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Using a multi-region, multi-sector dynamic model of an economy with rural-urban migration fit to Turkish data, this paper explores the evolution of each region's output and factor allocation as well as inter-regional disparities that emerge with migration. Migration or residence decision of households is endogenous with respect to regional cost-of-living differentials. Results show that migration slows down and dampens the shift of labour from urban manufacturing to services, despite the increase in demand for urban services. It is also established that rural-urban migration contributes positively to growth while the reallocation of labour within each region proves to be unfavourable.

This paper investigates the contribution of the Brazilian agriculture to economic growth of the Brazilian economy. It draws upon the Global Trade Analysis Project (GTAP) data base, and other time series data to construct a multi-sector Ramsey model that shows the transition growth of the Brazilian agricultural sector and its effects on growth of the Brazilian economy, with particular emphasis given to the years 1994–2010.

This paper explores the emergence of large current account imbalances in a few large countries, the factors behind the emergence, the role of those imbalances in the financial crisis of 2008-09, and the implications of achieving global balance. Imbalances reflect a country’s net savings and suggest that growth in GDP of a surplus country is partly dependent upon growth in external demand of deficit countries. Although a country can incur a surplus or deficit for ever, we suggest that the increasing surpluses of relatively large and rapidly growing countries is likely to be destabilizing to global growth in the long-run. The adjustment will likely require a surplus country, such as China, to rely more on domestic demand for growth while a deficit country, such as the U.S., may need to rely more on external demand for growth. We suggest the Eurozone imbalances are not directly linked to U.S. imbalances. There are a variety of potential causes of global imbalances including excess savings in surplus countries, the twin deficit hypothesis, the export-led growth hypothesis, and the possible miss-measurement of the U.S. current account due to repatriation of profits from U.S. owned foreign affiliates. However, whatever the combination of causes of the growing imbalances, adjustments need to be made to return to long-terms sustainable growth.

Disenchantment with the Washington Consensus has led to an emphasis on growth diagnostics. In the case of Brazil, the literature suggests three main factors impeding growth: low domestic savings, a shortage of skilled workers, and lack of investment in the country’s transportation infrastructure. The unique contribution of this study is to show the inter-temporal implications of relaxing these constraints. We fit a multi-sector Ramsey model to Brazilian data, validate its fit to times data, and provide empirical insights into the economy’s structural transformation to long-run equilibrium. Then, the sensitivity of these results to relaxing each of these three constraints is investigated in a manner that yields the same long-run level of well- being. Analytical concepts adapted from static trade theory are used to provide a detailed explanation of how the economy responds in transition growth to the relaxation of these impediments. Addressing these factors clearly benefits the economy, but they do not launch the economy on a substantially higher growth path.

This paper develops a metric of structural transformation that can account for the production of new varieties of goods embodying advancements in technological know-how and design. Our measure captures the dynamics of an economy’s transformation and can be viewed as an extension of the static measure developed by Hausmann and Klinger (2006). We apply this measure to four digit level sitc trade data of China, Malaysia and Ghana over the period 1962-2000. The results show the rapid transformation of the Chinese economy is characterized by two important factors: the high proximity of its export basket to the three main industrial clusters – capital goods, consumer durable goods, and intermediate inputs, and the increase in the values of the new goods belonging to these three clusters. Malaysia exhibits a similar but more modest pattern. In contrast, the structure of the Ghanaian economy appears unchanged over the entire 1962-2000 period. This economy is dominated by primary goods clusters, and the values of the goods in these clusters have remained relatively low. We also discuss qualitatively the role of policies and institutions in spurring transformation in the three countries.

Morocco is engaged in a number of economic reforms to better position the country's integration into world markets. Her agricultural sector is particularly important as its trade, GDP, and employment share are relatively large. We analyze Morocco's agricultural trade growth trends over the past 40 years (1962 - 2004) using SITC 4-digit bilateral agricultural trade data. The data are analyzed using the trend and cycles decomposition (TCD) approach and measurement of trade growth at the intensive and extensive margin. We find a high concentration of agriculture trade in both commodities and trading partners. Morocco has also lost export shares in EU to other EU countries in her top exporting commodities. Another finding suggests that agricultural export growth for Morocco was at the intensive rather than extensive margin. This posts a great challenge for Morocco if she is to expand trade at the extensive margin.

