III-B
III. AGE analysis of trade, policy
reform and environment
A. Core concepts and structura l features of AGE models
B. Coun try c ase studies (OEE Ch. 6, 7 )
1
III-B
Protection, food policies and the
environment: Philippines
• After several decades of fitful growth, heavy
reliance on NR for incomes continues.
– Structural change has been slow
– Additions to the labor force work mainly in
agric/services
– Poverty (esp. in rural areas) remains high
• While problems of urban pollution and
infrastructure are severe, degradation of natural
resource base (soils, forests, watershed services
and fisheries) is the major problem.
2
III-B
Protection, food policies and the
environment: Philippines
• Forest cover has fallen from >50% to <20% since
1950
• Deforestation continues in spite of huge decline in
commercial timber harvesting
–
–
–
–
Upland population doubled 1960-90, to >18m.
Upland agricultural area increased about sixfold.
Most upland agriculture is cereals, mainly corn.
Intensification and expansion are also associated with
rapid land degradation plus off-site damages.
3
III-B
Table 6.1: Erosion rates by land u se: Phili ppines
Land U se
Und isturbed forest
Second grow th forests
Erosion rates (t/ha/yr)
0.1- 0.4
1-7
Rice paddies
0.2-10
Plantations (dep. on age and specie s)
2.4-75
Grasslands
1.5-3
Overgrazed lands
90-270
Shifting culti vation (no con servation
90-240
measures)
Annua l cash crops (up la nds )
Sour ce of basic data: NRAP (1991).
30-180
4
III-B
Spatial dimensions
• Population growth in cities and at cultivated
frontier (forest margin)
• In rural areas, most rapid growth in uplands,
where land is ‘freely’ available
• The main regions (island groups) are
heterogeneous in terms of climate, soils,
econ. conditions, etc.
5
III-B
Policy legacies and linkages
• ISI as development strategy
– Maintained longer than ASEAN neighbors
– Protection for capital-intensive mfg; this discouraged
agricultural investment and production.
– Low labor demand growth in mfg kept real wages low
– Persistent poverty and income inequality
• Ag. development policy (inc. Green Revolution)
benefited mainly lowland ag.
• Food policy protected cereals relative to other ag.
– Decline of traditional upland crops (e.g. coffee)
6
III-B
Recent policy trends
• Reductions in manufacturing protectionism
• Relaxation of quantitative restrictions on
agricultural trade (WTO compliance)
– But QRs mainly replaced by prohibitive tariffs,
esp in rice and corn.
– Thus cereals excluded from trade liberalization
agenda.
– What environmental and welfare implications?
7
III-B
The APEX model
• Johansen-style AGE model
• Main features:
– 50 sectors, including 12 agriculture
– Ag. production in 3 regions (specific factors)
– 5 types of household (by income quintile), with unique
asset ownership & consumption patterns
– 2 types of labor (skilled and unskilled)
– Data are sourced from Philippine Social Accounting
Matrix and econometric estimates (for all elasticities)
– Includes wide range of taxes and subsidies.
8
III-B
Production structure: industry
Output
(Fixed proportions)
Composite primary factor
Intermediates
(Flexible function)
(CES)
Labor Variable K Fixed K Imported Domestic
Skilled
Unskilled
9
III-B
10
III-B
Environmental stories
• Soil erosion depends mainly on corn area
planted
• Deforestation for ag. land implied by
changes in land and labor prices
• Industrial emissions calculated using AHTI
11
III-B
Policy experiments
• Except rice and corn, most highly protected
sectors are in heavy industry (Table 6.3).
