thirteen annual short course on global trade analysis, crete gtapgtap

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Thirteen Annual short Cou rse on Global Trade Analy sis, Crete GTAP GTAP GTAP GTAP

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Page 1: Thirteen Annual short Course on Global Trade Analysis, Crete GTAPGTAP

Thirteen Annual short Course on Global Trade Analysis, Crete

GTAPGTAPGTAPGTAP

Page 2: Thirteen Annual short Course on Global Trade Analysis, Crete GTAPGTAP

Thirteen Annual short Course on Global Trade Analysis, Crete

IntroductionIdentification 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?

Page 3: Thirteen Annual short Course on Global Trade Analysis, Crete GTAPGTAP

Thirteen Annual short Course on Global Trade Analysis, Crete

Group 1ExtensionLess than Full Reciprocity between EU and SACUMotivation: Look deeper the question of Policy spaceHow?Less than full reciprocity scenarioOne of the element of the article XXIV of the GATT concerning the FTA

Page 4: Thirteen Annual short Course on Global Trade Analysis, Crete GTAPGTAP

Thirteen Annual short Course on Global Trade Analysis, Crete

We focus this point on the Welfare effect?

Welfare Variation compare to the full liberalisation scenario (% change vis a vis the Baseline)

-100

-80

-60

-40

-20

0

20

40

60

1 bwa 2 xsc 3 sad 4 xaf 5 eur 6 naf 7 mer 8 xeu 9 xam 10xwo$

(US

)m

• 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?

– Let’s Look what could we learn from the welfare decomposition?

Page 5: Thirteen Annual short Course on Global Trade Analysis, Crete GTAPGTAP

Thirteen Annual short Course on Global Trade Analysis, Crete

Essentially, ….Better Allocative efficiency effects

  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%)

Allocative efficiency effect Variation vis a vis the Full Liberalization Scenario (in %)

Page 6: Thirteen Annual short Course on Global Trade Analysis, Crete GTAPGTAP

Thirteen Annual short Course on Global Trade Analysis, Crete

LTFR could also provide more space for diversification

Value added Botswana

-10-8-6-4-20246

crop

saa

gm

ine food te

xhm

anlm

an utils cn

sse

rv

CGDS

LTFR bwa

Full bwa

• LTFR could give more flexibilities for diversification in Botswana but also for South AfricaValue added dor XSC

-2

0

2

4

6

8

10

crop

saa

gm

ine food te

xhm

anlm

an utils cn

sse

rv

CGDS

LTFR xsc

Full xsc

Page 7: Thirteen Annual short Course on Global Trade Analysis, Crete GTAPGTAP

Thirteen Annual short Course on Global Trade Analysis, Crete

Unskilled Labor Change in SA($,US)

-500

-400

-300

-200

-100

0

100

200

300

400

500

crops aag mine food tex hman lman utils cns serv Total

Page 8: Thirteen Annual short Course on Global Trade Analysis, Crete GTAPGTAP

Thirteen Annual short Course on Global Trade Analysis, Crete

Change of Uns Labor (000),Exp (mi) and Imp(mil) in SA

UnS Labor Export Import Unsk lab Int1 crops -500 -39 7 45%2 aag 100 -8 1 50%3 mine -400 -35 -5 18%4 food 500 -151 -567 34%5 tex -400 -66 -42 49%6 hman -100 -428 -89 42%7 lman -500 -227 -233 42%8 utils -300 -9 0 21%9 cns 400 0 0 51%10 serv -100 -121 55 32%Total -500 -1085 -870 35%

Page 9: Thirteen Annual short Course on Global Trade Analysis, Crete GTAPGTAP

Thirteen Annual short Course on Global Trade Analysis, Crete

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”

Page 10: Thirteen Annual short Course on Global Trade Analysis, Crete GTAPGTAP

Thirteen Annual short Course on Global Trade Analysis, Crete

Group 2 Extension

Changing Revenue Sharing Agreement between South Africa and Botswana

Page 11: Thirteen Annual short Course on Global Trade Analysis, Crete GTAPGTAP

Thirteen Annual short Course on Global Trade Analysis, Crete

Table 1: Welfare Changes in South Africa and Botswana

Country Base Scenario

Simulation

South Africa

1729,47 1651,15

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

Page 12: Thirteen Annual short Course on Global Trade Analysis, Crete GTAPGTAP

Thirteen Annual short Course on Global Trade Analysis, Crete

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

Page 13: Thirteen Annual short Course on Global Trade Analysis, Crete GTAPGTAP

Thirteen Annual short Course on Global Trade Analysis, Crete

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

Page 14: Thirteen Annual short Course on Global Trade Analysis, Crete GTAPGTAP

Thirteen Annual short Course on Global Trade Analysis, Crete

Group 3 Extension

South – South Trade in Africa

SACU + MERCUSOR Versus

Page 15: Thirteen Annual short Course on Global Trade Analysis, Crete GTAPGTAP

Thirteen Annual short Course on Global Trade Analysis, Crete

Welfare and Real GDPReal GDP (% change)

