Reform of the CAP : Impact on the Third World

The European Community is under pressure to reform the CAP, mainly due to internal financial reasons. Proposals have been put forward by the EC Commission that reform the CAP with respect to milk, oils and fats, and corngluten and citrus pellets. The authors look at the impact of these proposals on developing countries. They conclude that the effect will be to increase non-tariff barriers to trade and increase the cost of food production both in and outside the EC.     

Agricultural Incentives in Developing Countries: Measuring the Effect of Sectoral and Economywide Policies

The impact of sector-specific (direct) and economywide (indirect)policies on agricultural incentives for eighteen developingcountries for the period 1975–84 are estimated. The directeffect is measured by the proportional difference between theproducer price and the border price (adjusting for distribution,storage, transport, and other marketing costs). The indirecteffect has two components. The first is the impact of the unsustainableportion of the current account deficit and of industrial protectionpolicies on the real exchange rate and thus on the price ofagricultural commodities relative to nonagricultural nontradables.The second is the impact of industrial protection policies onthe relative price of agricultural commodities to that of nonagriculturaltradable goods. We find that (1) in almost all cases the directeffect is equivalent to a tax on exportable goods (–11percent on average) and to a subsidy for importables (20 percenton average); (2) the indirect effect also taxes agriculture(–27 percent on average) and dominates the direct effect(whether the direct effect is positive or negative); and (3)the direct policies for both importables and exportables stabilizedomestic producer prices.     

The ECB's New Multi-Country Model for the euro area: NMCM — Simulated with rational expectations

The model presented here is an estimated medium-scale New Multi-Country Model (NMCM) which covers the five largest euro area countries and is used for forecasting and scenario analysis at the European Central Bank. The model has a tight theoretical structure which allows for non-unitary elasticity of substitution, non-constant augmenting technical progress and heterogeneous sectors with differentiated price and income elasticities of demand across sectors. Furthermore, it has the explicit inclusion of expectations on the basis of three optimising private sector decision making units: i.e. firms, trade unions and households, where output is in the short run demand-determined and monopolistically competing firms set prices and factor demands. Labour is indivisible and monopoly-unions set wages and households make consumption/saving decisions.We assume that agents optimise under limited information where each agent knows only the parameters related to his/her optimisation problem. Therefore we estimate with GMM, which implicitly assumes limited information boundedly rational expectations. In this paper we provide some simulation results under the assumption of model-consistent rational expectations, we show that there is some heterogeneity across countries and that the reactions of the economies to shocks depend strongly on whether the shocks are pre-announced, announced and credible or unannounced and uncredible.