Kenya and the Doha Round: The Economic and Development Impact

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Kenya and the Doha RoundThe Economic and
Development Impact

• Eduardo Zepeda

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Objective and methodology

• Study examines the impacts of international trade
  negotiations on trade and production patterns,
  employment and poverty in Kenya.
• The study uses global and country CGE models.

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MAcMaps 163 Countries 208 partners 5,000 products
Liberalisation scenarios 5,000 products
Raw data of protection Tariff line level
Changes in poverty measures
Households survey
CTS database
Aggregated data of protection (GTAP sectors)
Changes in unemployment Changes in wages Changes
in occupation Changes in other incomes
GTAP Database excepted protection
MIRAGE r regions i sectors
DIVA Model 1 regions i sectors
World prices
Welfare Trade Factor incomes Terms of
trade Custom revenues 15 years
Welfare Trade Factor incomes Terms of
trade Employment and unemployment changes
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Regional disaggregation

• Study focus only on effects of the WTO scenarios
  on the Kenyan economy.
• Kenyan SAM is not included separately in the GTAP
  database.
• The global approach is only used to estimate the
  effects of WTO scenarios on world prices.
• MacMap database is further used in estimating
  changes in the Kenyan protection

• We adopt a limited regional disagragation that
  takes into account the major international trade
  actors and allows a more important sectoral
  disagregation.

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Sectoral disaggregation

• The objective is to select a sectoral
  disaggregation for MIRAGE, which can be mapped to
  the Kenyan SAM

• The following sectoral disaggregation in MIRAGE
  is adopted and will be mapped to the Kenyan SAM

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Sectoral disaggregation
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Domestic support pillar in agriculture (OTDS)
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Domestic support pillar in agriculture (AMS)
Final Bound Total AMS Amber Box A Tiered
Formula
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Agricultural Market access pillar
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NAMA Scenario

• The Swiss Formula
• 25 developing countries
• 5 developed countries
• For Unbound tariffs
• Countries have to bind their tariffs with a
  Mark-up of 5.
• Countries with low binding coverage lt 35 to
  increase binding coverage to 70 with an overall
  average applied tariff of 28.5.
• For SD
• Used paragraph 8B of the HKD 5 of NAMA tariff
  lines excluded from the formula cuts.

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Implementation of the global scenario

• The Global Model used is the MIRAGE model
• Market access scenario are defined at the HS6
  digit level using the MACMap data base.
• Export subsidies are taken into account in the
  model and are supposed to be equal to 0 in 2013.
• Domestic support more complicated. They are
  modeled as in Bchir et al (2006).
• Scenario for market access implemented by taking
  into account the binding overhang and the status
  of binding.

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Effect of global simulation on world agriculture
prices
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Effect of global simulation on world NAMA prices
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The country level analysis

• The model used here is a recursive, dynamic
  multi-sectoral single country model. It provides
  results for the period 2005-2015.
• A full presentation of the standard version of
  the model is given in Bchir, Chemingui and Ben
  Hammouda (2007).
• For the objectives of the present study,
  substantial changes are introduced to the
  original version of the model.

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The features of the Kenyan CGE model

• The first change is the elimination of the
  formal/informal features of production by
  activity. This simplification was imposed by the
  lack of data on formal and informal production
  technologies.
• As the Kenyan SAM allows for some activities to
  produce more than one single commodity, a
  multi-commodity production function is adopted
  for some sectors.
• A significant adaptation of labor market to the
  features of the Kenyan economy

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Labor market

• Three alternative labor market segments are
  considered skilled, semi-skilled and unskilled.
• For each category, labor supply is supposed to
  grow naturally each year by an exogenous rate .
• The labor demand addressed by each single
  activity for each category is deduced from the
  cost minimization program.
• The total demand of each labor category equals
  the sum of demand from all the activities.

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Labor Market (Cont.)

• To take into account the unemployment effects,
  all the labor markets are supposed to be not
  competitive markets
• Wages are supposed not to be the result of the
  confrontation between supply and demand but
  depend on other macroeconomic variables.
• For every category of labor, growth in wage is
  defined according to a Cobb-Douglas function of
  inflation rates and the corresponding
  unemployment rate.

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The SAM 2003

• The 2003 Social Accounting Matrix (SAM) was built
  by the Kenya Institute for Public Policy Research
  and Analysis (KIPPRA) and the International Food
  Policy Research Institute (IFPRI).
• It contains 50 Activities, 50 Commodities, 20
  Households (10 rural deciles and 10 urban
  deciles), 3 labor categories, land, capital,
  government, ROW, and 3 fiscal instruments (sale
  tax, direct tax, and import tax).

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The country level simulations

• The baseline scenario
• Government deficit is fixed as a share of GDP,
  fixed tax rates, current expenditures fixed, and
  government spending on capital adjusts.
• GDP exogenous, growth of labor and populations
  are exogenous
• 2. The global trade simulation
• In addition to the assumptions taken in the
  baseline scenario, the trade simulation includes
• Implementation of tariff reduction rates from
  MACMAP on the Kenyan applied tariff rates
  extracted from the SAM
• Changes in world prices from MIRAGE

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Implementation of the global scenario Changes
in tariff rates applied by Kenya