Agriculture Reference
In-Depth Information
consistent with the actual commitments (Annex 8: Schedule CLII of Protocol
on the Accession of the People's Republic of China, 2001).
Closures of the model for the smulatons
Endowments of prmary factors are treated as exogenous. There are slack
labour varables to allow unemployment. But n the smulatons descrbed
below these slack variables are set to be zero, leaving wages to adjust for
full employment.
3
All tax rates, including tariff rates, and technological shifters are set
exogenously. Exogenous tax rates mply that government revenues wll
change along with changes in production, income and trade after shocks.
Ths form of closure dffers from a closure where tax rates are adjusted
so as to raise a fixed amount of revenues. This particular form of closure
s chosen because we want to dentfy the mpact of WTO accesson from
other polcy changes. The shares of transfer payments from the central
government to regional governments do not change, that is, payments to
each regon change at the same rate.
The propensities to save are fixed, although they vary across households
and regons. The dfference between natonal savngs and aggregate
investment is the net capital inflow, which is equal to the trade deficit.
There are two closures n the followng smulaton.
No control on the trade balance. In this closure, the nominal exchange
rate is fixed, the trade balance is endogenous, and foreign capital
flows automatically match the balance.
No change in the trade balance. In this closure, a floating exchange
rate regme s assumed so that the change n the trade balance can
be exogenously fixed at zero.
4
One might think that the first closure is the more natural one, involving
only tariff cuts in the simulation. However, it may still require some other
policy changes to validate the closure. For example, it requires capital
inflows to match the trade deficit at whatever level the model generates,
mplyng that there s no control on foregn nvestment. Ths s clearly not
the case. But as t s expected that foregn nvestment wll ncrease after
WTO accession (Chen 2002), and zero change seems too extreme, one would
•
•
