Agriculture Reference
In-Depth Information
are detailed. Furthermore, the Policy Analysis Matrix (PAM) is described as it is applied
in assessing the viability of markets in private and social terms. The section concludes by
describing the nature of the data collected as well as the data collection procedure, including
the sources and the transformations necessary to render the data useable within the model.
A.4.1 Theoretical framework
In this section, the theory behind the Partial Equilibrium model is described. In addition,
the steps followed in applying the framework will be clarified. This will be followed by a
description of the PAM, how it is constructed and the way it is interpreted in the study.
A.4.1.1 The partial equilibrium model
The focus of this study was markets as institutions for mediating exchange and instruments
for enhancing the economic participation of smallholders in order to promote their welfare.
Markets will differ in the extent to which they perform this function and it is possible to
measure this performance. In general, economists employ two types of models to analyse
markets for purposes of assessing various policy scenarios and problems. These models or
frameworks are the Partial Equilibrium model and the General Equilibrium model. The
difference between these two approaches lies in the fundamental assumptions made about
the interrelationship between the variables studied and the rest of the economy. The Partial
Equilibrium analysis uses a few variables in isolation and which are allowed to vary while it
assumes that all other variables remain constant. In short, as the name implies, the Partial
Equilibrium framework is a model structure most frequently used to understand one-sector
policies or circumstances, without having to deal with the corresponding changes in other
policies/circumstances and other sectors of the economy (Hieller, 1973; Reed, 2001). Of
course, there is no suggestion that the problems at hand are any less complex than they
really are.
On the other hand, the General Equilibrium approach makes effort to accommodate the
inherent complexity in the system. In that regard, it continues to be used for economy-wide
policy analysis, for instance to examine the effects of change on the economy of an economic
policy such as the imposition of tariffs or quotas on imported goods. It can also be used to
explore the effects of an increase in price or reduction in the supply of imported goods. How
these measures impact on the welfare of the average citizen of the country can be deduced
from the results of such an analysis. One of the major qualities of the General Equilibrium
model is its ability to trace effects of large changes in specific sectors throughout the entire
economy. All economic variables and their interactions with the rest of the economy can
be analysed today with the Computable General Equilibrium Models for which several
computer softwares are available. This means that the General Equilibrium framework tries
to approximate the real world in which all the variables are constantly changing. This makes
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