Rodney Tyers

Implications of EC Expansion for European Agricultural Policies, Trade and Welfare

The expansion of the EC to include EFTA countries, and the greater provision of preferential access to protected EC markets for farmers in Eastern Europes economies in transition, would have opposite effects on Europes excess supply of food and on international food prices (assuming EC domestic prices remain unchanged). Their combined impacts on these parameters could therefore be positive or negative, as could the effects on net economic welfare in Europe and elsewhere. A multicommodity simulation model of world food markets is used to estimate the commodity and welfare effects of such integration by the year 2000. The results show that even if just the four most advanced Central European countries were to be given free access to EC food markets, that effective increase in European agricultural protection would virtually wipe out the global benefit from the lowering of EFTAs food prices to those in the EC-12. The budgetary cost to the EC of allowing Central European farmers access to EC markets would amount to one-quarter of the ECs expenditure on farm price supports, or far greater than what would accrue from EFTA countries joining the EC.

China's Economic Growth and its Real Exchange Rate

The shocks that underlie Chinas comparatively rapid growth include gains in productivity, factor accumulation and policy reforms that increase allocative efficiency. The well-known Balassa–Samuelson hypothesis links productivity growth in tradable industries with real appreciations. Yet it relies heavily on the law of one price applying for tradable goods, against which there is now considerable evidence. In its absence, other growth shocks also affect the real exchange rate by influencing relative supply or demand for home product varieties. This paper investigates the pre-conditions for the Balassa–Samuelson hypothesis to predict a real appreciation in the Chinese case. It then quantifies the links between all growth shocks and the Chinese real exchange rate using a dynamic model of the global economy with open capital accounts and full demographic underpinnings to labor supply. The results suggest that financial capital inflows most affect the real exchange rate in the short term, while differential productivity is strong in the medium term. Contrary to expectation, in the long term demographic forces prove to be weak relative to changes in the skill composition of the labor force, which enhances services sector performance and depreciates the real exchange rate.

China's Exchange Rate Policy: The Case for Greater Flexibility

Since the Asian crisis, the merit of the Chinese governments de facto peg to the US Dollar has been the subject of widening debate. This paper reviews the issues surrounding Chinas currency regime choice and assesses the case for greater fiexibility. Reform era exchange rate policies are examined along with the performance of the economy during and since the Asian crisis. In the Chinese context, the arguments for and against fixed exchange rates are then explained and assessed. Finally, an elemental comparative static macroeconomic model is used to examine the implications of domestic and external shocks under different exchange rate regimes and with differing degrees of capital mobility. The results support the view that more fiexibility would be beneficial to China and that this benefit can be expected to increase as capital mobility increases.

Demographic Change and Policy Responses: Implications for the Global Economy*

The fertility declines associated with the final phase of the global demographic transition have led to slower population growth and accelerated ageing in developed countries and in several advanced developing countries. A global demographic and economic is used to assess the implications of these changes for population sizes, age-gender distributions, labour force growth and their implications for economic performance. A base line projection that incorporates declining fertility is compared with a hypothetical constant population growth scenario. The results show that slower population growth and ageing reduces average saving rates in industrial regions, yet global investment demand is also slowed and saving rates rise in developing regions, so there is no net tightening of financial markets. Increased aged labour force participation, considered one solution to the resulting rise in aged dependency in advanced regions, is found to redistribute investment in favour of the industrialised regions and hence to accelerate their per capita income growth, while conferring on the other regions compensatory terms of trade improvements. The alternative of replacement migration is found to require inconceivably large population movements. It also impairs real per capita growth in destination regions but by least in Western Europe, where the terms of trade is improved by the immigration.

Trade with Asia and skill upgrading: Effects on labor markets in the older industrial countries

