19

6、93): Coffee and cocoa pricing policies raised almost 40% of government revenues in Cote dIvoire in early 1980s.,7,Agricultural tax burden: Schiff and Valdes (1992): urban bias; marketing boardsdisincentive for agro-production; add over-valued exchange rate distributional shift against the rural sect

7、or. Reforms Elimination of export duties, reduction in world and domestic price gaps. Sub-Saharan Africa: deregulation of agricultural prices and the dismantling of agricultural boards.,8,Effectiveness World Bank (1994, see Tables A9 and A18): average domestic terms of trade for export crops improve

8、d in only 10 of 27 sub-Saharan African countries between 1981-81 and 1989-91.,World Bank User: Yo Richard, this all seems pretty cirular in terms of the agricultural tax business. Why dont we just come out and say that the goal is to 1. Achieve a better ditribution of income and 2. Growth. So in the

9、 end, the issue of income redistribution becomes a question of finding an efficient means of pulling it off. E.g. not defacto agricultural taxation which creates the distortions in rural-urban and terms of trade weakening, but instead through effective land reform, infrastructure, (rural credit mark

10、ets, why?) and encouragement of small-scale production methods.,9,World Bank (1993): urban-rural income gap relatively small in high performing Asian countries. Lower gap: reduces incentives to migrate out of agricultural employment; reduces urban unemployment; reduces government revenues.First best

11、 methods of promoting greater income distribution: Reform of agricultural taxation coupled with land reform, increased provision of infrastructure, development of rural credit markets, and encouragement of small-scale production methods.,World Bank User: Yo Richard, this all seems pretty cirular in

12、terms of the agricultural tax business. Why dont we just come out and say that the goal is to 1. Achieve a better ditribution of income and 2. Growth. So in the end, the issue of income redistribution becomes a question of finding an efficient means of pulling it off. E.g. not defacto agricultural t

13、axation which creates the distortions in rural-urban and terms of trade weakening, but instead through effective land reform, infrastructure, (rural credit markets, why?) and encouragement of small-scale production methods.,10,Trade Liberalization,11,Recognition of the severe allocative distortions

14、of import substitution strategies has led to more liberal external trade regimes among developing countries. Why? Reduction in trade barriers (tariffs, import quotas) fosters relative price adjustments, leads to a reallocation of resources toward exportable sector. Leads to an expansion of output of

15、 exportables vis-vis import-competing industries. Static output gain and dynamic gains from free trade. Removal of barriers to trade may lead to permanent increase in economys growth rate as a result of technological spillovers.,12,The Gains from Trade Understanding gains from trade requires underst

16、anding the efficiency loss associated with the imposition of a tariff in the first place. Hekscher-Ohlin-Samuelson model: Model assumptions: perfectly competitive and efficient markets; incomplete specialization with relative factor endowments; international immobility of factors; exogenous terms of

17、 trade in the domestic economy.,13,See Figure 14.1: Case of small open economy producing one importable good partial equilibrium setting. Imposition of a tariff: Deadweight loss associated with the loss of consumers surplus far outweighs increase in the producers surplus and the increase in governme

18、nt revenue. Welfare loss due to the tariff: W J/2 J: change in imports; : tariff rate.,14,15,16,If free trade price, P*J, equals unity, then J equals JJ with J: price elasticity import demand, Meade formula,W 2 JJ /2.,17,General Equilibrium setting Figure 14.1 (bottom): PP: production possibility fr

19、ontier; maximum physical production of X and J producible given economys productive capacity and state of technology. Marginal Rate of Transformation: slope of PP. I0 and I1: social indifference curves; combination baskets of X and J among which society obtains equivalent utility.,18,Marginal Rate o

20、f Substitutions: slope of society indifference curves. : For X (exports) and J (imports) measures relative price of importables/exportables, MRS, taken as exogenous. Tariff, on J distorts domestic relative price ratio from * to, = (1 + )PJ /PXExportable (importable) sector contracts (expands). Tarif

21、f is sub-optimal.,19,Can an import tariff be optimal? Aizenman (1987): In the absence of collection costs for tariffs and an inelastic labor supply, optimal tariff is, = /( - ): cost of collecting alternative taxes (in percent); : price elasticity of import demand.,20,Dixit (1985): criticized above

