The effect of WTO and FTAA on agriculture and the rural sector in Latin America

"In this paper we analyze the effect on output, employment and poverty of two (2) alternative versions of further trade liberalization one representing free trade world wide (WTO) and the other a Western hemisphere free trade bloc (FTAA). The paper introduces international commodity price changes derived from a world model into national Computable General Equilibrium (CGE) and microsimulation models for fifteen (15) Latin American countries to estimate how FTAA and WTO would affect sectoral output, employment, wages and poverty levels at the national level for each of the countries. We found that either of these two alternatives is expansionary for both output and employment in general and for agriculture in particular in most Latin American countries. WTO particularly favors the rural sector because the elimination of producer subsidies in developed countries causes a big increase in prices of all food commodities, especially on grains, dairy products and milk. As a result we found that in general, trade liberalizationreduced skill differentials, both within the urban sector, and where we had the information, between the rural and urban unskilled. Finally, the poverty microsimulation exercise showed that the poor are helped by either WTO or FTAA. Either version reduces poverty and inequality, and the changes are especially significant under the WTO. Clearly the rural poor pay a fairly heavy price for the producer subsidies in developed countries." Authors' Abstract

A regional computable general equilibrium model for Guatemala: Modeling exogenous shocks and policy alternatives

In this paper we develop a dynamic regional computable general equilibrium (CGE) model for Guatemala that incorporates regional disaggregated sectors for agriculture. The model is designed to be useful as a development tool for determining the effects of regional investments intended to reduce regional poverty and also to explore policy options to deal with a number of macro and balance-of-payments issues. Our model extends previous modeling work on Guatemala in several ways. First, it develops an updated regional social accounting matrix (SAM) for 2008, coupled with an updated CGE. Second, the CGE is a recursive dynamic model that incorporates unemployment in the short run. Most CGE models are not useful for short-run analysis because they are comparative static models that assume full employment. We specify a fixed minimum wage and an informal sector and use a recursive dynamic framework to solve for the short-run adjustment process that occurs as the economy responds to shocks. Second, the model is regional, permitting us to examine the impact of sectoral development policies, particularly those focused on agriculture. Guatemala has one of the lowest investment rates in Latin America. We show that if the investment share is raised by 4percent over five years, the rate of growth of the economy rises by about .6 percentage points. Guatemala is also quite sensitive to external macro disturbances. Our dynamic model gives a first approximation of the timing and nature of the adjustment over the ten years following various macro disturbances. We show that after ten years most of these shocks are absorbed by changes in the real exchange rate and the composition of output rather than the rate of growth of output. Negative shocks cause a real devaluation and a shift from consumption and non-tradables and towards exports and tradable goods. An important empirical question is whether the adjustment toward the traded goods sector is as flexible as the underlying elasticities in the model imply.Computable general equilibrium (CGE) modeling, Economic development, general equilibrium models, macro shocks, regional CGE model,

The impact of CAFTA on employment, production, and poverty in Honduras:

"In this paper we develop a dynamic CGE model to examine the impact of CAFTA on production, employment and poverty in Honduras. We model four aspects of the agreement: tariff reductions, quotas, changes in the rules of origin for maquila and more generous treatment of foreign investment. We first show that trade liberalization under CAFTA has a positive effect on growth, employment and poverty but the effect is small. What really matters for Honduras is the assembly (maquila) industry. CAFTA liberalized the rules of origin for imports into this industry. That raises the growth rate of output by 1.4% and reduces poverty by 11% in 2020 relative to what it would otherwise have been. Increasing capital formation through an increase in foreign investment in response to CAFTA has an even larger impact on growth, employment and poverty. These simulations say something important about the growth process in a country like Honduras in which it seems reasonable to assume that there is underemployed, unskilled labor willing and able to work more at a fixed real wage. In such an economy changing the structure of demand in favor of sectors that use a lot of unskilled labor will have a big impact on growth. That is what the maquila simulation does, because maquila uses a lot of unskilled labor relative to skilled labor and capital. Alternatively the supply of capital can be increased by increasing the rate of capital formation. Either of these two has a far larger impact on growth and poverty than tariff reductions alone." from Authors' AbstractCAFTA, Growth, Poverty, CGE model,

External shocks and policy alternatives in small open economies: The case of El Salvador

In this paper we used a dynamic, regionalized computable general equilibrium (CGE) model to analyze the effect of various negative balance of payments shocks on output and employment and the effect of different alternative investment strategies on growth. The model shows clearly how sensitive El Salvador is to remittance or terms of trade shocks. Each 10 percent reduction in remittances lowers gross domestic product (GDP) by 0.2 percent and household consumption by 1.4 percent, with the cost rising as the shock intensifies. Any negative balance of payments shock forces a reduction in absorption, production, and employment and a real devaluation. Because El Salvador's economy is dollarized, that real devaluation can only come about through a fall in domestic prices brought about by recession. We show that the impact of the shock on output depends on how flexible wages are—the impact is smaller when real wages are flexible and greatest when they are fixed in dollars. We used the CGE model to analyze alternative investment strategies for increasing the growth rate. The investment share of GDP is low, and the model makes it clear that without some strategy for increasing investment, the economy's overall growth rate is likely to remain low. We hypothesized two alternative growth rates for investment, both associated with an increase in exogenous technical change. Both strategies require a marginal increase in the share of output devoted to investment. We also showed that if El Salvador can increase the investment share from 15.5 percent to just 16 percent over five years by producing a growth rate in investment of 8 percent per year, and if that increase produces a 1 percent increase in the rate of technical change in all sectors, then the growth rate of the economy will practically double, rising from 2.85 percent to 4.95 percent per year. There are equally favorable effects on employment for unskilled labor and on wages for skilled labor.Development strategies, general equilibrium models, Regional development, Computable general equilibrium (CGE) modeling,