The closed economy neoclassical growth model predicts convergence to a capital stock level that is independent of its initial level, suggesting that discrepancies in per capita income among the world’s economies should largely disappear in the long-run. This paper shows that international trade among countries differing only in their level of initial capital is sufficient to generate long-run income differences across countries. The long-run level of capital of the country most initially endowed with capital is shown to exceed the level of capital otherwise obtained in autarchy while the country least endowed converges to a capital stock lower than would otherwise be obtained in autarchy.

Current projections indicate that by 2025, water scarcity will affect over one quarter of the world’s population. This suggests that the need to manage water more efficiently will become more pressing during the next few years as the demand for water increases along with the expansion of economies and their populations. This paper investigates the economic impacts of efficient intraregional and/or inter-regional water reallocation, and examines their corresponding economic gains. A Ramsey-type growth model of a small, open, competitive economy is fitted to year 2000 Chinese data andthe empirical model is used to perform policy experiments. Within region water reallocation increases per-capita Chinese GDP by about 1.5% per year over the period 2000-2060. The aggregate potential welfare gain due to this reallocation is 1002.51 billion RMB. Transferring water from southern to northern China via the South-North Water Transfer Project, on average, has a smaller impact on per-capita GDP over the period 2000-2060, with an aggregate welfare gain of 557.23 billion RMB. Combining intra-regional and inter-regional water reallocations, on average, increases per-capita GDP by 0.38% per year over the period and the aggregate welfare gain from this combination is 1148.06 billion RMB.

This paper focuses on estimating the effects of trade partner income and real trade-weighted exchange rates on US agricultural exports. For the period 1970-2003, a one percent annual increase in trade partners’ income is found to increase total agricultural exports by about 1.6 percent while a one percent appreciation of the dollar relative to trade partner trade-weighted currencies decreases total agricultural exports by about 0.8 percent. We find these effects also carry over to 12 commodity subcategories, although the effects are conditioned by differences between bulk and high value commodities, and differences in the export demand from high compared to low income countries. We also find that the negative effect of exchange rate appreciation on exports often dominates the positive effect from income growth.

The maintained hypotheses embodied in structural general equilibrium models calibrated to data have tended to make economists and policy makers insecure regarding their empirical foundation. Advances in dynamic general equilibrium (DGE) theory and its empirical application have exacerbated this insecurity since the forecasts provide by these models brings questions of validation to the forefront. Here, methods are developed to measure the magnitude of bias in DGE forecasts that are simple to implement. We adopted the concordance correlation measure, and introduced a time function method to assess the bias in DGE forecasts. A time-series confidence interval method is also introduced to formally judge the "good" forecasts from the "bad". A calibrated DGE model is used to illustrate them. The time function method allows for the choosing of a functional form and an upper bound on forecast error. The time-series confidence interval method allows the DGE results to be evaluated by the standard of the rival time series models. If the DGE results are as good as time-series forecasts, the DGE model is a superior framework because of its advantage in providing not only "good" forecasts, but also insights into the economic structure generating the results. To illustrate these methods, we calibrate to Taiwanese data for the year 1988 a multi-sector Ramsey-based DGE model. The model is shown to forecast various dimension of the economy with surprising good, but varying accuracy. The proposed validation measures show effectiveness in distinguishing among diverse model parameter values and detecting model improvements. The measures are also statistically meaningful and require no arbitrary probabilistic assumptions on the distribution of either the results or the data.

Water policy is prone to error because of the complexity of irrigated agriculture. Agriculture is spatially dependent, it exists in the context of a nation's economy with which it must compete for resources, and water markets seldom exist. The process of collective action, as Douglas North has noted, typically involves a process that places emphasis on the direct effects of a policy outcome. The constraints of collective action tend to be such that this process is not capable of "solving" the simultaneous equations of a real economy as a decentralized market mechanism can be characterized as being able to perform. The contribution of the paper is to measure the direct and indirect effects of irrigation water policy in an economy-wide context for the case of Morocco, and to show that the sequence of reform is important. The framework entails a model of agriculture in the context of the broader economy, with particular attention given its spatial dimension, and its forward and backward linkages in order to better capture its complexities. Morocco is a particularly interesting example due to its trade policy, its relatively regionalized policy decision making for allocating irrigation water to farmers, and the use of renewable water from seasonal snow melt as opposed to the more complex conjunctive use of ground water for irrigation found in many countries.

