thirteen annual short course on global trade analysis, crete gtapgtap
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Thirteen Annual short Course on Global Trade Analysis, Crete
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Thirteen Annual short Course on Global Trade Analysis, Crete
IntroductionIdentification of Problem:
The Choice Development Strategies in
Developing African Countries Research Questions:
Free Trade or Other ways?
How can the employment of unskilled labor affect the development strategies?
Thirteen Annual short Course on Global Trade Analysis, Crete
Group 1ExtensionLess than Full Reciprocity between EU and SACUMotivation: Look deeper the question of Policy spaceHow?Less than full reciprocity scenarioOne of the element of the article XXIV of the GATT concerning the FTA
Thirteen Annual short Course on Global Trade Analysis, Crete
We focus this point on the Welfare effect?
Welfare Variation compare to the full liberalisation scenario (% change vis a vis the Baseline)
-100
-80
-60
-40
-20
0
20
40
60
1 bwa 2 xsc 3 sad 4 xaf 5 eur 6 naf 7 mer 8 xeu 9 xam 10xwo$
(US
)m
• Global welfare decreases for EU and South Africa compared to the FLS.• But….this impact becomes positive for the other regions in Africa, (bwa,
RofAf, Naf)• How explained it?
– Let’s Look what could we learn from the welfare decomposition?
Thirteen Annual short Course on Global Trade Analysis, Crete
Essentially, ….Better Allocative efficiency effects
Botswana XSC EU
6 crops 45,45 42,72 -22,23
7 aag -50 29,85 -7,37
8 mine 0 50,63 -99,82
9 food 23,56 12,02 -15,131
10 tex 200 -82,6 -40,93
11 hman 64,70 30 -24,8
12 lman -187,2 5,38 -72
• Better allocative effects explain the welfare gains for Botswana and XSC, especially for Crops, food, tex and hman sectors.
• Ceteris Paribus, transfers between EU and the other regions to Btw
• For XSC, Huge gains come from ToT effect, net improvement
• Important tax pool effect for Botswana (+45%)
Allocative efficiency effect Variation vis a vis the Full Liberalization Scenario (in %)
Thirteen Annual short Course on Global Trade Analysis, Crete
LTFR could also provide more space for diversification
Value added Botswana
-10-8-6-4-20246
crop
saa
gm
ine food te
xhm
anlm
an utils cn
sse
rv
CGDS
LTFR bwa
Full bwa
• LTFR could give more flexibilities for diversification in Botswana but also for South AfricaValue added dor XSC
-2
0
2
4
6
8
10
crop
saa
gm
ine food te
xhm
anlm
an utils cn
sse
rv
CGDS
LTFR xsc
Full xsc
Thirteen Annual short Course on Global Trade Analysis, Crete
Unskilled Labor Change in SA($,US)
-500
-400
-300
-200
-100
0
100
200
300
400
500
crops aag mine food tex hman lman utils cns serv Total
Thirteen Annual short Course on Global Trade Analysis, Crete
Change of Uns Labor (000),Exp (mi) and Imp(mil) in SA
UnS Labor Export Import Unsk lab Int1 crops -500 -39 7 45%2 aag 100 -8 1 50%3 mine -400 -35 -5 18%4 food 500 -151 -567 34%5 tex -400 -66 -42 49%6 hman -100 -428 -89 42%7 lman -500 -227 -233 42%8 utils -300 -9 0 21%9 cns 400 0 0 51%10 serv -100 -121 55 32%Total -500 -1085 -870 35%
Thirteen Annual short Course on Global Trade Analysis, Crete
Conclusion LTFR
• Full reciprocity will be very costly for Africa in terms of revenue losses, adjustment costs associated with de-industrialisation and its undermining effect of regional integration.
