Agriculture Reference
In-Depth Information
Senstvty analyss
The smulatons presented offer just one representaton of the Chnese
economy and our pont estmates of the effects of hgher tarffs are subject
to substantial error. As it turns out, our estimates of these effects depend
most sensitively on just a few parameters, the most critical being the
ncome elastcty of demand for lvestock products. Ths parameter s most
important for two reasons. First, livestock products are superior goods the
demand for whch can be expected to grow dsproportonately wth ncome
and hence this sector is particularly likely to lose self-sufficiency. Second,
lvestock feeds are also mported. The faster the demand for lvestock
products grows the greater s the derved demand for feed grans and the
self-sufficiency rate in the import competing feed grain sector can also be
expected to declne. The magntudes of the tarffs requred to stem ths
declne therefore depend crtcally on the ncome elastcty of demand
for lvestock.
By repeating the simulations in Table A8.7, assuming a smaller value
for this elasticity, we have calculated the elasticities of sensitivity of key
consequences to the ncome elastcty of demand for lvestock products.
The results are displayed in Table A8.11. Each of the elasticities shown in
the table ndcates the per cent by whch the nomnated varable changes
when the ncome elastcty of demand for lvestock products s rased
by 1 per cent. Thus, were the income elasticity of demand for livestock
products larger by 10 per cent (1.79 instead of 1.63), without new tariffs 2010
livestock imports would be larger by approximately 18 per cent and feed
gran mports would be correspondngly larger by 12 per cent. To acheve
agricultural self-sufficiency in 2010 this would mean that the nominal
protection coefficient on livestock products would have to be higher by 7
per cent (the home prce level would have to rse by 7 per cent relatve to
the import price). This would result in smaller light manufacturing output,
by 7 per cent and smaller lght manufacturng exports by 14 per cent. The
ncome elastcty of demand for lvestock products s clearly a key parameter
— one that should be carefully monitored.
