Karen Thierfelder

Agricultural policies and migration in a U.S.-Mexico free trade area: A computable general equilibrium analysis

Abstract A United States-Mexico agreement to form a free trade area (FTA) is analyzed using an 11-sector, three-country, computable general equilibrium model that explicity models farm programs and labor migration. The model incorporates both rural-urban migration within Mexico and international migration between Mexico and the United States. In the model, sectoral import demands are specified with a flexible functional form, an empirical improvement over earlier specifications, which use a constant elasticity of substitution function. Using the model, we identify trade-offs among bilateral trade growth, labor migration, and agricultural program expenditures under alternative FTA scenarios. Trade liberalization in agriculture greatly increases rural- urban migration within Mexico and migration from Mexico to the United States. Migration is reduced if Mexico grows relative to the United States and also if Mexico retains farm support programs. However, the more support that is provided to the Mexican agricultural sector, the smaller is bilateral trade growth. The results indicate a policy trade-off between rapidly achieving gains from trade liberalization and providing a transition period long enough to assimilate displaced labor in Mexico without undue strain.

Genetic Engineering and Trade: Panacea or Dilemma for Developing Countries

Abstract Advocates of the use of genetic engineering techniques in agriculture contend that this new biotechnology promises increased productivity, better use of natural resources and more nutritious foods. Opponents are concerned about potentially adverse implications for the environment and food safety. In response to consumer reactions against genetically modified (GM) foods, in some countries crop production is being segregated into GM and non-GM varieties. This analysis finds that world markets for maize and soybeans adjust well to these changes and also that developing countries will divert their trade patterns in response to preference changes in important trading partner countries.

An Analysis of South Africa's Value Added Tax

In this paper, the authors describe South Africas value added tax (VAT), showing that (1) the VAT is mildly regressive, and (2) it is an effective source of government revenue, compared with other tax instruments in South Africa. They evaluate the VAT in the context of other distortions in the economy by computing the marginal cost of funds-the effect of raising government revenue by increasing the VAT rates on household welfare. Then they evaluate alternative, revenue-neutral tax systems in which they reduce the VAT and raise income taxes. For the analysis, the authors use a computable general equilibrium (CGE) model with detailed specification of South Africas tax system. Households are disaggregated into income deciles. They demonstrate that alternative tax structures can benefit low-income households without placing excess burdens on high-income households.

Economy-wide and distributional impacts of an oil price shock on the south African economy

As crude oil prices reach new highs, there is renewed concern about how external shocks will affect growth and poverty in developing countries. This paper describes a macro-micro framework for examining the structural and distributional consequences of a significant external shock-an increase in the world price of oil-on the South African economy. The authors merge results from a highly disaggregative computable general equilibrium model and a micro-simulation analysis of earnings and occupational choice based on socio-demographic characteristics of the household. The model provides changes in employment, wages, and prices that are used in the micro-simulation. The analysis finds that a 125 percent increase in the price of crude oil and refined petroleum reduces employment and GDP by approximately 2 percent, and reduces household consumption by approximately 7 percent. The oil price shock tends to increase the disparity between rich and poor. The adverse impact of the oil price shock is felt by the poorer segment of the formal labor market in the form of declining wages and increased unemployment. Unemployment hits mostly low and medium-skilled workers in the services sector. High-skilled households, on average, gain from the oil price shock. Their income rises and their spending basket is less skewed toward food and other goods that are most affected by changes in oil prices.

