Agriculture Reference
In-Depth Information
The key determnant of the short-run structural adjustment resultng
from the trade lberalsaton s the sze of the real deprecaton; the real
deprecaton s larger when captal controls are n place. Traded-goods
sectors, such as light manufacturing, are advantaged while non-traded
sectors are not. When there are no capital controls, the manufacturing
gains are smaller and the non-traded services sectors also benefit. Across
the board, however, for the same reasons as in the long-run simulation,
agrculture and food processng are dsadvantaged by the reforms. It s
mportant to note that some relaxaton of the monetary polcy regme
can reduce the adverse effects on the agrcultural sector from the trade
reform. When capital controls are in place and the exchange rate is fixed,
almost the entre agrcultural sector s hurt. Where captal controls are
in place but the exchange rate is floated, the 'other crops', livestock and
fisheries sectors expand.
Employment n food processng falls regardless of the macroeconomc
policy regime. Significant structural change is required in the short run with
the movement of employment from agriculture to manufacturing; however,
in the long run, the size of the employment shift is smaller. Under either
fiscal regime, the greatest contraction in employment in food processing
occurs when captal controls are tght and monetary polcy targets the
nominal exchange rate. Unlike in the long run, employment in the other
agricultural sectors is not necessarily contractionary—the outcome is
dependent on the macroeconomc polcy regme.
In summary, if capital controls are too tight and the fixed nominal
exchange rate is retained, the reforms are deflationary. If the labour
market is slow to adjust, employment growth will slow and the reform
package will be contractionary. To obviate this, the government has to
allow sufficient net inflow on the capital account to at least maintain
the level of domestic investment. If it does not do this, a small nominal
depreciation would achieve the same result. The fiscal policy response to
the loss of import revenue has comparatively little influence on China's
economc performance n the short run. Regardless of whether government
spending or the government deficit is held constant, the optimal macro-
policy environment is a floating exchange rate with no capital controls.