-1

-0.5

0

0.5

1

1.5

2

2.5

3

3.5

sacu-eu sacu-mer africa

Experiment

bw a

xsc

sad

xaf

Welfare

-1000

-500

0

500

1000

1500

2000

2500

3000

3500

sacu-eu sacu-mer africa

Expe

rimen

t

africa

eu

la

naf

xw o

Page 16: Thirteen Annual short Course on Global Trade Analysis, Crete GTAPGTAP

Thirteen Annual short Course on Global Trade Analysis, Crete

Exports Destinations Export Destinations (%) - BWA

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

ini eu mer africa

afric

eu

lac

na

row

Exports Destination (%) - XSC

0

0.05

0.1

0.15

0.2

0.25

0.3

0.35

0.4

0.45

0.5

ini eu mer africa

afric

eu

lac

na

row

Exports Destination(%) - SAD

0

0.05

0.1

0.15

0.2

0.25

0.3

0.35

0.4

ini eu mer africa

afric

eu

lac

na

row

Exports Destination (%) XAF

0

0.1

0.2

0.3

0.4

0.5

0.6

ini eu mer africa

afric

eu

lac

na

row

Page 17: Thirteen Annual short Course on Global Trade Analysis, Crete GTAPGTAP

Thirteen Annual short Course on Global Trade Analysis, Crete

Changes in output & VA

Changes in output(%): African FTA

-20 0 20 40 60

1 crops

3 mine

5 tex

7 lman

9 cns

4 xaf

3 sad

2 xsc

1 bwa

Changes in output (%): SACU-MER FTA

-3 -2 -1 0 1 2 3

1 crops

2 aag

3 mine

4 food

5 tex

6 hman

7 lman

8 utils

9 cns

10 serv

4 xaf

3 sad

2 xsc

1 bwa

Changes in output (%): EU-RSA FTA

-10 -5 0 5 10

1 crops

2 aag

3 mine

4 food

5 tex

6 hman

7 lman

8 utils

9 cns

10 serv

4 xaf

3 sad

2 xsc

1 bwa

Initial output composition

0,00 10,00 20,00 30,00 40,00 50,00

crops

mine

tex

lman

cns

4 xaf

3 sad

2 xsc

1 bwa

Page 18: Thirteen Annual short Course on Global Trade Analysis, Crete GTAPGTAP

Thirteen Annual short Course on Global Trade Analysis, Crete

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

Page 19: Thirteen Annual short Course on Global Trade Analysis, Crete GTAPGTAP

Thirteen Annual short Course on Global Trade Analysis, Crete

Group 4 Extension

Introducing Technological Change

Page 20: Thirteen Annual short Course on Global Trade Analysis, Crete GTAPGTAP

Thirteen Annual short Course on Global Trade Analysis, Crete

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 => room for gains– To see whether technology can improve FTA outcomes for third

countries

Page 21: Thirteen Annual short Course on Global Trade Analysis, Crete GTAPGTAP

Thirteen Annual short Course on Global Trade Analysis, Crete

Welfare effects

alloc_A1 endw_B1 tech_C1 pop_D1 tot_E1 IS_F1 TotalBWA -9 56 0 0 72 25 81SA 3682 22904 24424 0 -1648 99 49532EU 210 0 0 0 878 -51 1037Total 3792 22748 24424 0 -27 2 50949

alloc_A1 endw_B1 tech_C1 pop_D1 tot_E1 IS_F1 TotalBWA 1,6 -1,1 0 0 -4,6 10,4 -71,5SA 350 1318,9 0 0 -66,5 39,4 1729,5EU 343,9 0 0 0 477,1 -23,9 797,2Total 567 1244,4 0 0 -0,3 0,2 1821,1

FTA+10%TC

FTA only

Page 22: Thirteen Annual short Course on Global Trade Analysis, Crete GTAPGTAP

Thirteen Annual short Course on Global Trade Analysis, Crete

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))

Page 23: Thirteen Annual short Course on Global Trade Analysis, Crete GTAPGTAP

Thirteen Annual short Course on Global Trade Analysis, Crete

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).

Page 24: Thirteen Annual short Course on Global Trade Analysis, Crete GTAPGTAP

Thirteen Annual short Course on Global Trade Analysis, Crete

Supply side effects?

• Producer prices, in Bwa and SA, decrease and therefore demand increases

• But, e.g., why decrease in ps (lman, xsc) < 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

Page 25: Thirteen Annual short Course on Global Trade Analysis, Crete GTAPGTAP

Thirteen Annual short Course on Global Trade Analysis, Crete

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%) => 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%)

Page 26: Thirteen Annual short Course on Global Trade Analysis, Crete GTAPGTAP

Thirteen Annual short Course on Global Trade Analysis, Crete

Group 5 Extension

Introducing New Closure

Page 27: Thirteen Annual short Course on Global Trade Analysis, Crete GTAPGTAP

Thirteen Annual short Course on Global Trade Analysis, Crete

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

Unemployment Full EmploymentSouth Africa 1730 365Botzwana -72 -74Rest of Africa -52 -42Rest of the World 215 225Total 1821 474

Welfare Change (US$ Millions)

Page 28: Thirteen Annual short Course on Global Trade Analysis, Crete GTAPGTAP

Thirteen Annual short Course on Global Trade Analysis, Crete

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%).

Unskilled Labor Demanded By Sector in South Africa (QFE)Unemployment Full Employment

Textiles 31 -8H-Mfg 195 -6L-Mfg 58 -65Services 517 -245

Page 29: Thirteen Annual short Course on Global Trade Analysis, Crete GTAPGTAP

Thirteen Annual short Course on Global Trade Analysis, Crete

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.

Change in domestic quantity of services demanded by sector in South AfricaUnemployment Full Employment

Textile 1,3 -0,6H. Mfg. 1,1 -0,1

L. Mfg. 0,4 -1,8Services 0,2 -0,8

Page 30: Thirteen Annual short Course on Global Trade Analysis, Crete GTAPGTAP

Thirteen Annual short Course on Global Trade Analysis, Crete

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

Page 31: Thirteen Annual short Course on Global Trade Analysis, Crete GTAPGTAP

Thirteen Annual short Course on Global Trade Analysis, Crete

Conclusion