Agriculture Reference
In-Depth Information
is fixed that almost the entirety of the agricultural sector is hurt. Even
where capital controls are retained, a switch to a floating exchange rate
would enable the trade reforms to be consstent wth further growth n
the 'other crops', livestock and fisheries sectors.
As in the long run, a key immediate effect of the reforms is a reduction
n protecton of Chna's food processng sector and therefore a contracton
in agricultural output. Significant structural change is therefore required
n the short run wth the movement of employment from agrculture to
manufacturing; however, as expected, the scale of the movement is smaller
than n the long run. Employment n food processng falls regardless of the
macroeconomic policy regime. Under either fiscal regime, the greatest
contracton to employment n food processng occurs when captal controls
are tght and monetary polcy targets the nomnal exchange rate. Unlke n
the long run, employment in the other agricultural sectors is not necessarily
contractionary—the outcome is dependent on the macroeconomic policy
regme.
Conclusions
Experiments using a global multi-product, comparative-static, macroeconomic
model ndcate that the trade reforms to whch Chna has commtted as
part of ts WTO accesson yeld the well known net gans n the long run.
In the short run, however, these gains are not directionally robust to the
macroeconomc polcy regme. If captal controls are too tght and the
quasi-fixed nominal exchange rate regime is retained, the reforms are
deflationary. If the labour market is the slowest to adjust, employment
growth wll slow and the overall reform package wll be contractonary.
To ensure that the short-run gains are substantial, however, the Chinese
government has only to allow sufficient net inflow on the capital account
to at least mantan the level of domestc nvestment. Even f t does not
do this, the trade reforms would be expansionary in the short run if a small
nomnal deprecaton were allowed.
The magntudes of the short-run effects on the rate of economc
expansion are quite sensitive to the monetary and fiscal policies adopted.
When capital controls are tight, a monetary policy that targets the domestic
