In a developing economy where agriculture has an important role in economic growth and in maintaining a certain level of living standards for the poor, any macro-economic and sectoral policies have critical implications on income distribution and government finances. This article develops a computable general equilibrium (CGE) model to describe a multiregional, multimarket, and multiagent agrarian economy. The model is initially aimed for the Philippines, but can be extended to any other country in southeast Asia. A number of policies regarding supply, demand, and external trade are simulated to compare their costs and benefits, paying particular attention to poverty alleviation, income distribution, price stability, economic growth, and government finances.
In a developing country where agriculture has an important role in economic growth and the well-being of the poor, any policy reform has important implications on income distribution, price stability, and government finances. This article constructs a computable general equilibrium (CGE) model that can incorporate alternative government policies directed towards achieving a certain set of economic and social objectives, paying particular attention to agricultural production, income distribution, government budget, and external balance of payments.
Most CGE studies have focused on the two ends of the commodity chain, i.e., the producers (farm-gate or factory-gate) and the final consumers, ignoring the marketing segment between production and final consumption (see Robinson, 1986, for a survey; Clarete and Roumasset 1986 and Clarete and Roumasset 1987, for the Philippines; Narayana et al., 1991, for India; and Zhuang, 1994, for China; Schul 1974, Adelman and Robinson 1986 and Kilkenny 1993, for the United States). Moreover, many studies have treated the entire economy as one single homogeneous market without paying attention to geographical differences. The importance of geographical diversity has been recognized by many authors Kilkenny 1993 and Roberts and Russell 1994 but few authors have attempted to incorporate the intermediate market segment between producers and consumers into their studies. To overcome the limitations of previous studies, this paper constructs a general equilibrium model with three distinctive characteristics: (1) it concentrates specifically on the food system by treating nonfood agriculture, nonagricultural sector, and the rest of the world as other aggregate sectors of the economy; (2) it separates the country into two regions with different farming systems and incomes; and (3) it divides the economy into three different market levels: farm-gate, wholesales, and retail. The present model is based on the Philippines economy in 1987, but it can be extended to any other countries in southeast Asia such as Thailand, Malaysia, or Indonesia.
In most countries, governments enter the market with specific objectives, policy instruments, and acting agents. In the food sector, the main acting agent for the government is the National Food Authority (NFA), which can enter any of the three marketing levels. Many price and marketing policies can be implemented through NFA's buying and selling activities. All the policy objectives require special instruments that can be incorporated into the CGE framework. In this paper, although our focus is on the structure of the model, four sets of policy changes are simulated to examine their effects on the nutritional status of the poor, price stability, income distribution, economic growth, and government finances. The costs and benefits of each policy scenario are analyzed to show how policy reforms should best be implemented in an empirical sense.
The next section briefly reviews the economic situation in the Philippines and the background for the CGE model. Section 3 describes the market and model structure. Data and policy simulations are discussed in Section 4. The last section draws conclusions.
This paper establishes a CGE framework for policy analysis. We have demonstrated that a multiregional economy and multimarket level food system can be constructed into a CGE model based on a SAM. Like many other CGE models, this framework enables policy analysts to examine policy impact at the aggregate national level and at the two ends of the commodity chain. Where it differs from many other models is its special emphasis on the food agricultural sector and its ability to capture the effects of policies not only at the national level but also at different markets, localities, and farming systems. This breakdown of policy analysis is essential as most policies that have positive effects at one level (or location) will normally have negative effects at another level (or location) of the economic system.
The policy simulation results in Section 4 demonstrate that many kinds of policy changes can be simulated from the CGE framework. In the context of the Philippines, as the most important concerns of the economy are the efficient use of agricultural resources, the reduction of huge internal and external debts, and the reduction of poverty and undernourishment of the poor, several alternative policy scenarios are included in the simulations to investigate the impacts of such policies on different important indicators of concern.Asia Development Bank. Asian Development Statistics various issues, Greener Liu 1993, Organisation of Economic Cooperation and Development OECD, The Philippines Statistical Yearbook 1991, World Bank various issues, World Bank various issues and World Bank various issues
