Evaluating Labour Adjustment Costs from Trade Shocks: Illustrations for the U.S. Economy Using an Applied General Equilibrium Model With Transactions

This paper presents a general equilibrium approach to calculating labour adjustment costs induced by trade policy changes or external sector shocks, which we illustrate by analyzing the adjustment consequences of eliminating quotas and tariffs on U.S. imports. In our approach, factor adjustments in the presence of transactions costs are endogenously determined within the equilibrium structure. The conventional way of calculating such labour adjustment costs is to use full equilibrium models which exclude adjustment costs, and apply exogenous estimates of duration of unemployment to implied intersectoral labour reallocations. By using an equilibrium model in which adjustment costs are absent, the conventional approach tends to overstate the amount of labour that moves to other sectors and hence introduces an upward bias to estimates of adjustment costs. As well, such an approach tends to ignore the impact on intersectoral wage rates. Our results suggest that concerns over adjustment problems should focus as much on the consequences of adjustment costs in impeding factor mobility, as on the magnitude of the adjustment costs themselves. Compared to the redistributive effects they induce by inhibiting labour movement in response to policy or other changes, these costs may be small.

Ex-post effects of trade liberalization in the Philippines

This paper examines the Philippine experience with trade liberalization policies and their impact on the economy. Although the relationship between trade liberalization and poverty is not straightforward, empirical evidence suggests that there are benefi

Readiness of the Philippine Agriculture and Fisheries Sectors for the 2015 ASEAN Economic Community: A rapid appraisal

The ASEAN Economic Community (AEC) transforms the ASEAN region into a single market and production base by 2015. This promotes greater competition for the Philippine agriculture and fisheries (A and F) sectors. With the country's A and F sector lagging behind its neighboring ASEAN countries, there are fears that local industries will be displaced. The Global Trade Analysis model suggests an increase in both imports and exports as an impact of tariff reforms. The sectors ready for integration include mangoes, bananas, and pineapples. For the coconut sector, intensification of planting, replanting, and product diversification are needed to enhance and maintain supply. Production increase for perishable commodities, such as onions and meats, entails the need for lower power costs. With corn as a potential export commodity, cultivation areas are being expanded and agricultural policies are being aligned with the policies of the ASEAN Free Trade Agreement. To reap the benefits from the AEC, several measures must be performed, i.e., diversification and product quality upgrading. Public support must focus on providing adequate infrastructure, general services, research and development, and extension programs. Particularly, this paper recommends modernizing the country's value chains in the A and F sector to effectively mobilize A and F exports into the ASEAN market. This is done by creating industry road maps to equip major stakeholders knowledge on market opportunities; organizing the value chains and effectively assisting their various participants to comply with international trade product standards, processes, and regulations; building capability for effectively managing the risk of disputes among value chain participants; and promoting the cooperation among farmers, small and medium enterprises, and large enterprises within these agro-based value chains

The role of science, technology and research in economic development

Starting with the premise that technological innovation and economic growth are interactive and mutually reinforcing, this paper argues that in order to have a fighting chance in the Asean Economic Community (AEC), let alone global, competition, the Philippines (PH) needs to appreciably ramp up investment spending in science, engineering, and research and development. To the extent that this is achieved - along with the other ongoing policy and institutional reforms - the economy could in time be on a stronger platform to face up to AEC challenges. The paper first revisits PH's macro-economy, poverty, and economic sectors vis-à-vis its Asean and East Asian neighbors. Next, it examines PH's regional and global competitiveness. Then, it looks into the country's current human resource and intellectual capital investments, mainly in higher education and technical/vocational training, as well as in R&D and innovation. A more focused discussion on the University of the Philippines - the "national university" - vis-à-vis its comparators in AEC, including ways to improve its competitiveness, follows. The final section concludes with some recommendations