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Abstract:
This technical paper, presents the complete technical specification of the current version of the RE-GEM (Regional and Environmental General Equilibrium Model) for India. The document lists all the key structural and behavioural equations, providing a justification for the chosen model specification. In addition, a complete description is provided of the estimation methods and the sources of the Indian data used in the model; an aggregated version of the Indian regional Social Accounting Matrix we constructed is appended to this document. The object is to inform in the most detailed way possible researchers interested in building on the OECD's modeling effort, and to provide a useful tool for informing the debate on the economics of environmental policy in developing countries.

Environment, Energy, India

Abstract:
Over the past 20 years, aggregate measures of global inequality have changed little even if significant structural changes have been observed. High growth rates of China and India lifted millions out of poverty, while the stagnation in many African countries caused them to fall behind. Using the World Bank's LINKAGE global general equilibrium model and the newly developed Global Income Distribution Dynamics (GIDD) tool, this paper assesses the distribution and poverty effects of a scenario where these trends continue in the future. Even by anticipating a deceleration, growth in China and India is a key force behind the expected convergence of per-capita incomes at the global level. Millions of Chinese and Indian consumers will enter into a rapidly emerging global middle class - a group of people who can afford, and demand access to, the standards of living previously reserved mainly for the residents of developed countries. Notwithstanding these positive developments, fast growth is often characterized by high urbanization and growing demand for skills, both of which result in widening of income distribution within countries. These opposing distributional effects highlight the importance of analyzing global disparities by taking into account - as the GIDD does - income dynamics between and within countries.

Inequality, Economic Theory & Research, Emerging Markets, Achieving Shared Growth

Abstract:
In this paper we investigate the potential costs and benefits of a comprehensive green fiscal reform in Italy. Using a Computable General Equilibrium (CGE) model for the country, we simulate scenarios of progressive reduction of emissions for 13 polluting substances. It is shown that the introduction of a tax targeted to one single pollutant, decreases not only the directly targeted emissions but also those of other pollutants. Besides the green tax costs, in terms of increased distortions and forgone production and welfare, are shown to be quite low. This important result depends on the assumption of a certain degree of flexibility in the production processes that allows polluters to switch to cleaner technologies when the tax is implemented. This assumption closely reflects observed economic behaviour especially when a decade or more is the period of analysis, as in our case. Finally, when green taxes revenues are used to reduce wage taxes, in a revenue neutral fiscal swap, a positive employment double dividend emerges.

Green taxes, double dividend, CGE models

Abstract:
This paper presents an overview of the most recent trade policy reforms in Colombia and a brief analysis of their potential effects on this country's trade flows. This set the stage for the main objective of this paper: a preliminary general equilibrium assessment of the economic effects of Colombia's hypothetical accession to the North American Free Trade Agreement. The results indicate that such an arrangement, dubbed here NAFTA+, has significant implications for Colombia, but very limited effects upon the NAFTA incumbents, the U.S., Canada, and Mexico. This follows intuitively from the size and proximity of the participating economies, but the sectoral and employment adjustments in Colombia are complex and would be difficult to anticipate from heuristic, partial equilibrium, or aggregate analysis. Generally speaking, Colombia would be a significant beneficiary of a NAFTA+ agreement, but the ensuing adjustments intensify traditional patterns of comparative advantage for this economy and, absent other co-ordinated policies, might undermine modernisation and sustainable growth. These results have implications for many NAFTA aspirants, but should not be generalised too freely. Each prospective entry should be evaluated by the same detailed empirical analysis as it is proposed for the Colombian case.

Abstract:
Existing empirical evidence indicates that remittances have a positive impact on a good number of development indicators of recipient countries. Yet when flows are too large relative to the size of the recipient economies, as those observed in a number of Latin American countries, they may also bring a number of undesired problems. Among those probably the most feared in this context is the Dutch Disease. This paper explores the empirical evidence regarding the impact of remittances on the real exchange rate. The findings suggest that remittances indeed appear to lead to a significant real exchange rate appreciation. The paper also explores policy options that may somewhat offset the observed effect.

Economic Stabilization, Macroeconomic Management, Economic Theory & Research, Remittances, Pro-Poor Growth and Inequality

Abstract:
Policies and external shocks affecting agriculture, the main source of income for rural households, can be expected to have a significant impact on poverty. The authors study the case of Uganda. Throughout the 1990s, more than 90 percent of its poor lived in rural areas and, during the same period, large international price fluctuations as well as an extensive domestic deregulation affected the coffee sector, its main source of export revenues. Using data from three household surveys covering the 1990s, the authors confirm a strong correlation between changes in coffee prices (in a liberalized market) and poverty reduction. This is highlighted by comparing the performance of different households grouped according to their dependence on coffee farming. Regression analysis (based on pooled data from the three surveys) of consumption expenditure on coffee-related variables, other controls, and time-fixed effects corroborates that the mentioned correlation is not spurious. The authors also find that while both poor and rich farmers enter the coffee sector, the price boom benefits the poorer households relatively more, whereas the liberalization seems to create more opportunities for richer farmers. Finally, notwithstanding the importance of the coffee price boom, the agricultural policy framework and the thorough structural reforms in which the coffee market liberalization was embedded have certainly played a role in triggering overall agricultural growth. These factors appear to matter especially in the second half of the 1990s when prices went down but poverty reduction continued.

