WA Agricultural Growth and the State Economy Research Report Volume 1

The impact of state and national policies on the Western Australian (WA) agriculture can not be assessed realistically unless the distinctive characteristics of WA agriculture are taken into account. The objective of this paper is to develop and document an economic information base for WA agriculture by identifying and exploring the main characteristics of its production systems. The study reveals that agriculture plays a more important role in WA than in the rest of Australia (ROA). The share of WA in the national gross value of agricultural production and exports is much higher than her share in the national gross domestic product. The structure of agriculture in terms of product mix is different for WA than for other states in Australia. The farm structure and the overall farming practices in WA are also different from the ROA. The production concentration and product-mix of WA agriculture seem to be very much influenced by the rainfall patterns and topographic conditions

The Bangladesh economy : some policy issues

Bangladesh is a poor country that has not performed well in economic terms since independence. It was hoped that industrialization would lead to rapid growth, but protectionist import-substitution policies failed to deliver industrial development. Following the trend toward identifying policy problems as being key to growth, this study sets out to examine the effects of foreign exchange and trade policies on industrial development. An ORANI-type computable general equilibrium model, CGE-B89, for the Bangladesh economy (on a 1989 database) was developed for policy analysis. The model was simulated for an exogenous inflow of foreign aid to estimate the shadow exchange rate. It was then simulated for changes in the official exchange rate, money supply, tariffs and export subsidies. Simulations were designed for the short-run in identical economic environments. For each simulation two alternative assumptions about the labour market were made: fixed nominal wages in the presence of involuntary Keynesian unemployment and aggregate employment fixed by the exogenous supply of labour. The macroeconomic and sectoral effects were analysed, and the aggregate welfare gain (or loss) was evaluated for each exogenous change. Harberger's fundamental equation of applied welfare economics (Harberger 1971) was used to disaggregate the change in welfare, due to a small change in an exogenous variable, into the direct welfare impact of the change and indirect gains (or losses) from alleviating (or exacerbating) distortions in all other markets. To apply Harberger's fundamental equation, it was necessary to extend his analysis to allow for intermediate goods, terms of trade effects, indirect taxes on consumption and intermediate inputs, production subsidies, exchange controls and wage rigidity (for simulations in which changes in involuntary Keynesian unemployment are allowed). In the case of shadow price of foreign exchange, the direct effect on welfare of a costless increase in foreign exchange availability of US$1, due to increased foreign aid, is the value of US$1 at the official exchange rate (taka 32.14). The indirect effects equal the sum, across all distorted markets, of the change in distorted activity multiplied by the excess of marginal social benefit of that activity over its marginal social cost. For example, in the case of tariffs, the marginal social benefit of an extra unit of imports is domestic price, while the marginal social cost is the world cif import price (exogenously given in the model). Therefore the gap between the marginal social benefit and marginal social cost is the amount of the tariff, and the indirect benefit of additional foreign aid in alleviating tariff distortions is the tariff times the rise in imports due to the increased foreign aid availability. In the case of Keynesian unemployment, the indirect benefit is the difference between wage and the disutility of labour (assumed to be zero in the model) times the change in employment. With rigid nominal wages in the presence of involuntary Keynesian unemployment, the indirect effect on welfare of a costless increase in foreign exchange availability was estimated to be more than 30 per cent of the official exchange rate. This percentage also measures the extent by which the shadow exchange rate exceeded the official exchange rate. The shadow exchange rate was 15 per cent above the official exchange rate when the nominal wages were flexible and aggregate employment was fixed at the base-year level. Model results suggested that the inflow of foreign aid would raise households' welfare at the expense of reduced production in the tradable sectors. Foreign aid inflow would cause a fall in the real exchange rate, defined as the ratio of the price of tradable goods to the price of nontradable goods. Production of most of the importables and exportables would decline against a substantial expansion in the nontradable sectors. In a small open economy with a unified exchange rate and no exchange controls, a devaluation of the exchange rate increases the money stock through the Hume mechanism. But such a causality does not take place in an economy confronting exchange controls under a dual exchange rate system (involving an exogenously fixed official exchange rate and the market determined secondary exchange rate). In such an economy, changes in money supply and changes in the official exchange rate may be viewed as two separate policy tools to affect the secondary exchange rate premium, and hence implicit taxes on imports and exports. Production and consumption decisions in the economy are thus influenced. The study explored the consequences of two instruments for exchange rate unification: devaluation of the official exchange rate and a contraction of the domestic money supply. Simulations of the devaluation of the official exchange rate and increases in money supply have suggested that a devaluation of approximately 2 per cent or a contraction of domestic money supply by 2 to 2.5 per cent would unify the exchange rates. When aggregate employment is fixed, devaluation and money supply contraction would both reduce the aggregate implicit taxes on exports, and would lead to a deterioration in the international terms of trade. As a result, welfare would fall. In other words, unification of the exchange rates in the absence of optimal export taxes is estimated to be welfare worsening. A nominal contraction (or expansion) degenerates (or produces) a Keynesian stimulus under conditions of sticky nominal wages. As a result, a contraction in the domestic money supply would be welfare worsening, and a devaluation which is equivalent to a monetary expansion would be welfare augmenting in conditions of wage rigidity. But a 2 per cent devaluation, which would unify the exchange rates, would raise households' welfare, albeit by only 0.14 per cent of the base-year GDP at market prices. An equiproportional reduction of tariffs was found to be welfare improving. Both exports and GDP at market price rose. Simulation results, however, suggested that the welfare gains from a 10 per cent equiproportional reduction in tariffs were quite small as a proportion of base-year GDP: only 0.11 per cent under the assumption of nominal wage rigidity and 0.02 per cent under the exogenously fixed aggregate employment assumption. Simulation results also showed that the equiproportional reduction of the Export Performance Benefit entitlement rates was welfare worsening. The simultaneous reductions in the Benefit entitlement rates and tariffs by the same percentage, however, were welfare augmenting. All exports except jute experienced a rise. This seemed to reveal the inadequacy of the Benefit Scheme in overcoming the deleterious effects of nominal protection on exports. The results also showed that the elimination of subsidies under the Benefit Scheme had to be accompanied by a reduction in nominal protection to raise welfare and exports