This paper discusses some of the reasons why the Internet might have a positive effect on the international trade in agricultural and horticultural commodities between the United States and its partners. It provides some simple econometric tests which differentiate the export and import effects of Internet infrastructure and cost. It also shows that the effect may be dependent on product heterogeneity/perishability. Given the growth of the Internet over the past decade, coming to terms and measuring these effects is important to both producers and policymakers in considering the competitive impacts of this new technology.

The share of resources allocated to food marketed through supermarkets and their marketing channels has grown at an unprecedented rate in lower income countries during the 1990s. The implication is that the evolution of supermarkets cannot be viewed in isolation of the broader economic general equilibrium forces giving rise to a middle class, nor can this process be viewed in a static context. Our dynamic model captures, in an obviously aggregative way, the marketing channels that require resources to: assemble inputs for farmers, produce raw agricultural output, assemble, process and add value to, and market the final products to retail establishments in the long run.

This study investigates whether HIV prevalence rates impact TFP growth. We construct a panel of data on general macroeconomic indicators and HIV prevalence rates for over 100 countries, for the years 1994 through 2002, and estimate the impact of HIV on TFP growth rates for each country. We find that HIV can have a large negative impact on factor productivity growth in Southern African countries. For example, factor productivity growth in Lesotho falls by up to 23%, and for South Africa factor productivity growth falls by up to 15%. We then investigate the potential impact of the disease on the economic growth of Lesotho and South Africa. This is accomplished by calibrating a single sector, neoclassical model of economic growth with endogenous savings to the two countries. The models show that TFP effects can have large, negative impacts on both per capital and aggregate GDP.

Commodity price volatility in international markets has been used to justify numerous policy interventions, including the need for buffer stocks and counter-cyclical payments. The common measure of volatility, the standard deviation or coefficient of variation, likely overstates the actual variation faced by economic agents. By making a distinction between its predictable and unpredictable components, volatility is found to be low, suggesting that significant welfare gains may be unattainable with policy interventions designed to stabilize prices. The use of the standard deviation implies price volatility as high as 30 per cent for certain grain markets. Removing the predictable components from this measure decreases volatility to between 0.1 per cent and 15.9%. We find little evidence to suggest that volatility is increasing over time for all commodities. The benefits of eliminating low levels of commodity price volatility are small, less than 1% of consumption for the majority of commodities studied.

The studies in this report analyze the effects of decoupled payments in the Federal Agriculture Improvement and Reform (FAIR) Act on recipient households, and assess land, labor, risk management, and capital market conditions that can lead to links between decoupled payments and production choices. Each study contributes a different perspective to understanding the response of U.S. farm households and production to decoupled income transfers. Some use new microdata on farm households collected through USDA's Agricultural Resource Management Survey (ARMS), initiated in 1996, and its predecessor survey. These data are used to compare household and producer behavior and outcomes before and after the FAIR Act. Other studies use applied or conceptual models to characterize the impact of introducing decoupled payments. Collectively, the chapters represent an early stage in the empirical analysis of decoupled payments. The studies address many aspects of the payments' household impacts but remaining issues call for additional analysis. As the analytical paradigm changes with the evolution of farm programs, the development of appropriate data and models will improve our understanding of farm program impacts on the behavior and well-being of U.S. farm households, and the agricultural sector.

HIV prevalence dynamics are introduced into a three sector, neoclassical growth model. The model is calibrated to South African national accounts data and used to examine the potential impact of HIV/AIDS on economic growth. Projections portend if left unchecked, the long run impact of HIV and AIDS could drive South African GDP to levels that are over 60% less than no-HIV levels, with AIDS death rates decreasing the long run stock of labor by over 60%.

Earlier analyses of area yield crop insurance schemes used a reduced form linear relationship between individual and area yield. However, without knowledge of the structural framework, the analysis and design of alternative schemes is problematic. This paper resolves this problem. The paper characterizes the entire class of structural models equivalent to the reduced form. As a result, the beta, the slope coefficient of the reduced form is expressed as a function of structural parameters. Second, the structural model is used to analyze the relation between the aggregation (that determines area yields) and the risk reduction due to area yield insurance. Third, we consider optimal area yield insurance for an important class of structural models not consistent with the reduced form.

