The Exercise

1
The Exercise

• The shocks
• Unilateral tariff liberalisation of
  agro-processing sector by India
• Alternative closures rules
• Standard GTAP closure Neo-classical where prices
  are assumed to be flexible and act as the
  equilibrating mechanism and all markets clear
• Micro-structuralist closure Imperfections in
  unskilled labor market - we assume that real
  wages for unskilled labour are fixed exogenously
  unskilled labour supply adjusts to demand
• Rationale
• In case of India there exists considerable
  underemployment such that production may increase
  without influencing the real wage rate much

2
Implementation of the experiments in RunGtap

• The shocks in each case (sectors 14-20)
• Shock tms("CMT",REG,"IND") target 0 from file
  tms.shk
• Shock tms("VOL",REG,"IND") target 0 from file
  tms.shk
• The alternative closure
• Swap qo(unskilled,Ind)pfactreal(unskilled,
  Ind)
• Where
• pfactreal(unskilled,Ind)pm(unskilled,Ind)
  - ppriv(Ind)
• qo(unskilled,Ind)supply of unskilled labour
  in India
• Pfactreal(unskilled,Ind) ratio of return to
  unsklab to CPI in India

3
Major Results

• Welfare decomposition

4
Results (contd.)

• Allocative efficiency gains arising from improved
  allocation of resources
• 83 of the allocative efficiency gains are
  arising from liberalisation of VoL imports
• ToT loss is explained by the need to restore
  equilibrium in the trade balance tms(agropr, r,
  ind)???Imports?BoP deficit??exports?ToT?
• 94 of the ToT losses are due to the decline in
  the price index (psw) received for tradables in
  India
• 70 of the ToT losses are traced to the
  manufacturing and services sector
• Endowment effect is a scale effect as labour
  previously outside the market is drawn into the
  economy
• Supply of Unsklab increases by 1.16