• With LTFR, the EU RSA FTA will produce welfare gains for the EU and South Africa BUT ALSO FOR BOTSWANA
• It would double the allocative efficiency in Botswana
• LTFR Agreement could reduce the “beggar my neighbour outcome”
Thirteen Annual short Course on Global Trade Analysis, Crete
Group 2 Extension
Changing Revenue Sharing Agreement between South Africa and Botswana
Thirteen Annual short Course on Global Trade Analysis, Crete
Table 1: Welfare Changes in South Africa and Botswana
Country Base Scenario
Simulation
South Africa
1729,47 1651,15
Botswana -71,52 2,28
Table 2: Tax Pool Changes in South Africa and Botswana
(%change)
Country Base Scenario
Simulation
South Africa
77,59 -77,59
Botswana -77,81 77,81
Thirteen Annual short Course on Global Trade Analysis, Crete
Table 2: Share of Unskilled Labor by Sector in Botswana
Sector Base Scenario(% change)
Simulation(% change)
Change in Use
Share of Factor Intensity (%)
Crops 0.39 + 39
Livestock -0.73 - 40
Food -0.20 - 47
Textiles 0,49 0,53 + 70
Heavy Manu -0,68 -0,58 + 50
Light Manu -1,97 -1, 82 + 52
Construction 0,40 -0,34 - 45
Services 3.04 0,82 - 29
Thirteen Annual short Course on Global Trade Analysis, Crete
Table 4: Percentage Changes in the Price of Unskilled Labour in Botsawana
Country Base Scenario Simulation
%Price Change -1.204 -1.35
Change in Labour Use 1.118 3.88
% Change in the Qty of Labour
5.753 5.94
Thirteen Annual short Course on Global Trade Analysis, Crete
Group 3 Extension
South – South Trade in Africa
SACU + MERCUSOR Versus
Thirteen Annual short Course on Global Trade Analysis, Crete
Welfare and Real GDPReal GDP (% change)
-1
-0.5
0
0.5
1
1.5
2
2.5
3
3.5
sacu-eu sacu-mer africa
Experiment
bw a
xsc
sad
xaf
Welfare
-1000
-500
0
500
1000
1500
2000
2500
3000
3500
sacu-eu sacu-mer africa
Expe
rimen
t
africa
eu
la
naf
xw o
Thirteen Annual short Course on Global Trade Analysis, Crete
Exports Destinations Export Destinations (%) - BWA
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
ini eu mer africa
afric
eu
lac
na
row
Exports Destination (%) - XSC
0
0.05
0.1
0.15
0.2
0.25
0.3
0.35
0.4
0.45
0.5
ini eu mer africa
afric
eu
lac
na
row
Exports Destination(%) - SAD
0
0.05
0.1
0.15
0.2
0.25
0.3
0.35
0.4
ini eu mer africa
afric
eu
lac
na
row
Exports Destination (%) XAF
0
0.1
0.2
0.3
0.4
0.5
0.6
ini eu mer africa
afric
eu
lac
na
row
Thirteen Annual short Course on Global Trade Analysis, Crete
Changes in output & VA
Changes in output(%): African FTA
-20 0 20 40 60
1 crops
3 mine
5 tex
7 lman
9 cns
4 xaf
3 sad
2 xsc
1 bwa
Changes in output (%): SACU-MER FTA
-3 -2 -1 0 1 2 3
1 crops
2 aag
3 mine
4 food
5 tex
6 hman
7 lman
8 utils
9 cns
10 serv
4 xaf
3 sad
2 xsc
1 bwa
Changes in output (%): EU-RSA FTA
-10 -5 0 5 10
1 crops
2 aag
3 mine
4 food
5 tex
6 hman
7 lman
8 utils
9 cns
10 serv
4 xaf
3 sad
2 xsc
1 bwa
Initial output composition
0,00 10,00 20,00 30,00 40,00 50,00
crops
mine
tex
lman
cns
4 xaf
3 sad
2 xsc
1 bwa
Thirteen Annual short Course on Global Trade Analysis, Crete
Employment of Unskilled labour
• Increase in employment of unskilled:
– XSC- EU-RSA FTA– Bots & xsc- SACU-
MER FTA– All regions –Africa
FTA
bwa xsc sad xaf
EU-RSA -0.11 2.59 -0.06 -0.01
SACU-MER 0,17 0,90 -0,01 0,00
African FTA 5,62 1,73 3,27 0,64
Thirteen Annual short Course on Global Trade Analysis, Crete
Group 4 Extension
Introducing Technological Change
Thirteen Annual short Course on Global Trade Analysis, Crete
The experiment: FTA + technical change
• A technical change in tradable sectors, i.e. crops, animal agricultural, food, textile, light and heavy manufactures, and services
• Why?– Productivity in developing countries, especially in SSA, is low
compared to that of developed countries => room for gains– To see whether technology can improve FTA outcomes for third
countries
Thirteen Annual short Course on Global Trade Analysis, Crete
Welfare effects
alloc_A1 endw_B1 tech_C1 pop_D1 tot_E1 IS_F1 TotalBWA -9 56 0 0 72 25 81SA 3682 22904 24424 0 -1648 99 49532EU 210 0 0 0 878 -51 1037Total 3792 22748 24424 0 -27 2 50949
alloc_A1 endw_B1 tech_C1 pop_D1 tot_E1 IS_F1 TotalBWA 1,6 -1,1 0 0 -4,6 10,4 -71,5SA 350 1318,9 0 0 -66,5 39,4 1729,5EU 343,9 0 0 0 477,1 -23,9 797,2Total 567 1244,4 0 0 -0,3 0,2 1821,1
FTA+10%TC
FTA only
Thirteen Annual short Course on Global Trade Analysis, Crete
Structural change in Bwa and SA?
