The Exercise The shocks – Unilateral tariff liberalisation of agro-processing sector by India Alternative closures rules –Standard GTAP closure: Neo-classical where prices are assumed to be flexible and act as the equilibrating mechanism and all markets clear –Micro-structuralist closure: Imperfections in unskilled labor market - we assume that real wages for unskilled labour are fixed exogenously unskilled labour supply adjusts to demand Rationale – In case of India there exists considerable underemployment such that production may increase without influencing the real wage rate much

Implementation of the experiments in RunGtap The shocks in each case (sectors 14-20) –Shock tms("CMT",REG,"IND") = target% 0 from file tms.shk; –Shock tms("VOL",REG,"IND") = target% 0 from file tms.shk; The alternative closure –Swap qo(“unskilled”,”Ind”)=pfactreal(“unskilled”,”Ind”) Where –pfactreal(“unskilled”,”Ind”)=pm(“unskilled”,”Ind”) - ppriv(“Ind”) –qo(“unskilled”,”Ind”)=supply of unskilled labour in India –Pfactreal(“unskilled”,”Ind”)= ratio of return to unsklab to CPI in India

Major Results Welfare decomposition

Results (contd.) Allocative efficiency gains arising from improved allocation of resources –83% of the allocative efficiency gains are arising from liberalisation of VoL imports ToT loss is explained by the need to restore equilibrium in the trade balance: tms(agropr, r, ind)↓→↑Imports→BoP deficit→↑exports→ToT↓ –94% of the ToT losses are due to the decline in the price index (psw) received for tradables in India –70% of the ToT losses are traced to the manufacturing and services sector Endowment effect is a scale effect as labour previously outside the market is drawn into the economy –Supply of Unsklab increases by 1.16%