Agriculture Reference
In-Depth Information
that the protecton of the manufacturng sectors s also set to declne. Ths
result arses because both manufacturng sectors commt approxmately
half ther total costs to nputs n the same product category and 10 to 15
per cent of those to imports; and competing imports, even though they
are from the same sector, are differentiated from home products (see
Tyers and Rees, Chapter 9). Under these conditions the tariff reductions
on mported ntermedates have a drect effect on home ndustry total
costs. Reductions of tariffs on competing, but differentiated, imports have
only an indirect effect, the magnitude of which depends on the elasticity
of substitution between the two. Indeed, for manufacturing, it turns out
that the nput 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.
The reforms result n the most substantal reductons n protecton to
Chna's food processng sector and therefore lead to long-run contractons
n that sector and n the local supply of ts nputs (especally rce and 'other
crops'). The more income elastic and lightly protected agricultural sectors,
the 'beverages' group and livestock, expand. Labour is assumed to be
perfectly mobile between sectors, so that our results indicate the labour
movement needed n order to acheve the maxmum gan from the reforms.
In the long run, employment in food processing falls by 7 per cent, in rice
producton by 4 per cent and n 'other crops' by 2 per cent. Workers lost from
these sectors are re-employed prmarly n manufacturng and servces.
When reform-drven productvty mprovements are ncluded n the
long-run analysis, the economic effects of the reforms are greatly amplified,
even though the assumed productvty changes are one-off and modest.
The GDP increase is almost ten times larger, domestic investment is four
times larger, as is the return on installed capital that will drive short term
nvestment. Increases n sectoral expansons are largest n manufacturng
and servces wth productvty growth n servces havng wdespread effects
through ther role as ntermedates. The contracton n the agrcultural
sector is much reduced, with the beverages, livestock and fisheries sectors
now showng robust expanson.
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