4 From theory to empirics
1. Review & consolidation of the TEF
approach
2. Empirical shortcomings of generic models
3. Development, resources and
environmental pressures in Asia
1
Review & consolidation of the
TEF approach
• ‘Macro’ approach (Copeland, Ulph) helps
define growth/policy issues at broadest level
– Links to welfare measures
– Second-best analyses
• Recovery of critical quantities and prices
– From (p, v, t, s) recover prod’n & input dd,
factor shadow prices, cons. dds, etc.
– Extrapolate to environmental/NR outcomes
2
Extensions & issues
• Production externalities
• Endog. factor endowments & comm. prices
– E.g. double dividend argument
• Heterogeneous consumers & inc. distb’n
– And aggregation problems
• Political constraints on economic or
environmental policy
3
Applications of generic approach
• Back-of-envelope GE calculations
– E.g. Implications of US reduction of barriers to
Pakistan/African textile exports
• Economic effects
– Wages and employment
• Environmental effects
– Composition effects (TRI indices)
– Scale and income (technique) effects
4
Apparel 3220
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Figur e 4.1 Linea rly Weighted Acute Human Tox ic Intensit y Index
5
(Source: Hettige et al 1994: IPPS)
Empirical shortcomings of
generic models
• Market failures and distortions
• Spatial heterogeneity and transporttransactions costs
• Dynamic specification: transition to eq’m;
non-convexity, irreversibility.
6
Market failures
• Land markets and property rights in natural
resources
• Capital markets
– Financial repression as a development policy
• Labor markets
– Wage rigidity and unemployment
• Insurance markets
7
Spatial heterogeneity
• Watersheds and ‘airsheds’
– E.g. Doolette and MacGrath (WB report, 1990)
– E.g. Rains-ASIA model
• Frontiers and margins (forests, coastlines)
8
Spatial heterogeneity
y =distance off-road
p/b
x = distance a long road
p/a
A
• r(x0, y0)
p=ax+by
• r(x1, y1)
p/b
Figur e 3.1 The spa tial expan sion o f the market (adapted from Gersowit z 1989 ).
9
Development, resources and
environmental pressures in Asia
• Growth and structural change
• Trade and trade intensity
• Capital accumulation and FDI
10
Table 3.1: GDP sha res (%) major sectors, deve loping A sian countries
GDP growtha
Years
Agric.
Indus try
(Mfg)
Services
China
6.42
1960-80
1981-90
1991-00
35
29
20
40
44
48
31
36
37
25
27
32
Indones ia
3.97
1960-80
1981-90
1991-00
42
22
18
23
37
43
10
16
24
35
40
40
Malays ia
4.12
1960-80
1981-90
1991-00
29
20
13
30
39
42
14
21
27
41
41
45
Phil ipp ines
1.04
1960-80
1981-90
1991-00
28
24
20
31
36
32
23
25
23
41
40
48
Thail and
4.34
1960-80
1981-90
1991-00
29
17
11
25
33
39
17
24
29
46
50
50
Vietnamb
5.37
Country
1960-80
..
..
..
..
1981-90
40
29
26
32
1991-00
29
30
20
41
a. Real per capita inco me (1995 US$), annua l average 1970-2000. b. 1991-2000 .
.. = not avail able. Sourc e: World Bank : World Development Indicators 2001
11
Table 3.3: Total expo rts (X, % of GDP), manu factured expor ts (MFG, % of expor ts),
and trade/GDP ratio (per cent), deve loping Asian coun tries
Trade as % of
Country
Item
1961-70 1971-80 1981-90 1991-00 GDP, 2000)
China
X
MFG
2
..
Indones ia
X
MFG
10
2
Malays ia
X
MFG
Myanmar
4
..
11
62
22
83
44.5
24
2
25
18
31
49
67.0
42
5
46
14
59
34
97
73
219.7
X
MFG
13
1
6
6
5
6
1
10
1.1
Phil ipp ines
X
MFG
16
6
22
14
25
29
42
60
91.0
Thail and
X
MFG
16
3
20
16
27
42
46
71
108.8
Vietnam
X
..
..
14
36
94.1
MFG
1
11
5
..
.. = not avail able. Source: World Bank : World Development Indicators 2001
12
Table 3.2: Gross fi xed capit al formation (per cent of GDP) and foreign direct
inve stme nt (per cent of GFCF), deve loping A sian count ries
Country
Item
1961-80
1981-90
1991-00
China
GFCF
FDI
29
0
29
2
34
11
Indones ia
GFCF
FDI
22
3
25
1
26
2
Malays ia
GFCF
FDI
20
13
30
11
36
15
Myanmar
GFCF
FDI
12
..