The Economic Impact of Reducing Greenhouse Gas Emissions in WA

This study analyses the general-equilibrium impacts of a number of possible allocation schemes for greenhouse gas emission permits on the Western Australian economy. It finds that emissions would fall by up to 11 percent from the base level in Western Australia. However, such environmental benefits emanate at some costs to the state economy; in terms of foregone gross state product, the costs are up to 3 percent of the base level. Indeed, the actual costs and benefits depend on the precise design of the permit allocation scheme as well as on the policies within which it operates. For example, when emission quota permits are sold to industries and no tradeable carbon credits (i.e. credits for the carbon sequestrated in Kyoto forecasts) are granted, emissions decline by about 8 percent and GSP falls by about 3 percent of the base levels. If carbon credits are tradeable, however, the environmental benefits could be increased and the GSP-cost could be reduced substantially. Also, the reduced economic activity caused by emission abatement results in a modest fall in net government revenue, despite the additional revenue from permit sales in some cases. Accordingly, government's fiscal package surrounding the emission permits would influence the emission abatement impacts on the economy. With regard to the effects on the structure of the state economy, the Oil and gas industry suffers only a slight contraction but the energy-supplying sector as a whole contracts substantially. It is therefore not surprising that the impacts on the WA economy of curbing emissions by energy and transport industries alone are quite significant when compared tot hose resulting from all industries' compliance with the abatement scheme.

Climate Change Effects on Agriculture: Economic Responses to Biophysical Shocks

Agricultural production is sensitive to weather and thus directly affected by climate change. Plausible estimates of these climate change impacts require combined use of climate, crop, and economic models. Results from previous studies vary substantially due to differences in models, scenarios, and data. This paper is part of a collective effort to systematically integrate these three types of models. We focus on the economic component of the assessment, investigating how nine global economic models of agriculture represent endogenous responses to seven standardized climate change scenarios produced by two climate and five crop models. These responses include adjustments in yields, area, consumption, and international trade. We apply biophysical shocks derived from the Intergovernmental Panel on Climate Change's representative concentration pathway with end-of-century radiative forcing of 8.5 W/m(sup 2). The mean biophysical yield effect with no incremental CO2 fertilization is a 17% reduction globally by 2050 relative to a scenario with unchanging climate. Endogenous economic responses reduce yield loss to 11%, increase area of major crops by 11%, and reduce consumption by 3%. Agricultural production, cropland area, trade, and prices show the greatest degree of variability in response to climate change, and consumption the lowest. The sources of these differences include model structure and specification; in particular, model assumptions about ease of land use conversion, intensification, and trade. This study identifies where models disagree on the relative responses to climate shocks and highlights research activities needed to improve the representation of agricultural adaptation responses to climate change

Agriculture, Forestry and Other Land Use (AFOLU)

Agriculture, Forestry, and Other Land Use (AFOLU) is unique among the sectors considered in this volume, since the mitigation potential is derived from both an enhancement of removals of greenhouse gases (GHG), as well as reduction of emissions through management of land and livestock (robust evidence; high agreement). The land provides food that feeds the Earth’s human population of ca. 7 billion, fibre for a variety of purposes, livelihoods for billions of people worldwide, and is a critical resource for sustainable development in many regions. Agriculture is frequently central to the livelihoods of many social groups, especially in developing countries where it often accounts for a significant share of production. In addition to food and fibre, the land provides a multitude of ecosystem services; climate change mitigation is just one of many that are vital to human well-being (robust evidence; high agreement). Mitigation options in the AFOLU sector, therefore, need to be assessed, as far as possible, for their potential impact on all other services provided by land. [Section 11.1

Alternative ways of measuring and decomposing equivalent variation

Two different concepts of 'equivalent variation' have been used to measure the welfare effects of policy changes. One applies to uncompensated changes in which utility can vary, the other to compensated changes in which it is held constant. Harberger [J

Food aid, food policy and the Uruguay round: implications for Bangladesh

The relationship between the effects of food aid and those of the completion of the Uruguay Round of the GATT are studied in this paper, focussing upon the food aid recipient countries, taking Bangladesh as an illustrative example. The magnitudes of these effects depend crucially on the policy environment within the food aid recipient country itself, particularly the government's policy with respect to commercial food imports, as well as the way food aid donors respond to the Round. When the quantity of Bangladesh's commercial food imports is controlled by the government, the benefits derived from food aid are smaller, and the negative effects of the Uruguay Round will be larger, than when these imports are liberalised