Agriculture Reference
In-Depth Information
reality. However, it captures some effects on regional disparity. Although
the rate of return to capital is the same across regions, the coastal region
stll gans more than the nland regons as t owns a hgher proporton of
the captal stock.
It is commonly recognised that regional protectionism prevails in China,
whch prevents the ntegraton of commodty markets. Because commodtes
are not to be freely traded between regons wthn Chna even after the
WTO accession, factor price equalisation cannot be achieved. The CERD
model captures ths effect through dstngushng regonal commodty
markets and assumng mperfect substtuton between the same commodty
sourced from dfferent regons.
Third, the technological levels are different in the three regions, which
volates another underlyng assumpton of the factor prce equalsaton
hypothess. The dfferences n technology are emboded n the database
of the CERD
model. The coastal regon has more advanced technology
than the inland regions, and, thus, accrues higher welfare gains after the
WTO accesson.
It s argued that smulatng only tarff cuts tends to underestmate the
impact of trade liberalisation (Kehoe 2002). Considering the high probability
of higher technological progress following the WTO accession, the regional
ncome dsparty may be even worse than presented above. Ths s because
the coastal regon could well experence faster technologcal progress than
the nland regons. Ths s evdent as the foregn drect nvestment has been
and wll be concentrated n the coastal area.
Fourth, because the economy is regionally segregated, the difference
n regonal economc structure also results n worsenng ncome dsparty.
As shown above, the coastal region has a higher proportion of most of the
expanding sectors following the WTO accession, while the inland regions
have a hgher proporton of contractng sectors.
Policy simulations
From the above discussion, some policy recommendations may be
rased. Ths secton presents the smulaton results of three mportant
polces: addtonal protecton to the agrcultural sector; domestc market
lberalsaton; and government transfer payments to nland regons.