22、argument; possible to generate same revenues as tariff w/ neutrally levied tax on both domestic and foreign goods; collection costs may be low but enforcement costs could still be quite high.,21,Dynamic gains from trade Romer and Rivera-Batiz (1991): Lowering barriers to trade can affect growth thro

23、ugh at least 3 mechanism: Transmission of technology: accumulation of knowledge, as a public good, increases rate of technical progress. International integration of sectors characterized by increasing returns to scale raises output without requiring more inputs. Trade liberalization reduces price d

24、istortions, reallocating resources across sectors and increasing economic efficiency.,22,Strategic Trade Theory Helpman and Krugman (1985): Scale economies and externalities: larger producers have advantage, e.g. larger market sizes ceteris paribus optimal. Rodrik (1988): Considered a country with h

25、igh tariffs and imperfect competition. Net effect of tariff reduction was a priori ambiguous. Trade reform affects welfare through traditional (e.g. volume of trade effect) channels and also assumptions about market structure.,World Bank User: Yo, so what is it about Rodriks study that implicates ta

26、riff reductions on the downside. Not explained in the text, i dont think.,23,Baldwin (1992): Strategic trade theory not easily generalizable. Contingent on assumptions about market structure, entry and exit restrictions, and intersectoral linkages. Information that is in practice very difficult to o

27、btain.,World Bank User: Yo, so what is it about Rodriks study that implicates tariff reductions on the downside. Not explained in the text, i dont think.,24,Recent Evidence on Trade Reforms,Four reasons to be careful about using nominal tariffs as a proxy for openness; Instrument substitution: nomin

28、al tariffs may be lowered, but other restrictions-such as anti-dumping measures-may take its place. Nominal tariffs and effective tariffs may differ due to certain exemptions. Tariff redundancy: after reform, overall structure may become more protective. Other anti-export biased policies, e.g. overv

29、alued exchange rate etc., ultimately help account for degree of trade liberalization.,World Bank User: Yo, what the &% are you talking about here,25,better way of looking at bias of trade regime; dependent on input coefficients and tariffs on inputs; detailed input-output tables necessary; thus, nom

30、inal tariffs, despite their limitations, are frequently used as indicators of changes in the trade regime.,26,Figure 14.2: nominal tariffs, developing countries, 1980-95: Average tariff rates fell substantially in several developing countries. India: maximum tariff on imports; 400% in 1990 50% in 19

31、95, average tariff rates; over 80% to under 30% over the same period. Latin America: tariffs lowered from 41.6% in 1985 to 13.7% in 1995 (Lora and Olivera, 1998, p. 13).,27,28,South Asia: unweighted tariff averages on manufactured goods fell in the early 1990s to 11% in Korea, 15% in Malaysia, and 1

32、1% in Taiwan; remained at 42% in Thailand, 56% in India, 64% in Pakistan, and 85% in Bangladesh (Bandara and McGillivray, 1998). Figure 14.3: reduction in mean tariffs associated with a reduction in dispersion of tariff rates. Sub-Saharan Africa: region with least progress in trade liberalization: s

33、ub-Saharan Africas exports: 3% of world exports in 1955; by 1990, barely above 1%;,29,30,decline in global demand for sub-Saharan products and a substantial erosion of its market shares; World Bank: if sub-Saharan Africa had maintained its 1962-64 export shares, regions exports would now be more tha

34、n double their current value; antiexport bias still characterizes many trade regimes in region (Ng and Yeats, 1997).,31,Trade Reform, Employment, and Wage Inequality,Short- and intermediate-run impact of trade reform on wages and employment remains imperfectly understood. Evidence: World Bank study

35、in early 1980s, inconclusive: manufacturing sector employment either fell or remained stable after liberalization program; however, study did not distinguish between traded and nontraded manufacturing goods and didnt look at aggregate unemployment rate.,32,More recent studies Rama (1994): Lower tari

36、ffs in manufacturing sector in Uruguay had no impact on wages, negative effect on employment. Reducing tariff inclusive import prices by 1%, decline in employment by .4-.5%. Revenga (1997): Reducing tariffs by about 10% in Mexico led to a 2-3% decline in manufacturing sector employment and an increa

