SEARCHING UNDER THE LIGHT: THE NEGLECT OF GENERAL EQUILIBRIUM, DYNAMICS AND RISK IN THE ANALYSIS OF FOOD TRADE REFORMS

The substantial investment in models of international food markets immediately prior to and during the Uruguay Round of international trade negotiations has been a mixed blessing so far as the prospects for reform are concerned. At worst, results from these models have mislead the negotiations, first because they have served the losers from reform better than the gainers and second, because they have tended not to address a primary concern lending domestic political support to food market interventions, namely the avoidance of risks borne of dependence on international markets. The paper reviews some errors which have stemmed from the application of 'standard' but inappropriate models and examines the implications of extending the standard methodology to include dynamic behavior and market insulating policies.International Relations/Trade,

Implicit Policy Preferences and Trade Reform by Tariff Aggregates

Pressure from negotiators on agricultural tariff reform in the Doha Round is favouring commitments to reduce “average” tariffs over a range of commodities. This stems from the perceived need for “flexibility” in protection levels, particularly for some highly protected product groups like sugar, dairy products and rice. Yet reforms that reduce the average tariff across agricultural products but raise tariff dispersion may well reduce welfare and therefore defy the spirit of the negotiations. This paper develops a practical approach to identifying the policy preferences implicit in existing tariff patterns and employs these preferences in formulating mathematical programs that represent the primary policy formation process. These are solved and the effects explored of reform by reductions in either the arithmetic or the trade value weighted average of tariffs. In applications to the EU and Japan, tariff dispersion is found to increase with either averaging formula but by more in the trade value weighted case

Demographic Dividends, Dependencies and Economic Growth in China and India

The world's two population giants have undergone significant, and significantly different, demographic transitions since the 1950s. The demographic dividends associated with these transitions during the first three decades of this century are examined using a global economic model that incorporates full demographic behavior and measures of dependency that reflect the actual number of workers to non-workers, rather than the number of working aged to non-working aged. While much of China's demographic dividend now lies in the past, alternative assumptions about future trends in fertility and labor force participation rates are used to demonstrate that China will not necessarily enter a period of “demographic taxation” for at least another decade, if not longer. In contrast with China, much of India's potential demographic dividend lies in waiting for the decades ahead, with the extent and duration depending critically on a range of policy choices.

China's Growth to 2030: The Roles of Demographic Change and Investment Risk

China's economic growth has, hitherto, depended on its relative abundance of production labour and its increasingly secure investment environment. Within the next decade, however, China's labour force will begin to contract. This will set its economy apart from other developing Asian countries where relative labour abundance will increase, as will relative capital returns. Unless there is a substantial change in population policy, the retention of China's large share of global FDI will require further improvements in its investment environment. These linkages are explored using a new global demographic model that is integrated with an adaptation of the GTAP-Dynamic global economic model in which regional households are disaggregated by age and gender. Interest premia are integral with projections made using these models and in this paper their influence on China's economic growth performance is investigated under alternative assumptions about fertility decline and labour force growth. China's share of global investment is found to depend sensitively on both its labour force growth and its interest premium though the results suggest that a feasible continuation of financial reforms will be sufficient to compensate for a slowdown and decline in its labour force.

Beyond Brigden: Australia’s Pre-War Manufacturing Tariffs, Real Wages and Economic Size

Like many industrialised economies in the pre-depression era, Australia elected to maintain a highly protectionist trade policy regime and hence to retard its integration with the global economy. The rationale for Australia’s protectionism was, as elsewhere, the enhancement of worker welfare. The Brigden Report offered a pre-Stolper-Samuelson recognition that protection of labour intensive industries would bolster Australia’s real wage, though the Report did not highlight the further consequence that this would attract European migrants. Brigden’s wage effect mirrors the subsequent Stolper-Samuelson Theorem and Heckscher-Ohlin-Samuelson (HOS) model yet it has still more advanced elements. We illustrate it using the strict two-sector HOS model and a more modern version with differentiated products, three sectors, including a non-traded services sector, natural resources as a specific factor and foreign ownership of domestic capital. While ever production remains diversified, the HOS model with elastic migration does not support a unique link between a single region’s protection and its labour endowment. The more modern model does yield this link, however, suggesting that protection might indeed have fostered, at least temporarily, immigration, capital inflow and overall economic expansion in Australia.

Combating China’s Export Contraction: Fiscal Expansion or Accelerated Industrial Reform?

Initially, the global financial crisis caused a surge of financial inflows to China, raising investment, but this abated in 2008, leaving a substantial contraction in export demand. The government’s key response was to commit to an unprecedented fiscal expansion. Two oftignored consequences are, first that government spending is on non-traded goods and services and so enlarges the consequent real appreciation and, second, that a more inward-looking economy causes firms to face less elastic demand and hence to increase oligopoly rents, further enlarging the real appreciation. Both are important for China because of the contribution of its real-exchange-rate sensitive, low-margin labour-intensive export sector to total employment. An economy-wide analysis is offered, using a model that takes explicit account of oligopoly behaviour. The results suggest that a conventional fiscal expansion would further contract the Chinese economy. On the other hand, notwithstanding the export contraction further industrial reform, emphasising the largely state-owned sectors, would reduce costs and foster growth in both output and modern sector employment.China, financial crisis, fiscal expansion, oligopoly, price caps, privatisation

On the Robustness of Short Run Gains from Trade Reform

The long run gains from reductions in distortionary tariffs are robustly positive in neoclassical economies. In the short run, however, depending on the prevailing exchange rate and tax regimes, a combination of producer price deflation and nominal wage stickiness can cause trade liberalisation to be contractionary. Because trade liberalisation, taken alone, reduces the home prices of foreign goods, there is a substitution away from home produced goods and a real depreciation. Under the explicit and de facto fixed exchange rate regimes adopted by many developing countries this necessitates a contractionary producer price deflation. Under the floating exchange rate regimes of the larger industrialised economies, if lost tariff revenue is replaced via a consumption tax increase, contractionary producer price deflation can also occur. This paper examines the implications of these and other policy combinations for the short run gains from trade reform using a comparative static numerical model of a generic, twosector, “almost small” open economy with asset markets and forward looking agentsTrade reform, short run, exchange rate regimes, fiscal policy

Strategic Interaction amongst Australia’s East Coast Ports

Australia’s principal container ports, located in its state capitals, are owned and operated by state authorities that largely return profits from port operations to state governments. Since they govern the volumes of trade in most merchandise, they command immense influence over the openness and flexibility of the national economy. In this study, we estimate the elasticities of substitution between services of ports in Brisbane, Sydney and Melbourne. We also examine the pricing of port services to estimate the extent of their interaction, from which we derive conjectural variations parameters to assess the actual and potential levels of price collusion. The results confirm that there is considerable potential for destructive oligopoly behaviour and that pricing by the apparently isolated Port of Melbourne has been effectively controlled by price-cap regulation. The services of the ports of Sydney and Brisbane are comparatively substitutable, however. Although their regulation appears to be less restrictive, this substitutability appears to result in some level of competition, which aids in the control of pricing.