Trade Liberalization or Productivity Increase?

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Presentation transcript:

Trade Liberalization or Productivity Increase? Amal ELBESHBISHI Mitsuhiko KATAOKA Outline: Motivation Assumptions Results Analysis Implications

Motivation Base Scenario: EU RSA Benefit from FTA But Botswana Not. Botswana: Decrease in welfare. Endowment effect: 0.9 % decline in the use of unskilled labor. The original study didn’t take the effect of technical change into consideration.

Assumptions & Scenarios Assumptions - Closure Change Exogenous: Supply of Labor Endogenous: Real Wage Rate 2 Scenarios: 2% Productivity Increase Region: Botswana, Sector: Agriculture 1st: Unskilled Labor (afeall) 2nd: Output (aoall)

Simulation Results - 1 Base scenario: Botswana experiences -36.19m decrease in welfare due to trade liberalization and the 0.29 % decrease in real GDP. Trade labialization in Botswana has a negative effects on both its welfare and economy. In S1, In Agricultural output (qo): Base scenario: grain 2.6, veg 3.12, oagric 1.81 Alternative scenario: grain 3.56, veg 4.15, oagric 2.76 Export sales of agricultural products (qxs): Base scenario: grain -4.67, veg 4.79, oagric 0.59 Alternative scenario: grain 16.9, veg 19, oagric 14.4 Alternative scenario: after 2% productivity Increase in Agri, GDP increase so this increase in productivity compensate partially for the negative impact of trade liberalization (-29.62m) S1 shows productivity increase in unskilled labor (afeall) whereas S2 shows productivity increase in Output (aoall).

Simulation Results2 – Tech1 Unskilled Labor - The unskilled labor increased! Expansion Effect is the Major Source! Share of Agr in total value added in endowment is big enououh! qfe(i,j,r) = - afe(i,j,r) + qva(j,r) - ESUBVA(j,r) * [pfe(i,j,r) - afe(i,j,r) - pva(j,r)]; qva(j,r) = -ava(j,r) + qo(j,r) - ao(j,r) qo(i,r) = SHRDM(i,r) * qds(i,r) + sum(s,REG, SHRXMD(i,r,s) * qxs(i,r,s)) + tradslack(i,r);

Implication Although trade liberalization is important but we can’t glorify it’s effect. Not only Demand Side but also Supply Side should be focused.