Trade with Asia and Skill Upgrading: Effects on Factor Markets in the Older Industrial Countries. — The trade and labor nexus is examined with a model incorporating refinements which weaken the H-O-S result that free trade can cause factor rewards to equalize. Asian growth and rising openness in the period 1970–1992, taken in isolation, are found to cause real wages to rise there, even for production workers. Although they also cause increased wage dispersion, the magnitude is small compared with the effects of skill upgrading. Projections to 2010, which combine further expansion in imports from Asia with continued Northern skill upgrading, yield declining real wages and/or unemployment for both production and farm workers. Restricting imports from Asia is found to be an ineffective response.ZusammenfassungHandel mit Asien und Höherqualifizierung. Auswirkun-gen auf die Faktormärkte in den älteren Industrieländern. — Das verwendete Modell enthält einige Verfeinerungen, die die Implikationen des H-O-S-Modells abschwächen, wonach Freihandel dazu führt, daß sich die Faktorentlohnungen der einzelnen Länder angleichen. Wenn man das Wachstum in Asien und die zunehmende Offenheit in der Zeit von 1970–1992 isoliert betrachtet, dann stellt sich heraus, daß dies den Ländern auf der nördlichen Halbkugel Nettovorteile gebracht hat. Dort stiegen die Reallöhne sogar für Industriearbeiter. Projektionen für das Jahr 2010, die einen weiteren Anstieg der Importe aus Asien mit fortgesetzter Höherqualifizierung der Arbeitskräfte im Norden kombinieren, ergeben sinkende Reallöhne und/oder Arbeitslosigkeit für Arbeiter sowohl in der Industrie als auch in der Landwirtschaft. Importbeschränkungen gegenüber Asien erweisen sich als ungeeignet.

China's Equilibrium Real Exchange Rate: A Counterfactual Analysis

China’s maintenance of a de facto peg against the US dollar during and following the Asian financial crisis caused a realignment of exchange rates in the Asian region. This paper explores the “equilibrium” level of China’s real effective rate in the lead-up to, during and following that crisis. An adaptation of the Devarajan-Lewis-Robinson three-good general equilibrium model is employed to estimate time paths of the equilibrium real effective exchange rate under a variety of assumptions about the balance of trade. Key requirements of the model are indices of import and export prices in time series. Since these are unavailable from secondary sources they are here constructed from trade data. The results suggest that, while there is no clear evidence of undervaluation as of 2004, China’s real effective exchange rate was on the low side in the lead-up to and during the crisis, due in part to an extraordinary rate of accumulation of foreign reserves and an associated trade surplus following the integration of its hitherto multiple exchange rates in 1994. If, instead, China had run a more typical trade deficit, say amounting to 10 per cent of export revenue or 1.5 per cent of GDP, it is estimated that China’s real effective exchange rate would have been higher by about a tenth prior to the crisis.

International Impacts of protection: model structure and results for FC agricultural policy

Abstract A dynamic international commodity trade model is introduced that combines stochastic production with three features: multimarket dynamics, endogenous trade policy behavior, and endogenous stock-holding behavior. The significance of these features is illustrated using versions of the model with each excluded in turn. Their role in policy analysis is examined by using each version to measure the impacts of the grain-meat components of the European Communitys Common Agricultural Policy. The absence of each is found to alter significantly the estimated terms of trade, trade volume, and welfare effects. Endogenous stock holding is found to be especially important when insulating trade policies are reprented in the model.

Imperfect Competition and Returns to Scale in a Newly Industrialising Economy: A General Equilibrium Analysis of Korean Trade Policy

Abstract A general equilibrium analysis of industrial protection in Korea is presented using a model which incorporates imperfect competition and scale economies. The results suggest that, in spite of the strong performance of the Korean economy, significant additional income (of about 7% of GDP) might have been generated (via lengthened production runs and increased labour productivity in manufacturing) had less distortionary policies been used. Some of the observed distortions may, however, have been essential to sustain stable political coalitions. While this has not been taken into account, the analysis nevertheless lends support to the view that industrial organisation is particularly important in analysing trade reforms in newly industrialising countries, even though the best reforms are still those which balance incentives within and across sectors.

The economic costs of food self-sufficiency in China

Abstract Despite the surge in agricultural output since the late 1970s, a comparison of Chinas resource endowments with those of its trading partners suggests that, with continued rapid income growth, food imports will again expand unless relative domestic prices are raised. Quantitative analysis of price policies which would achieve self-sufficiency in the 1990s indicates net economic costs ranging between 2–3% of GNP annually. These results are, however, particularly sensitive to the relatively undocumented changes taking place in the dependence of Chinas rapidly growing livestock sector on feed grains.

Global Demographic Change, Labour Force Growth and Economic Performance

The fertility declines associated with the final phase of the global demographic transition have led to accelerated ageing of populations in developed countries and in several advanced developing countries. This paper introduces a global demographic sub-model, from which emerge the global implications of these changes for population sizes, age distributions and gender compositions. Corresponding changes are inferred in labour force size, and in patterns of consumption and saving and these are then analysed by incorporating the demographic sub-model into a correspondingly global economic model, based originally on GTAP-Dynamic, in which regional households are disaggregated by age group and gender. As an application of the combined model the effects of increased longevity are explored on a global scale. Growth in real per capita incomes is slowed by this change, average saving rates fall and the distribution of global economic activity alters to favour those regions with high aged labour force participation.