Does democratization imply faster growth, less corruption and less inefficiency? Past studies yield ambiguous results on the effects of democracy on economic performance and growth. We develop a simple two-sector endogenous growth model that shows both very young and mature democracies grow faster than countries in mid stages of democratization, producing a 'U' effect. This effect results from the pattern of rent seeking as it diverts from the provision of public goods. Rent-seekers act as monopolistic competitors. Initially, more democracy increases their number, raising aggregate rents. However, rents per rent-seeker fall with the number of rent seekers, aggregate rents fall in mature democracies. Thus, rents show an 'inverted-U' effects in relation to democracy. We find fairly robust supportive evidence for the latter.

The effect on production, trade and well-being from the granting of market access, removing export subsidies, and eliminating trade-distorting forms of direct support to farmers in WTO member countries is analyzed from a world-wide general equilibrium perspective using the most recently available data. The results suggest that removing trade barriers, subsidies and support will cause aggregate world prices of agricultural commodities to rise by over 11 percent relative to an index of all other prices. Agricultural support and protection in the developed countries is found to be the major cause of low agricultural prices, and implicitly, a tax on net agricultural exporters in developing countries. Livestock product prices are likely to increase the most from the reform of agricultural policies. Reform increase world trade in agricultural commodities, but the level of total agricultural production is left almost unchanged. In the short to medium term, some net agricultural importing countries are likely to suffer a welfare loss due to an adverse change in their terms of trade that reform causes. However, in the longer-run, reform of agricultural policies is found to benefit almost all countries and developing countries in particular due to the change reform induces in their pattern of investment, growth in capital stock, and to growth in their total factor productivity.

Agricultural trade barriers and producer subsidies inflict real costs, both on the countries that use these policies and on their trade partners. Trade barriers lower demand for trade partners' products, domestic subsidies can induce an oversupply of agricultural products which depresses world prices, and export subsidies create increased competition for producers in other countries. Eliminating global agricultural policy distortions would result in an annual world welfare gain of $56 billion. High protection for agricultural commodities in the form of tariffs continues to be the major factor restricting world trade. In 2000, World Trade Organization (WTO) members continued global negotiations on agricultural policy reform. To help policymakers and others realize what is at stake in the global agricultural negotiations, this report quantifies the costs of global agricultural distortions and the potential benefits of their full elimination. It also analyzes the effects on U.S. and world agriculture if only partial reform is achieved in liberalizing tariffs, tariff-rate quotas (limits on imported goods), domestic support, and export subsidies.

This paper develops a two-sector growth model incorporating the essential distinguishing features of agriculture, including the reliance of production on a natural resource base as well as on industrially produced inputs, the low income elasticity of demand for food and the life-sustaining function of food consumption. In this framework, the ability of an economy to supply an adequate supply of food to a growing population can be related to the existence of a steady state. This property is used to define a simple analytical criterion upon which to assess the long-term food situation of a closed economy. This sustainability condition relates all the dynamic parameters of the economy: rates of technological change in the two sectors, rate of population growth and rate of land degradation. The condition is used to highlight the technological characteristics in agriculture conducive to sustainability and to assess empirically the food situation of a number of countries. Although no global food crisis appears to be looming ahead, the data suggest that sub-Saharan Africa is likely to increase its food dependence in the future.

As growth in world trade outpaces the growth in world Gross Domestic Product (GDP), economies are becoming ever more linked through world markets (Helpman, 1998). It is evident that U.S. agriculture is also becoming increasingly affected by changes or economic shocks in world markets and that this response is conditional on the response of other sectors with which it must compete for economy-wide resources. This paper links the U.S. agricultural sector with its bilateral trading partners by deriving "shock transmission functions". These functions link the direct effects of world economic shocks to the price of four U.S. (export) commodities namely meat, dairy, grains and crops. We derive a price equation that is a function of the product of income between the United States and it's trading partner among other explanatory variables. The coefficient estimates from these equations can be interpreted as price transmission elasticities. These elasticities are used to conduct policy experiments.