37、se in average wages. Currie and Harrison (1997): Morocco, 1984-1990 coverage of import licenses reduced from 41% of imports in 1984 to 11% 1990, reduction in the maximum tariff rate from 165% to 45%-formal manufacturing sector, small, significant impact, also pronounced sectoral shifts in employment

38、.,33,Mrquez and Carmen Pags-Serra (1998): effect of trade openness and real exchange rates on demand for labor in manufacturing sector in 18 countries in Latin America and the Caribbean. Found that trade reform has a negative but small effect on employment, reinforced by real exchange rate appreciat

39、ion. Income distribution: openness, since 1980s, has coincided with an increase in the relative wages of skilled versus unskilled labor. Revenga (1997): for Mexico, rise in average manufacturing wages caused by change in labor composition, e.g. shift towards high-skill, high-wage workers.,34,Currie

40、and Harrison (1997): for Morocco, found similar divergence in relative wages and demand for labor. Chile: wages of university graduates rose by 56% relative to those of high-school graduates between 1980 and 1990. 1990s suggest that wage differentials may have remained largely unchanged in Argentina

41、, Chile and Costa Rica (Lora and Olivera, 1998).,35,Hecksher-Ohlin-Samuelson (HOS) Model Principle of comparative advantage: pattern of trade across countries based on relative factor abundance. Two theorems derived from HOS Model: Factor price equalization theorem (FPE): Under HOS assumptions, pric

42、es of production factors will equalize across trading partners. Stolper-Samuelson (S-S) theorem: A(n) decrease (increase) in the tariff on a good will decrease (raise) the real price of the factor of production that is used relatively intensively in producing that good. See Figure 14.4 for graphical

43、 illustration.,36,37,Explanations for the fall in unskilled wages: S-S Theorem Reduction in the relative price of unskilled labor-intensive goods brought about by a tariff reduction will unambiguously reduce unskilled labor wages. Capital goods, skill-intensive goods spiral: an alternative explanati

44、on. Trade liberalization is associated with the introduction of higher-level technology. Assumption that the cost of capital falls alongside trade liberalization, leading to increased imports of capital goods, and expansion of exports of skill-intensive goods. in turn, the wage gap between skilled a

45、nd unskilled labor widens.,38,Obstacles to Trade Reform Progress has remained slow in some countries, particularly in sub-Saharan Africa. Matusz and Tarr (1999) Adjustment costs associated with trade liberalization typically very small compared with benefits.Then why is trade reform unpopular? Influ

46、ence of powerful groups. Political considerations instead of cost/benefit analysis. Rent-seeking activities.,39,Rodrik (1995c): Two obstacles to trade reform: status quo bias, associated with individual uncertainty; high political costs compared with efficiency gains. Fernndez and Rodrik (1991): Idi

47、osyncratic uncertainty: since individual winners and losers cant be identified before implementation; ex ante individuals may oppose reforms; even if ex post everyone should support them.,40,Example:Idiosyncratic uncertainty in action: economy with 100 workers; employed in two sectors, W and L; 40 i

48、n W, 60 in L. Faced with a reform in which: each worker in W gains 0.2; each worker in L loses 0.2; 20 workers will move from L to W.,41,Full information Ex post: a majority will approve, 60 (in W) vs. 40 (in L). Individual uncertaintyEx ante results change by the following logic: Suppose each perso

49、n in L faces identical odds of staying (40/60) in L and walking to W (20/60): expected gain from reform; 0.2 (1/3) - 0.2(2/3) 0, majority in L will rationally vote against reform; paradox: a benevolent dictator could produce the optimal ex post outcome.,42,Overcoming status quo bias: can try to desi

50、gn more appropriate transfer schemes; can try to create an insurance market to allow individuals to protect against uncertain outcome. High Political Costs: Welfare costs of trade distortions, measured by Harberger triangle, are relatively small, (2% or less of GDP). Simultaneously, trade liberalizations typically involve large reallocations of income, with high political costs that may generate resistance to reform (Rodrik, 1992).,