North American Farm Programs and the WTO

Since the Uruguay Round, North American countries have implemented less distorting farm programs. The United States adopted the FAIR Act in 1996, which provides for declining, direct payments (Production Flexibility Contracts or PFC) for farmers and the elimination of the deficiency payments program. Since 1994, the United States has also begun to restructure and expand crop and revenue insurance programs, which are partially subsidized. Canada initiated its farm policy reforms beginning in 1991, with the introduction of subsidized revenue insurance

Wage Subsidy and Labor Market Flexibility in South Africa

In this paper, the authors use a highly disaggregate general equilibrium model to analyze the feasibility of a wage subsidy to unskilled workers in South Africa, isolating and estimating its potential employment effects and fiscal cost. They capture the structural characteristics of the labor market with several labor categories and substitution possibilities, linking the economy-wide results on relative prices, wages, and employment to a micro-simulation model with occupational choice probabilities in order to investigate the poverty and distributional consequences of the policy. The impact of a wage subsidy on employment, poverty, and inequality in South Africa depends greatly on the elasticities of substitution of factors of production, being very minimal if unskilled and skilled labor are complements in production. The desired results are attainable only if there is sufficient flexibility in the labor market. Although the impact in a low case scenario can be improved by supporting policies that relax the skill constraint and increase the production capacity of the economy especially towards labor-intensive sectors, the gains from a wage subsidy are still modest if the labor market remains very rigid.

GENETICALLY MODIFIED FOODS, TRADE, AND DEVELOPING COUNTRIES

This paper analyzes price, production and trade consequences of changing consumer preferences regarding the use of genetically modified organisms (GMOs) in food production. The analytical framework used is an empirical global general equilibrium model, in which the entire food processing chain - from primary crops through livestock feed to processed foods - is segregated into genetically modified (GM) and non-GM lines of production. This model is used to analyze the implications of widespread use of genetically engineered crops in some regions whilst consumers in Western Europe and High- income Asia adopt a critical attitude toward GM foods. Two different representations of consumer preference changes are illustrated: (1) a change in price sensitivity: i.e. consumer demand is less sensitive to a decline in the price of GM foods relative to non-GM varieties, and (2) a structural demand shift: for a given price ratio consumers simply demand less of the GM variety relative to the non-GM variety. This analysis finds that developing countries adjust their trade patterns in response to preference changes in important trading partner countries. Non-GM varieties are diverted to GM-critical regions while GM varieties are sold to countries in which consumers are not sensitive to GM content. Furthermore, the development of segregated GM and non-GM food creates a potential niche market for producers if the non-GM characteristic can in fact be preserved and verified throughout the marketing system at reasonable costs.

Agricultural and food policies in a United States-Mexico free trade area

Abstract This paper analyzes the effects of a U.S.-Mexico free trade agreement (FTA) on agriculture. We use a 28-sector, three-country computable general equilibrium (CGE) model in which we explicitly model agricultural and food policies in both countries, and differentiate land types. Agricultural policies include tariffs, quotas, input subsidies to farm and food processing sectors, targeted producer prices, fixed retail food prices and deficiency payments. Subsidies to Mexicos food processing industries and deficiency payments are endogenous, rather than fixed, ad valorem price wedges. We use the model to explore the effects of full and partial liberalization of agriculture in an FTA, a restructuring of Mexican domestic farm policies in conjunction with an FTA, and the effects of an increase in the Mexican capital stock. We find that there is potential for Mexican farm program changes to assist agricultures transition to a free trade environment, and that in the long term, increased capital investment will enable Mexican agriculture to benefit from free trade.

Trade and Tradability: Exports, Imports, and Factor Markets in the Salter‐Swan Model

We extend the Salter-Swan model to include both factor markets and semi-traded goods. In our model, changes in relative factor prices depend on changes in world commodity prices, factor endowments, and the trade balance. In contrast, only changes in world commodity prices can affect factor prices in the neoclassical trade model. The inclusion of semi-traded goods weakens the magnification effect in both the Stolper-Samuelson and Rybczynski theorems. When imports and domestic goods are poor substitutes, a characteristic of some commodities in developing countries, the sign of the Stolper-Samuelson theorem is reversed.

Labor market regulations, trade liberalization and the distribution of income in bangladesh

We examine the effects of labor market rigidities on the outcome of trade liberalization using a general-equilibrium model of Bangladesh. When there are no labor market distortions, the poorest households experience a real-wage increase following trade liberalization. When there are either severance pay regulations or minimum wages, the poorest households bear the burden of adjustment. When both sets of regulations are in effect, the net result is not very different from the case where there are no regulations.