Agriculture Reference
In-Depth Information
surprsng result depends on subtle qualtes of Chna's manufacturng sector
in reality and as it is represented in the model. The first of these is its
pattern of factor intensities. For the sectors defined in the model, sets of
factor proportions show, as expected, that agricultural industries are land-
intensive, with beverages being more intensive in capital than the other
crops (Table A9.5). Fishing is labour, capital and natural resource intensive
and the energy sector s very captal-ntensve. Of specal relevance n
interpreting the effects of unilateral liberalisation, however, are the factor
ntenstes for manufacturng. Note that lght manufacturng s hghly labour-
intensive compared to all the traded goods sectors while heavy, or 'other',
manufacturng s one of the most captal-ntensve.
The second subtlety s that when manufacturng s aggregated nto
two types, as in this case, the two sub-industries disguise considerable
heterogenety. One consequence of ths s that there s consderable ntra-
ndustry trade. Lght manufacturng s the most export-orented of all the
sectors—its exports are largest compared to its domestic value added. By
contrast, heavy manufacturing is distinctive by the considerable scale of its
competing imports. While intra-industry trade is significant in the beverages
and other manufacturing sectors, nowhere is it more important than in
lght manufacturng. Both manufacturng sectors commt approxmately
half ther total costs to nputs n the same product category and about 10
to 15 per cent of those to mports (Table A9.2).
Superficially, trade liberalisation removes the sector's tariff protection
and so our intuition, stemming from the standard Heckscher-Ohlin-
Samuelson (HOS) trade model, suggests it must contract. But here there are
two departures from the HOS model. First, there is extensive intermediate
use from the same sector and, second, competing imports, even though
they are from the same sector, are differentiated from home products.
Under these condtons the tarff reductons on mported ntermedates
have a drect effect on home ndustry total cost. Reductons of tarffs on
competing, but differentiated, imports have only an indirect effect, the
magntude of whch depends on the elastcty of substtuton between the
two. Indeed, for manufacturing, it turns out that the input cost effect of
tarff reductons s consderably greater than that of the loss of protecton
aganst competng mports. Cost reductons of smlar orgn are the reason
for smlar gans accrung to the domestc transport servces sector.