The impact of CAFTA on poverty, distribution, and growth in El Salvador:

"In this paper we develop a dynamic CGE model to examine the impact of CAFTA on production, employment and poverty in El Salvador. We model four aspects of the agreement: tariff reductions, quotas, changes in the rules of origin for maquila and more generous treatment of foreign investment. The model shows that CAFTA has a small positive effect on growth, employment and poverty. Tariff reduction under CAFTA adds about .2% to the growth rate of output up to 2020. Liberalizing the rules of origin for maquila has a bigger positive effect on growth and poverty mainly because it raises the demand for exportables produced by unskilled labor. We model the foreign investment effect by assuming that capital inflows go directly to capital formation. This raises the growth rate of output by over 1% per year and lowers poverty incidence in 2020 by over 25% relative to what it would be in the baseline scenario. These simulations say something important about the growth process in a country like El Salvador in which it seems reasonable to assume that there is idle unskilled labor willing and able to work at a fixed real wage. In such an economy, growth can be increased in one of three ways. First, already employed resources can be moved to sectors where they are more productive. That is what the tariff reductions under CAFTA do, and the result is positive but small. Second, the structure of demand can be changed in such a way as to increase the demand for previously unemployed unskilled labor. That is what the maquila simulation does, because maquila uses a lot of unskilled labor relative to skilled labor and capital. Finally the supply of capital can be increased by increasing the rate of capital formation. That is what happens in the FDI simulation." from Authors' AbstractCAFTA, Trade agreements, Growth, Poverty, CGE model,

Estimating income mobility in Colombia using maximum entropy econometrics.:

Income mobility can be viewed as a first-order Markov process, with a matrix of transition probabilities which measure how individuals move from an income status in time t to a new status in time t+1. Direct estimation of transition matrices is difficult, since time series panel data are unavailable and limited data on the distribution of income do not suffice to determine the coefficients mathematically, let alone provide enough degrees of freedom for estimation. In this paper, we show that maximum entropy econometrics offers a feasible way to estimate transition matrices using distributional data from Colombia. Using a cross-entropy estimation method, we make efficient use of prior information about the structure of the transition matrices and how they vary with age. The approach is very flexible, allowing the use of “information” in a variety of forms such as inequality constraints, errors in measurement, and prior estimates. Under weak assumptions about the error generation process, we can derive test statistics based on the likelihood ratio measuring the significance of the estimation. The model fits the data well in that the predicted and actual distributions for period t+1 are close. The results show that there is a large degree of upward mobility in Colombia, especially at the bottom of the income distribution and for the younger age cohorts.Income distribution, Econometric models., Colombia. ,

Lagging regions and development strategies: The case of Peru

"Despite the economic transformation of Peru's coastal economy, the country's inland region remains poor and underdeveloped. We herein examine the economic linkages between the two regions using a multi-regional computable general equilibrium model based on a regionalized social accounting matrix. The model results show that coastal growth undermines the inland economy by increasing import competition and internal migration. Peru, therefore, cannot rely solely on rapid national growth to generate broad-based poverty reduction. When we simulate policies aimed at curbing divergence, we find that reducing interregional transaction costs stimulates national economic growth, but widens divergence by shifting inland production towards agriculture and concentrating investment in coastal manufacturing. In contrast, conditional cash transfers reduce regional and rural-urban inequality, but do not stimulate national growth. Finally, investing in inland productivity (through extension services and improved rural roads) reduces regional divergence, but the resulting market constraints worsen rural-urban inequality. These findings suggest that isolated interventions may worsen inequality, and that complementarities exist between supply-side investments and policies aimed at stimulating demand and improving access to national markets." from authors' abstractRegional development, Public investments, economic growth, Development strategies,

Trade liberalization under CAFTA: an analysis of the agreement with special reference to agriculture and smallholders in Central America

"This paper is a description and an analysis of trade liberalization under CAFTA. It shows that in the short run the impact of the agreement is likely to be small... Since the U.S. already grants tariff-free access under the CBI, trade liberalization in the CAFTA treaty appears to be asymmetric, with most of the tariff reductions being granted by the Central American countries. That is misleading for two reasons. First there really were some significant tariff barriers in the United States for agricultural commodities under the CBI. Many of these are removed under CAFTA. Second, the current favorable special treatment of the five Central American countries under the CBTPA and the CBI will expire in 2008 if CAFTA is not implemented. CAFTA makes permanent the tariff concessions of the CBI and the liberalized rules of origin of the CBTPA... The fact that the tariff reductions and TRQs granted by the Central American countries under CAFTA will not cause significant price reductions does not mean that domestic producers will be unaffected by the agreement. In the long run the level of protection of many important commodities such as rice, pork and poultry will be significantly lower. But the tariff reductions in these sectors are gradual. That gives farmers time to adjust and to become more competitive. What will be critical from a policy perspective is that this time is used wisely to increase productivity, switch to more profitable crops and take advantage of the new opportunities opened up by CAFTA.." Authors' Abstracttrade liberalization, Agriculture, Smallholders, Tariff on farm produce, Prices, Crops Economic aspects, Central America Free Trade Agreement (CAFTA), Caribbean Basin Initiative (CBI),

A Study of the Role of the Superintendent of Schools in Teacher Negotiations in Class C and D School Districts in Nebraska

Collective bargaining by governmental employees and their employers is a reality in many divisions of state government. As of 1972, twenty-eight of the fifty states had enacted laws governing the process of collective bargaining between the state and its public employees. Seventeen of these twenty-eight states had separate and specific provisions in their laws for the process of collective bargaining between public school teachers and their boards of education