1. 875-6.ppt 1 6 Analytical extensions and policy issues 1.Model of development in a resource- intensive economy (from class 5) 1.Model structureModel structure 2.Comparative statics: trade and policy shocksComparative statics 2.Analytical extension: H-O manufacturingAnalytical extension 3.Some related topics and papersSome related topics and papers

2. 875-6.ppt 2 H-O upland economy Ricardo-Viner lowland economy

3. 875-6.ppt 3 Cerebral comparative statics 1.Effects of price changes, e.g.: Tree crops in uplands (H-O prediction?) Manufacturing price increase, e.g. tariff. (Cf. Deacon, JEEM 1995). 2.Effects of tech. progress and factor endowment growth ‘Green revolution’ in lowland food sector Capital investment in manufacturing

4. 875-6.ppt 4 A mathematical statement Fundamental assumptions about technology, preferences General equilibrium Intersectoral and interregional market- clearing conditions Spatial: labor market & migration Food market clearing when non-traded Open access to forest resource for land

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10. 10 Actual comparative statics Terms of trade shocks Tariff policy reforms

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16. 875-6.ppt 16 Other comparative static experiments ‘Green revolution’ in lowland agriculture Other technical change shocks Exogenous growth of endowments: –Labor –Mfg. capital stocks –Lowland land stocks

17. 875-6.ppt 17 Concluding remarks U-L model combines two ‘small’ models to obtain richer specification and results Predictions of comparative static effects depend on key parameter values –Can define different economic ‘types’ based on alternative parameter sets (see OEE Chapter 3) Empirical and micro research should guide structural and parameter assumptions. <---

18. 875-6.ppt 18 Analytical extension: H-O manufacturing sectors Heckscher-Ohlin manufacturing sector, R- V-J agriculture (Coxhead/Jayasuriya 2003) Simplification: only one upland sector Extension: clean and dirty mfg industries All traded goods (for simplicity!) Other aspects same as before: Open access to forests for ag. land Migration is costless and immediate

19. 875-6.ppt 19 Two regions, four sectors 0 A L 0 M r M r U r F L F L A L M L H w A w M c F c U c X c H A= agricultural ‘region’, producing upland (U) and food (F) crops. M = manufacturing ‘region’, producing labor-intensive (X) and capital-intensive (H) goods. c j = unit cost (i.e. zero profit) frontier for industry j

20. 875-6.ppt 20 Price increase for upland agriculture 0 A L 0 M r M r U r F L F L A L M L H w A w M c U c F c X c H Increase in upland agr. price increases upland land demand & returns to upland land, reduces r F, r M and industrial output

21. 875-6.ppt 21 Tariff reduction for import- competing industry 0 A L 0 M r M r N r T L F L A L M L H w A w M c U c F c X c H NB.: Assumes large employment share of EOI industry

22. 875-6.ppt 22 Some conclusions Extended model provides different prediction on NR effect of tariff change More generally, issue of multiple env./NR problems –And added complexity of establishing welfare results in economy with multiple distortions, insufficient instruments

23. 875-6.ppt 23 Some related topics and issues in analytical models 1.Individual and firm motivations for changes in NR or env. use patterns Subsistence farmers and ag. land expansion (Indonesia): Angelsen, WD 1995 ‘Household EKC’ and cooking smoke (Pakistan): Pfaff, manuscript, 2003.

24. 875-6.ppt 24 Other topics and issues 2. Sectoral policies other than trade measures Commercial farmers and deforestation (Brazil): Binswanger, WD 1991 Ag. subsidies, land titling measures Capital subsidies, poverty interactions (Latin America): Lopez, WD, Feb. 2003

25. 875-6.ppt 25 Other topics and issues 3. Macro measures and shocks Structural adjustment and stabilization measures: Munasinghe and Cruz, WB Env. Paper #10, 1995 Exchange rate instability and depreciations: Sunderlin et al., WD 2001; Coxhead et al., Land Econ. 2001

26. 875-6.ppt 26 Other topics and issues 4. Voluntary and informal controls Informal regulation of industrial pollution (Indonesia): Pargal and Wheeler, JPE 1996 Legal and community institutions in lake management (Philippines): Malayang, 1993