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Published byBertram Parker Modified over 9 years ago
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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
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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
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Major Results Welfare decomposition
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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%
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