Agriculture Reference
In-Depth Information
physical capital is no longer sector-specific; it redistributes across
sectors to equalse rates of return
capital controls are ignored, and
in China, irrespective of short-run fiscal policy assumptions, in the
long-run any loss of government revenue assocated wth tarff
changes is assumed to not be made up via direct (income) taxes,
with the result that the fiscal deficit expands.
The key pont of dfference between our long-run analyss and that
of Tyers and Rees (Chapter 9) s that we represent the effects of trade
reforms on productvty. There s a substantal lterature dentfyng ths
association (Chand et al. 1998, Chand 1999 and Stoeckel et al. 1999).
These studes use Australan data on the long-run effects of trade reforms
to dentfy elastctes of total factor productvty to protecton level by
industry. We applied these elasticities to China's intended reforms, albeit
wth dscounts for Chna's lower startng protecton levels n some ndustres
and adjustments to account for services sector reforms (Dee and Hanslow
2000, Verikios and Zhang 2001), to yield the one-off long-run productivity
shocks lsted n Table A10.4. Although these shocks are appled only n the
long run, they are important for short run behaviour (our object here)
because they rase the return on nstalled captal and hence they stmulate
nvestment.
The results from the long-run simulation are provided in Table A10.3.
They show the expected allocative efficiency gains, reflected here in a rise
in GDP, aided by increased returns on installed physical capital that induce
greater investment and therefore larger net inflows on the capital account.
Home consumption switches away from home produced goods, the relative
prices of home produced goods fall, yielding the predicted real depreciation.
The prncpal downsde of the reforms s the long-run shft of actvty out
of agrculture nto manufacturng and servces and the assocated declne
in land rents. Associated with this shift, a substantial relocation of workers
from agrculture to the modern sector wll therefore be requred.
Although the trade policy regime of 2001 advantaged food processing,
'other crops', fisheries and light manufacturing, apart from the smaller
'beverages' industry, it is the manufacturing sectors that are the robust
beneficiaries of the unilateral trade liberalisation. This is surprising, given
•
•
•
