Bernard Decaluwe

CGE modeling and developing economies: A concise empirical survey of 73 applications to 26 countries

This Is an Empirical Survey of 56 Applications of Computable General Equilibrium (Cge) Models to 24 Developing Countries, 45 of the Applications Being Less Than 5 Years Old. the Focus Is on the Economic Structure of the Models, Their Type of Macroeconomic Closure, Sources of Dynamization, and Simulations. Most of the Applications Deal with External Trade and Financing But Recent Work Has Been Produced on the Impact of Labor Market Distortions, Internal Tax Reforms, Changes in Domestic Price Subsidies, Alternative Forms of Domestic Financing, Etc.

Trade Liberalisation, Growth and Poverty in Senegal: A Dynamic Microsimulation Cge Model Analysis

Much current debate focuses on the role of growth in alleviating poverty. However, the majority of computable general equilibrium (CGE) models used in poverty and inequality analysis are static in nature. The inability of this kind of model to account for growth (accumulation) effects makes them inadequate for long run analysis of the poverty and inequality impacts of economic policies. They exclude accumulation effects and do not allow the study of the transition path of the economy where short run policy impacts are likely to be different from those of the long run. To overcome this limitation we use a sequential dynamic CGE microsimulation model that takes into account accumulation effects and makes it possible to study poverty and inequality through time. Changes in poverty are then decomposed into growth and distribution components in order to examine whether de-protection and factor accumulation are pro-poor or not. The model is applied to Senegalese data using a 1996 social accounting matrix and a 1995 survey of 3278 households. The main findings of this study are that trade liberalisation induces small increases in poverty and inequality in the short run as well as contractions in the initially protected agriculture and industrial sectors. In the long run, it enhances capital accumulation, particularly in the service and industrial sectors, and brings substantial decreases in poverty. However, a decomposition of poverty changes shows that income distribution worsens, with greater gains among urban dwellers and the non-poor.

The Poverty Impacts of the Doha Round in Cameroon: The Role of Tax Policy

The authors aim to assess the possible impacts of the Doha Round of negotiations on poverty in Cameroon. During the recent period of economic recovery, Cameroon enjoyed a sharp decline in poverty, with the headcount index falling from 53.3 percent of inhabitants in 1996 to 40.2 percent in 2001, mostly due to economic growth rather than redistribution. Will the current trade negotiations under the Doha Round reinforce or curb this trend? They apply a computable general equilibrium (CGE) microsimulation model that involves 10,992 households in order to address this question. The authors find the Doha Round to be poverty-reducing for Cameroon. For the whole country, the estimate of the net number of people who are lifted out of poverty is 22,000 following this scenario. Further investigations indicate that more ambitious world trade liberalization leads to greater poverty alleviation at the national level, while Cameroons domestic trade liberalization has adverse poverty and inequality impacts-despite giving rise to higher aggregate welfare. Under the Doha scenario, the cuts in Cameroons tariffs are very small (the average tariff rate moves from 11.79 percent in the base run to merely 11.66 percent) so that world trade liberalization effects on prices more than offset the adverse own liberalization effects in this scenario. If the rest of the world and Cameroon full trade liberalizations are combined, the adverse impacts of own liberalization outweigh the favorable outcomes of the world trade liberalization. The results suggest furthermore that the choice of tax replacement instrument can have an important bias in poverty impacts: poverty gets worse in the country case study when using an imperfect value-added tax instead of a neutral replacement tax to compensate lost tariff revenue, and gets even worse when using a consumption tax. Key reasons here are the supplementary distortions which are nil in case of a neutral tax and greatest in the case of a consumption tax. In addition, accompanying measures should be considered to avoid poverty increases in the framework of Economic Partnership Agreements currently in negotiation between African, Caribbean, and Pacific (ACP) countries and the European Union, which propose a drastic dismantlement of ACP tariffs over the next few years.

A stochastic model of incomplete separation between commercial and financial exchange markets

Abstract This paper constructs a framework that is suitable for the analysis of a dual exchange market regime characterized by intermarket leakage. The model incorporates the fact that in reality certain proportions of both trade account and service account items are settled in the financial market on account of both legally-sanctioned leakage and fraudulent transactions. The model is utilized to investigate the dynamic and static properties of the economy with respect to the degrees of export, import and service account leakage as well as with respect to other parameters of interest.

Implications of WTO Agreements and Unilateral Trade Policy Reforms for Poverty in Bangladesh: Short Versus Long-Run Impacts

The authors examine the effects of WTO agreements and domestic trade policy reforms on production, welfare, and poverty in Bangladesh. They use a sequential dynamic computable general equilibrium (CGE) model, which takes into account accumulation effects, allowing for long-run analysis. The study is based on the 2000 Social Accounting Matrix (SAM) of Bangladesh including 15 production sectors, four factors of production (skilled and unskilled labor, agricultural and nonagricultural capital), and nine household groups (five in rural areas and four in urban areas). To examine the link between the macroeconomic effects and microeconomic effects in terms of poverty, the authors use the representative household approach with actual intra-group income distributions. The study presents five simulations for which the major findings are: (1) The Doha scenario has negative implications for the overall macroeconomy, household welfare, and poverty in Bangladesh. Terms of trade deteriorate and consumer prices, particularly food prices, increase more than nominal incomes, especially among poor households. (2) Free world trade has similar, but larger, impacts. (3) Domestic trade liberalization induces an expansion of agricultural and light manufacturing sectors, favorable changes in the domestic terms of trade. Although the short-run welfare and poverty impacts are negative, these turn positive in the long run when capital has adjusted through new investments. Rising unskilled wage rates make the poorest households the biggest winners in terms of welfare and poverty reduction. (4) Domestic liberalization effects far outweigh those of free world trade when these scenarios are combined. (5) Remittances constitute a powerful poverty-reducing tool given their greater importance in the income of the poor.