15
..
13
..
Phil ipp ines
GFCF
FDI
20
1
22
4
22
8
Thail and
GFCF
FDI
22
2
30
4
34
10
Vietnam
GFCF
..
12
Sour ce: World Bank , World Development Indicators 2001
25
13
Real GDP growth and growth of industrial emissions, 1975-87
14
Table 3.4: Agricultural land use trends in developing Asian economies
Percent of total land area:
Coun try/Region
Arable land a
1980
Permanen t cropsb
1997
1980
1997
Agricult ura l Areac
1980
1997
Cambod ia
11.3
21
0.4
0.6
11.7
21.6
India
54.8
54.5
1.8
2.7
56.6
57.2
Indones ia
9.9
9.9
4.4
7.2
14.3
17.1
Lao PDR
2.9
3.5
0.1
0.2
3.0
3.7
Malays ia
3.0
5.5
11.6
17.6
14.6
23.1
Phil ipp ines
14.5
17.2
14.8
14.8
29.3
32.0
Sri Lanka
13.2
13.4
15.9
15.8
29.1
29.2
Thail and
32.3
33.4
3.5
6.6
35.8
40.0
Vietnam
18.2
17.4
1.9
4.7
20.1
22.1
Low-mi d. inc. LDC
9.4
10.3
1.0
1.2
10.4
11.5
E. Asia and Pacific
10.0
12.0
1.5
2.6
11.5
14.6
Latin A m & Car.
5.8
6.7
1.1
1.3
6.9
8.0
ME & N. Africa
4.4
5.2
0.4
0.7
4.8
5.9
42.4
42.5
1.5
2.1
43.9
44.6
S. Asia
Sub- Saharan A frica
5.4
6.4
0.7
0.9
6.1
Sour ce: World Bank , World Development Indicators 2000.
a
Arab le area is defined as land unde r temporary c rops, temporary p astures, and sho rtterm fall ow. Exclude s land abandoned as the result of shifting cult ivation .
b
Permanen t crops area is defined as land cultivated wit h crops that occupy the land for
long p eriods and need no t be replanted after each harve st (flowering shrubs , fruit trees,
nuts trees, vines, etc). Excludes areas of trees grown for wood or tim ber.
c
Sum of a rable area and permanen t crops
7.3
15
Economic & policy heterogeneity
in ‘representative’ economies
• Manufacturing industry policies
– Broadly, ISI vs. EOI
• Food policies
– Exporter/importer; trade-based self-sufficiency
policies
• Nature of economic activity at land/forest
margin
– Subsistence, plantation, comm’l food & fiber
16
Economic & policy heterogeneity
Manufa cturing
Econo my
indus try
Type
orientation
Upland Land Use by
Market for
Crop Type (%)
staple cereals 0-----25-----50-----75----100
Jeepney
Importsub stit uting
(ISI)
Nontraded
Non-traded
food crop s
Becak
Plantation
crops
Proton
Non-traded
Expor toriented
(EOI)
Tuk- Tuk
Traded
Traded food
& fibre
Figur e 3.2: Schematic summary of econo mi c structure in representative econo mies
17
Endog. prices, tax interactions
and the ‘double dividend’
• In a second-best world, will an
environmental tax raise or reduce welfare?
– Gains from reduced pollution
– Possible losses from tax interactions
• E.g. Bovenberg & Goulder, AER 1996: energy
producers pass on carbon taxes as higher prices,
which reduces real eff. wage and labor supply,
narrowing base of labor tax.
– What about trade taxes?
• Coxhead 2000, http://www.feem.it, paper # 88.2000
18
Private and social marginal costs
P1
SMC
B
P0
A
PMC
MB
Z1
Z0
Emissions
19
Labor mkt response to eff. wage
Wg0
C
D
Wn0
Wn1
L1
L0
Labo r hours
20
Is there a double dividend?
• Pollution tax raises revenue (area A) and
improves welfare by area B
– Can use A to reduce income tax rate --> DD
through reduction in DWL (area C)
• But fall in real net wage when tax costs are
passed on
– RNW = W(1 - t)/P, so tax/price equivalence
– If |dP| > |dt| excess burden could increase (area D)
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