– These are also the least L-intensive
– And contain the biggest polluters
• Experiment 1: reduce non-agricultural
tariffs by 25%
• Experiment 2: reduce all tariffs by 25%
12
III-B
Closure
• Macro closure:
–
–
–
–
G budget and current account assumed to balance;
Savings and investment fixed;
So burden of adjustment falls on households
This yields a measure of welfare change (marketed
goods) based on household expenditures
• Micro closure:
– Ag. land area is endogenous (allows for expansion,
fallow)
13
III-B
Table 6.4: Macroecono mi c effects of trade li beralization (per cent change s)
Manufa cturing
All tarif fs reduc ed
sectors only
Real GDP
-0.04
-0.02
Gov ’t tariff revenue
-22.14
-24.00
-0.06
-0.04
Wages: un skill ed labour
0.66
0.56
Wages: skill ed labour
1.26
1.36
Return to variable capit al
1.14
1.19
Real hou seho ld consumption
14
III-B
Table 6.5: Sectoral effects of trade li berali zation (per cent change s)
Irrigated Rice
Manufa cturing tariff
reduc tion
Pric e
Output
.37
-.16
Across-the-board tariff
reduc tion
Pric e
Output
-.38
-.75
Rainfed Rice
.37
-.18
-.38
-.61
Corn
.11
-.45
.00
-.44
Coconut
.45
-.21
.33
-.04
Suga r
.22
-.22
.22
-.17
Forestry
.90
.84
.90
.87
15
III-B
Table 6.5: Sectoral effects of trade li berali zation (per cent change s)
Textile
Garments
Manufa cturing tariff
reduc tion
Pric e
Output
-.58
-1.01
Across-the-board tariff
reduc tion
Pric e
Output
-.67
-.97
.10
-.73
.09
-.68
Wood Products
-.34
2.08
-.36
2.19
Paper Products
-.48
-.53
-.52
-.52
Fertilizer
-.05
.18
-.08
.07
Other Rubber Prod.
-.95
-.07
-.99
-.10
Basic/Non-ferr Met
.06
-.43
.06
-.44
Cement
-.81
-.48
-.86
-.47
Semi conduc tors
-.31
1.95
-.31
1.97
Metal Products
-2.51
-.36
-2.68
-.31
Elect. Machin ery
-.96
-.41
-1.00
-.42
Transport Equip t
-1.15
-.47
-1.21
-.47
Mis c. Mfg
-.71
-.88
-.72
-.87
16
III-B
Table 6.6: Land use chang es due to trade liberali zation in non -agric sectors
Indus try
Luzon
Visayas
Mindanao
Manuf .
All
Manuf .
All
Manuf .
All
tariffs
tariffs
tariffs
tariffs
tariffs
tariffs
Irrigated rice
.08
-.60
-.09
-.64
-.18
-.71
Rainfed ric e
.06
-.49
-.01
-.34
-.27
-.61
-.04
-.31
-.16
-.12
-.44
-.37
.14
.11
.02
.00
-.25
.08
Suga r
-.03
-.03
-.19
-.14
-.28
-.15
Fall ow land
-.04
.26
.08
.17
.29
.33
Erosion
-.03
-.30
-.14
-.13
-.42
-.38
Corn
Coconut
17
III-B
Table 6.12: Changes in hou seho ld inco me s, by source
Househo ld group
Labour
Agricult ura l l and
Manufa cturing tariff
Across-the-board
reduc tion
tariff reduc tion
.77 to 1.09
.71 to 1.15
-.05
-.26
Agricult ura l capit al
.44
.13
Non-agric. capit al
.99
1.05
1.14
1.19
Variable capit al
18
III-B
Table 6.11: Changes in real househo ld consu mption expend it ures by quintil e
Hou seho ld group
Manufa cturing tariff
Across-the-board
reduc tion
tariff reduc tion
Poorest 20%
-.22
-.21
Second
-.16
-.15
Third
-.12
-.11
Four th
-.09
-.08
.02
.05
Richest 20%
19
III-B
Trade liberalization : summary
• Scale effect: very small, as expected
• Composition effect: liberalization reduces
pressures on NR base, has mixed effects in
industry
• Real h’hold expenditures on goods: almost no
change
• Income distribution worsens
• Clear env. benefits in agriculture, and reduced
pressures for deforestation by farmers
20
III-B
Ongoing policy issues
• Philippine poverty and income inequality have
deep historical roots
– Trade reform alone is not sufficient
• Major environmental problems stem from poverty,
low non-ag labor absorption, and open access
– Trade reforms have indirect environmental benefits, but
more is needed
– EKC may be ‘too high’ regardless of trade policy;
direct environmental policies are also needed
– Protecting corn sector (food policy) cancels effects of
environmental policies
21