Ramon L. Clarete

Interactions between trade policies and domestic distortions in a small open developing country

Abstract This paper reports results from a price-taking open economy numerical general equilibrium model of the Philippines whose purpose is to explore the ways in which trade policies and other domestic distortions interact in a small open developing economy. The trade policies featured in the model include tariffs, export taxes, and import quotas, while the domestic distortions considered are rent seeking, and Harris-Todaro labour market dualism. Results clearly indicate that interactions between trade policies and other domestic distortions are significant, and need to be more fully considered in numerical economic policy analyses for developing countries.

A Shoven-Whalley model of a small open economy: An illustration with Philippine tariffs

Abstract This paper describes an applied general equilibrium model of a price-taking economy in both imports and exports. Sector-specific factors are incorporated to avoid complete-specialization problems. A Hicksian composite traded good market is used for achieving trade balance in the model. Foreign and domestic goods are assumed perfect substitutes. For illustration, Philippine tariffs and export taxes are analyzed using the model.

CGE Models and Development Policy Analysis: Problems, Pitfalls, and Challenges

The purpose of this paper is to specify characteristics of computable general equilibrium (CGE) models that are most likely to be useful for policy analysis in developing countries. In the first part of the paper, alternative criteria for distinguishing CGE models are assessed. We suggest that CGE models with clear microeconomic structure contribute the most to sound policy formulation by helping analysts to understand essential relationships relevant to particular policy configurations. The second part of the paper describes how a neoclassical economic model can be extended to address a variety of policy issues in developing countries.

Foreign exchange premia and non-neutrality of monetary policy in general equilibrium models

Abstract We present a simple monetized extension of a traditional small-country, real-side, general equilibrium trade model in which premia on foreign exchange occur, with the value of the quota and the quota premium endogenously determined. Monetary policy is non-neutral in the model, and has real effects, illustrated using a small open economy general equilibrium model of the Philippines, which includes foreign exchange premia. The results emphasize the importance of incorporating domestic monetary policy, fixed exchange rates and associated foreign exchange premia when analyzing the trade policy regime in such a country.

Immiserizing growth and endogenous protection

Abstract This paper focuses on immiserizing growth in the two senses of Bhagwati (1958) and Johnson (1967), and how both the likelihood that either may occur and their extent can be affected by the presence of endogenous protection; i.e., quota and other forms of protection for which the ad valorem equivalent level of protection is endogeneously determined. We use a general equilibrium model of the Philippines due to Clarete (1984) to compute counterfactual equilibria involving changes in domestic policies, terms of trade, and resource endowments. Immiserizing growth, in the sense of Bhagwati, is less likely because the terms-of-trade fall required to offset the growth of resources has to be significantly larger if no distortions are in the model. Immiserizing growth in the sense of Johnson tends to be more likely if endogeneous protection is present. As unbalanced growth occurs focused on the factor intensive in the protected sector, resources are drawn out of the export sector and export earnings decline and, if the level of protection is endogenously determined, the welfare costs of protection increase.

Philippine Rice Self-Sufficiency Program: Pitfalls and Remedies

This chapter determines that the rice self-sufficiency program in the Philippines is costly insurance from food insecurity risks. It will cost the country PhP 142 billion pesos from 2010 to 2016 to produce the incremental rice amounting to 4.52 million tons, which are importable at PhP 51 billion less than the world market. The risk of not finding rice to buy in the world market is low considering that nearly half of the world’s exportable rice comes from ASEAN. Import restrictions, a program component, entail the efficiency cost amounting to PhP 20.17 billion each year. Small rice farmers, particularly the poorest 7% of them, get penalized instead of rewarded by import controls by paying the high rice price like the rest of consumers. Multi-year stochastic simulations using the Arkansas Global Rice Model indicate that the program has at best only a 10% chance of succeeding in 2016. The government may well adjust its target for self-sufficiency and allow the private sector with the National Food Authority (NFA) to import the remaining gap.

Border tax adjustments and rationed foreign exchange

Abstract In the case of a traditional developed country, the choice of tax base for border adjustments is thought of no consequence because of the long-run neutrality of tax basis switches. We show how border tax adjustments can be non-neutral whether or not developing countries have rationed foreign exchange.

Trade-Restricting Effects of Exchange Rate Regimes: Implications for Developed-Developing Country Trade Negotiations

Reciprocal bargaining among developed countries under GATT focuses on both an explicit and implicit bargain. Explicit bargains involve mutual reductions in real-side barriers (tariffs). The implicit bargain is that negotiating parties will maintain full convertibility of domestic currencies so that reductions in real-side trade barriers will have an effect on trade.