Agriculture Reference
In-Depth Information
The model
The microeconomic side of the model (Hertel 1997) offers the following
useful propertes
a captal goods sector n each regon to servce nvestment
explicit savings in each region, combined with open regional capital
accounts that permit savings in one region to finance investment in
others
multiple trading regions, goods and primary factors
product dfferentaton by country of orgn
emprcally-based dfferences n tastes and technology across
regons
non-homothetc preferences and
explicit transportation costs and indirect taxes on trade, production
and consumpton.
All goods and services entering final and intermediate demand are
constant elastcty of substtuton (CES) blends of home products and
imports. In turn, imports are CES composites of the products of all regions,
the contents of whch depend on regonal tradng prces. Savngs are pooled
globally and nvestment s allocated between regons from the global pool.
Within regions, investment places demands on the domestic capital goods
sector, which is also a CES composite of home-produced goods, services
and mports n the manner of government spendng.
In constructing the macroeconomic version of the model we have first
chosen the regions, primary factors and sectors identified in Table A9.1. Skill
is separated from raw labour on occupational grounds, with occupations
n the 'professonal' categores of the Internatonal Labour Organsaton
(ILO) classification included as skilled.
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Next, the standard model code
is modified to make regional governments financially independent, thus
enabling explicit treatment of fiscal policy. Direct taxes are incorporated
at the observed average income tax rates for each region. Marginal tax
rates are therefore assumed to be constant (say at
τ
). Regonal households
receive regional factor income,
Y
F
, and from this they pay direct tax
τY
F
,
.
The dsposable ncome that remans s dvded between prvate consumpton
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