Functional Forms and Parametrization of Cge Models

This study focused on the choice of functional forms and their parametrization (estimation of free parameters and calibration of other parameters) in the context of CGE models. Various types of elasticities are defined, followed by a presentation of the functional forms most commonly used in these models and various econometric methods for estimating their free parameters. Following this presentation of the theoretical framework, we review parameter estimates used in the literature. This brief literature review was carried out to be used as a guideline for the choice of parameters for CGE models of developing countries.

Case Study: A Gender-focused Macro-Micro Analysis of the Poverty Impacts of Trade Liberalization in South Africa

This case study examines the impacts on poverty and equality of the extended trade liberalisation strategy that South Africa has been following since 1994. The paper features an integrated CGE microsimulation model with explicit incorporation of non-market activities and gender decomposition. This makes it possible to assess the effects of trade liberalization on between and within-group poverty, as well as on gender-disaggregated household production and leisure. The findings reveal that trade liberalization is strongly gender biased against women.

Implications of Wto Agreements and Domestic Trade Policy Reforms for Poverty in Bangladesh: Short Vs' Long Run

We examine the impacts of WTO agreements and domestic trade policy reforms on production, welfare and poverty in Bangladesh. A sequential dynamic computable general equilibrium (CGE) model, which takes into account accumulation effects, is used allowing for long run analysis. The study is based on 2000 SAM of Bangladesh including fifteen production sectors, four factors of production (skilled and unskilled labour, agricultural and non-agricultural capital) and mine household groups (five in rural areas and four in urban areas) based on the year 2000 household survey. To examine the link between the macro effects and micro effects in terms of poverty we use the representative household approach with actual intra-group income distributions. The study presents five simulations for which the major findings are: (1) the Doha scenario has negative implications for the overall macro economy, household welfare and poverty in Bangladesh. Terms of trade deteriorate and consumer prices, particularly food prices, increase more than nominal incomes, especially among poor households; (2) Free world trade has similar, but larger, impacts; (3) Domestic trade liberalisation induces an expansion of agricultural and light manufacturing sectors, favourable changes in the domestic terms of trade. Although the short run welfare and poverty impacts are negative, these turn positive in the long run when capital has adjusted through new investments. Rising unskilled wage rates make the poorest household the biggest winners in terms of welfare and poverty reduction; (4) Domestic liberalisation effects far outweigh those of free world trade when these scenarios are combined; (5) Remittances constitute a powerful poverty-reducing tool given their greater importance in the income of the poor.

Developing Country Superwomen: Impacts of Trade Liberalisation on Female Market and Domestic Work

This study analyses the effects of trade liberalisation on male and female work in Nepal. Our contribution is principally based upon the leisure activities modeling on one hand, and the effects of male participation in domestic work with trade policy analysis on the other hand. While previous studies explicitly incorporate leisure activities that required data about which little is known, we use a microeconomic model and alternative calibration procedures to avoid arbitrariness. The experiment conducted in this study shows that the complete elimination of tariffs on imported goods in Nepal benefits women more than men in terms of earnings as their wage increases relatively to men. Generally, female market work expands in rural households and contracts in urban households. It appears that the entrance into market production has not been met with an equivalent reduction in the time they spend in domestic work. Consequently the leisure time of women declines as they enter the labor market. Furthermore, the study indicates that leisure time consumed by men, which is already greater than that consumed by women, increases with trade reform. The extend of male participation in domestic work significantly conditions the impacts on male and female wage rates and household labor supply decisions. When male participation in domestic work activities is low, women generally devote less time to market labor. However, their contribution to household income strill increases following trade reform as their wage rates rise relative to male market wage rates. Women are more responsive to the market when there is greatest scope to substitute between female domestic and market work, as occurs when men are more involved in domestic work. However, even in these cases their domestic work does not necessarily decrease in the same proportion.

Education and Poverty in Vietnam: A Computable General Equilibrium Analysis

Education is often promoted as the solution to poverty in the developing world. Yet, fiscal discipline has led to reductions in public spending on education. We examine the poverty impacts of a cut in public subsidies to higher education, accompanied by corresponding tax cuts, in a general equilibrium framework applied to Vietnam. This policy is shown to have strong and complex impacts through various channels: a direct increase in the private costs of higher education, a reduction in education investments, a shift in the economys skills mix in favor of unskilled workers, a rise in the wage premium for skilled workers, education and consumer price changes, etc. When all of these contrasting impacts are taken into account, we find that a higher education subsidy cut reduces welfare and increases poverty in Vietnam. While rural and agricultural households would benefit from this reform, urban and non-agricultural households would lose out.