GTAP

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GTAP
GTAP
Group Presentation GTAP Short Course Heraklion,
Crete June 24, 2005
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Introduction

• Identification of Problem
• The Choice Development Strategies in Developing
  African Countries

• Research Questions
• Free Trade or Other ways?
• How can the employment of unskilled labor
  affect the development strategies?

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Group 1Extension

• Less than Full Reciprocity between EU and SACU
• Motivation Look deeper the question of Policy
  space
• How?
• Less than full reciprocity scenario
• One of the element of the article XXIV of the
  GATT concerning the FTA

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We focus this point on the Welfare effect?

• Global welfare decreases for EU and South Africa
  compared to the FLS.
• But.this impact becomes positive for the other
  regions in Africa, (bwa, RofAf, Naf)
• How explained it?
• Lets Look what could we learn from the welfare
  decomposition?

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Essentially, .Better Allocative efficiency
effects
Allocative efficiency effect Variation vis a vis
the Full Liberalization Scenario (in )
  Botswana XSC EU
6 crops 45,45 42,72 -22,23
7 aag -50 29,85 -7,37
8 mine 0 50,63 -99,82
9 food 23,56 12,02 -15,131
10 tex 200 -82,6 -40,93
11 hman 64,70 30 -24,8
12 lman -187,2 5,38 -72

• Better allocative effects explain the welfare
  gains for Botswana and XSC, especially for Crops,
  food, tex and hman sectors.
• Ceteris Paribus, transfers between EU and the
  other regions to Btw
• For XSC, Huge gains come from ToT effect, net
  improvement
• Important tax pool effect for Botswana (45)

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LTFR could also provide more space for
diversification

• LTFR could give more flexibilities for
  diversification in Botswana but also for South
  Africa

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Unskilled Labor Change in SA(,US)
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Change of Uns Labor (000),Exp (mi) and Imp(mil)
in SA
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Conclusion LTFR

• Full reciprocity will be very costly for Africa
  in terms of revenue losses, adjustment costs
  associated with de-industrialisation and its
  undermining effect of regional integration.
• With LTFR, the EU RSA FTA will produce welfare
  gains for the EU and South Africa BUT ALSO FOR
  BOTSWANA
• It would double the allocative efficiency in
  Botswana
• LTFR Agreement could reduce the beggar my
  neighbour outcome

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Group 2 Extension

• Changing Revenue Sharing Agreement between
  South Africa and Botswana

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Table 1 Welfare Changes in South Africa and Botswana Table 1 Welfare Changes in South Africa and Botswana Table 1 Welfare Changes in South Africa and Botswana Table 1 Welfare Changes in South Africa and Botswana Table 1 Welfare Changes in South Africa and Botswana Table 1 Welfare Changes in South Africa and Botswana

Country Base Scenario Simulation
South Africa 1729,47 1651,15
South Africa 1729,47 1651,15
Botswana -71,52 2,28
Botswana -71,52 2,28
Table 2 Tax Pool Changes in South Africa and
Botswana (change)
Country Base Scenario Simulation
South Africa 77,59 -77,59
Botswana -77,81 77,81
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Table 2 Share of Unskilled Labor by Sector in
Botswana
Sector Base Scenario( change) Simulation( change) Change in Use Share of Factor Intensity ()
Crops 0.39 39
Livestock -0.73 - 40
Food -0.20 - 47
Textiles 0,49 0,53 70
Heavy Manu -0,68 -0,58 50
Light Manu -1,97 -1, 82 52
Construction 0,40 -0,34 - 45
Services 3.04 0,82 - 29
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Table 4 Percentage Changes in the Price of
Unskilled Labour in Botsawana
Country Base Scenario Simulation
Price Change -1.204 -1.35
Change in Labour Use 1.118 3.88
Change in the Qty of Labour 5.753 5.94
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Group 3 Extension

• South South Trade in Africa
• SACU MERCUSOR Versus

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Welfare and Real GDP
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Exports Destinations
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Changes in output VA
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Employment of Unskilled labour

• Increase in employment of unskilled
• XSC- EU-RSA FTA
• Bots xsc- SACU-MER FTA
• All regions Africa FTA

  bwa xsc sad xaf
EU-RSA -0.11 2.59 -0.06 -0.01
SACU-MER 0,17 0,90 -0,01 0,00
African FTA 5,62 1,73 3,27 0,64
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Group 4 Extension

• Introducing Technological Change

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The experiment FTA technical change

• A technical change in tradable sectors, i.e.
  crops, animal agricultural, food, textile, light
  and heavy manufactures, and services
• Why?
• Productivity in developing countries, especially
  in SSA, is low compared to that of developed
  countries gt room for gains
• To see whether technology can improve FTA
  outcomes for third countries

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Welfare effects
FTA only
FTA10TC
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Structural change in Bwa and SA?

• qva increases in tex, lman (and cns) (table)
• this due to expansion effect (qo)
• Expansion b/c increased domestic but most
  importantly foreign demand (for Bwa, exports to
  SA entirely)
• Note e.g. that SA exports and imports in lman
  increase, and SA important export market for Bwa
  (differentiated comm, (Armington))

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Why do exports increase?

• For Bwa and SA substitution effect behind demand
  for their exports (tex, lman).
• But for cns from Bwa and SA to SA the effect due
  to expansion only.
• Note, SA world market share is small (except for
  aag) and Bwa share is small indeed).

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Supply side effects?

• Producer prices, in Bwa and SA, decrease and
  therefore demand increases
• But, e.g., why decrease in ps (lman, xsc) lt 10 ?
• Tech change affects pfe and ps ? increase in
  output demand
• Output expansion (61 ) requires more inputs
• Pushes pfe up
• Expanding sectors pfe 25 - 36 percent
• (but pfe (unsklab) -1,6 to -3,2 percent)
• Primary resources mainly drawn from crops, aagr
  and services, from pool of unemployed unsklab

ps (lman,xsc) -0,07
qo (lman,xsc) 0,61
qfe (capital,lman,xsc) 0,21
pfe (capital,lman,xsc) 0,27
qva (lman) 0,46
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Key results

• South Africa
• Endowment effect is due to a large increase in
  unskilled labor employment (42)
• Services (53), heavy manufactures (14)
• Botswana welfare gain, dominated by TOT effects
• BWA import shares from SA are very large (70-85)
  gt the decrease in SA prices is creating this
  positive TOT effect
• But also an endowment effect from increased
  unskilled labor employment services (61) and
  construction (23)

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Group 5 Extension

• Introducing New Closure

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Alternative unskilled labor closures

• Original closure unemployment in Africa.
• Alternative closure full employment in Africa.
• Does this affect the results of previous
  extensions? More importantly, does this affect
  our conclusions about trade and development?
• Welfare Gains greatly diminished for South
  Africa

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Differences in Welfare

• Only significant effect endowment effect (US
  1,3 billion vs US 0).
• Services most significant difference. Expansion
  effect.
• Industry impact also diminished.
• Note services are quite important in cost
  structure of firms (7-23).

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Domestic market dominates effect

• Expansion effects domestic market through
  intermediate demand. (94 of increased services
  is explained by domestic demand).
• Services account for 57 of unskilled labor
  employment.
• But why did services decrease with full
  employment ? Price of services went up (0.2),
  driven by full employment.

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Major findings

• Using a trade liberalization exercise, main
  effect on welfare comes from a non-tradable good
  (GE vs PE).
• Closure really matters in this context

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Conclusion