This paper develops a two-sector model of growth where agriculture is considered explicitly. Key features of the model include: the reliance of agricultural production on a fixed but degrading resource base, the use by the farm sector of industrially produced inputs and differing rates of technological progress in the two sectors. On the demand side, the low income elasticity for food as well as the life-sustaining function of food consumption are recognized. In this simplified framework, the sustainability of growth can be related to the existence of a steady state reflecting the ability of the economy to feed its population. This property is used to identify the characteristics within and outside of agriculture conducive to the sustainability of a land-constrained economy. The empirical application identifies sub-Saharan Africa as the region of the world facing the most important challenges in terms of sustainability. The second part of the paper makes use of the transitional properties of the model to analyse the relationship between agricultural productivity and growth performance. For a closed economy, the model unambiguously supports the view that high agricultural productivity is conducive to fast growth and industrialization. Once the country is allowed to trade, however, the relationship becomes more complex, but a numerical experiment illustrates how trade liberalization can accelerate the growth of a country poorly endowed in agricultural resources.

Which Came First: Growth in Trade or Trade Arrangement?

The role of international trade in the new growth theory is investigated from several perspectives. Following a historical outline and a brief analytical sketch of the R&D based models, the results from fitting three structural models to data are presented. Results show the relative impacts on growth from trade and R&D based policies including technological spillovers from trade. The mechanism of inter-sectoral adjustments to the long-run growth path are also discussed. Results from selected econometric studies are reviewed. With emphasis on agriculture, this includes evidence of technological spillovers from trade, the effect of R&D expenditures on growth in total factor productivity, and the extent to which the stock of technological knowledge is accessible by others.

Contact for this paper: Laura Bipes, Department of Applied Economics, University of Minnesota, 1994 Buford Avenue, 232 ClaOff, St. Paul, MN 55108. This volume contains the main papers that were presented at an IATRC symposium which focused on Policy Reform, Market Stability, and Food Security. It was held June 26-27, 1998 in Alexandria, Virginia and was co-sponsored by the Center for International Food and Agricultural Policy, Department of Applied Economics, University of Minnesota. Papers included are: Asian Economic Crisis and the Long-Term Global Food Situation, by Mark Rosegrant and Claudia Ringler; The New Policy Environment for Food Aid: The Challenge of Sub-Saharan Africa, by Cheryl Christensen; Poverty and Undernutrition in South Asia, by T.N. Srinivasan; The Macro Dimensions of Food Security: Economic Growth, Equitable Distribution, and Food Price Stability, by Peter Timmer; World Food Markets and Food Security: Uncertain Connections, by Robert Paarlberg; International Price Instability in Cereals Markets and a Market Based Scheme for Developing Country Cereal Imports, by Alexander Sarris; On Reform, Food Prices, and Poverty in India, by Martin Ravallion; The Contribution of Food Aid to Stable Food Consumption, by Christopher Barrett; A Role of Capital Markets in Natural Disasters: A Piece of the Food Security Puzzle, by Jerry Skees

This paper delves into the debate on the proliferation of regional trade arrangements by focusing on bilateral agricultural trade data over the 1962-1995 period for countries that currently are members of NAFTA, Mercosur, the EU and APEC. Agricultural is chosen because it has historically been protected by developed and dis-protected by developing nations, while in the case of the EU, its Common Agricultural Policy was the major policy jointly managed and funded by member countries. We suggest that the literature has tended to focus on factors explaining the level of trade, and neglected factors affecting growth in trade. While neighborhood characteristics affect neighborhood trade, they also appear to affect the policy regimes of neighboring countries. The shift to more outward oriented regimes is thus likely to induce a dynamic in trade among neighboring countries requiring several years to stabilize. As neighborhood trade grows, it is natural to form trade arrangements so as to harmonize policies and to remove other barriers. If this is the case, then we should expect the growth in intra regional trade to exceed growth in extra-regional trade, and these patterns should occur before the formation of regional trade arrangements. Our results support this explanation.

A growth accounting and an econometric exercise are used to provide insights into the evolution of the Taiwanese economy over the period 1966-96. The approach links the GDP function of a multiple sector neoclassical growth model to growth accounting and, subsequently to the estimation of the parameters of this function. The growth accounting results show that the contribution of total factor productivity (TFP) to growth in GDP averaged about 32 percent over the period, and this contribution increased as the economy approached its long-run equilibrium during the decade of the 1980s, with evidence of some departure during 1991-96. Growth in TFP increased output growth in industry and services while growth in skilled labor benefited all sectors. Growth in capital stock increased the growth of the industrial sector the most, followed by services, but the effect on agricultural output growth was negative. Growth in TFP and capital stock appear to have increased the capacity of the industrial and service sectors to pull resources from agriculture.