– qva increases in tex, lman (and cns) (table)– this due to expansion effect (qo)– Expansion b/c increased domestic but most
importantly foreign demand (for Bwa, exports to SA “entirely”)
– Note e.g. that SA exports and imports in lman increase, and SA important export market for Bwa (differentiated comm, (Armington))
Thirteen Annual short Course on Global Trade Analysis, Crete
Why do exports increase?
• For Bwa and SA substitution effect behind demand for their exports (tex, lman).
• But for cns from Bwa and SA to SA the effect due to expansion only.
• Note, SA world market share is small (except for aag) and Bwa share is small indeed).
Thirteen Annual short Course on Global Trade Analysis, Crete
Supply side effects?
• Producer prices, in Bwa and SA, decrease and therefore demand increases
• But, e.g., why decrease in ps (lman, xsc) < 10% ?
– Tech change affects pfe and ps increase in output demand
– Output expansion (61 %) requires more inputs
– Pushes pfe up• Expanding sectors: pfe = 25 - 36
percent (but pfe (unsklab) = -1,6 to -3,2
percent)• Primary resources mainly drawn
from crops, aagr and services, + from pool of unemployed unsklab
ps (lman,xsc) -0,07
qo (lman,xsc) 0,61
qfe (capital,lman,xsc) 0,21
pfe (capital,lman,xsc) 0,27
qva (lman) 0,46
Thirteen Annual short Course on Global Trade Analysis, Crete
Key results
• South Africa: – Endowment effect is due to a large increase in unskilled
labor employment (+42%)• Services (53%), heavy manufactures (14%)
• Botswana: welfare gain, dominated by TOT effects:– BWA import shares from SA are very large (70-85%) => the
decrease in SA prices is creating this positive TOT effect– But also an endowment effect from increased unskilled
labor employment: services (61%) and construction (23%)
Thirteen Annual short Course on Global Trade Analysis, Crete
Group 5 Extension
Introducing New Closure
Thirteen Annual short Course on Global Trade Analysis, Crete
Alternative unskilled labor closures
• Original closure: unemployment in Africa.• Alternative closure: full employment in Africa.• Does this affect the results of previous extensions?
More importantly, does this affect our conclusions about trade and development?
• Welfare: Gains greatly diminished for South Africa
Unemployment Full EmploymentSouth Africa 1730 365Botzwana -72 -74Rest of Africa -52 -42Rest of the World 215 225Total 1821 474
Welfare Change (US$ Millions)
Thirteen Annual short Course on Global Trade Analysis, Crete
Differences in Welfare
• Only significant effect: endowment effect (US$ 1,3 billion vs US$ 0).
• Services: most significant difference. Expansion effect.• Industry: impact also diminished.• Note: services are quite important in cost structure of firms
(7%-23%).
Unskilled Labor Demanded By Sector in South Africa (QFE)Unemployment Full Employment
Textiles 31 -8H-Mfg 195 -6L-Mfg 58 -65Services 517 -245
Thirteen Annual short Course on Global Trade Analysis, Crete
Domestic market dominates effect
• Expansion effects: domestic market through intermediate demand. (94% of increased services is explained by domestic demand).
• Services account for 57% of unskilled labor employment.
• But why did services decrease with full employment ? Price of services went up (0.2%), driven by full employment.
Change in domestic quantity of services demanded by sector in South AfricaUnemployment Full Employment
Textile 1,3 -0,6H. Mfg. 1,1 -0,1
L. Mfg. 0,4 -1,8Services 0,2 -0,8
Thirteen Annual short Course on Global Trade Analysis, Crete
Major findings
Using a trade liberalization exercise, main effect on welfare comes from a non-tradable good (GE vs PE).
Closure really matters in this context
Thirteen Annual short Course on Global Trade Analysis, Crete
Conclusion