Crops & Crop Management Systems, Markets and Market Access, Rural Poverty Reduction, Access to Markets

Abstract:
Over the medium time horizon, skill upgrading, differentials in sectoral technological progress, and migration of labor out of farming activities are some of the major structural adjustment factors shaping the evolution of an economy and its connected poverty trends. The main focus of the authors is understanding, for the case of Brazil, how a trade shock interacts with these structural forces and ascertaining whether it enhances or hinders medium-term poverty reduction. In particular, they consider the interactions between the migration of labor out of agriculture, a potentially important poverty reduction factor, and trade liberalization, which increases the price incentives to stay in agriculture. A recursive-dynamic computable general equilibrium model simulates Doha scenarios and compares them against a business as usual scenario. The authors estimate the poverty effects using a microsimulation model that primarily takes into account individuals' labor supply decisions. Their analysis shows that trade liberalization does contribute to structural poverty reduction. But unless increased productivity and stronger growth rates are attributed to trade reform, its contribution to medium-term poverty reduction is rather small.

Economic Theory & Research, Labor Markets, Rural Poverty Reduction, Pro-Poor Growth and Inequality, Rural Development Knowledge & Information Systems

Abstract:
Econometric analysis has established a negative relationship between labor supply and remittances in Jamaica. The authors incorporate this ex-post evidence in a general equilibrium model to investigate economywide effects of increased remittance inflows. In this model, remittances reduce labor force participation by increasing the reservation wages of recipients. This exacerbates the real exchange rate appreciation, hurting Jamaica's export base and small manufacturing import-competing sector. Within the narrow margins of maneuver of a highly indebted government, the authors show that a revenue-neutral policy response of a simultaneous reduction in payroll taxes and increase in sales taxes can effectively counteract these potentially negative effects of remittances.

Labor Markets, Economic Theory & Research, Remittances, Markets and Market Access, Economic Growth

Abstract:
The main objective of this paper is to provide an ex-ante assessment of the poverty and income distribution impacts of the Central American Free Trade Area agreement on Nicaragua. The authors use a general equilibrium macro model to simulate trade reform scenarios and estimate their price effects, while a micro-module maps these price changes into real income changes at the individual household level. A useful insight from this analysis is that even if the final total impact on poverty is not too large, its dispersion across households - due to their heterogeneity of factor endowments, inputs use, commodity production, and consumption preferences - is significant and should be taken into account when designing compensatory policies. Additionally, growth and redistribution decomposition show that, at least in the short to medium run, redistribution can be as important as growth. The main policy message that emerges from the paper is that Nicaragua should consider enlarging its own liberalization to countries other than the United States to boost trade-induced poverty reductions.

Economic Theory & Research, Free Trade, Inequality, Markets and Market Access, Consumption

Abstract:
This paper summarizes the policy lessons from applications of the Maquette for MDG Simulations (MAMS) model to two low income countries: Ghana and Honduras. Results show that costs of MDGs achievement could reach 10-13 percent of GDP by 2015, although, given the observed low productivity in the provision of social services, significant savings may be realized by improving efficiency. Sources of financing also matter: foreign aid inflows can reduce international competitiveness through real exchange appreciation, while domestic financing can crowd out the private sector and slow poverty reduction. Spending a large share of a fixed budget on growth-enhancing infrastructure may mean sacrificing some human development, even if higher growth is usually associated with lower costs of social services. The pursuit of MDGs increases demand for skills: while this encourages higher educational attainments, in the short term this could lead to increased income inequality and a lower poverty elasticity of growth.

Population Policies, Achieving Shared Growth, Public Sector Economics & Finance, Public Sector Expenditure Analysis & Management

Abstract:
This paper relies on the recently developed Maquette for Millennium Development Goals Simulations (MAMS) model to assess the consistency of alternative scaling-up and policy packages for growth and achievement of the Millennium Development Goals in Ghana. In the baseline scenario, Ghana's strong near and medium-term growth outlook puts it in a good position to achieve the poverty Millennium Development Goal ahead of schedule, but other goals are likely to remain elusive before 2015. In the accelerated growth scenario - which addresses the major gaps in water and sanitation and other infrastructure - even more rapid growth and poverty reduction are possible, but important targets in the areas of education, health, and environment remain unattainable. Although growth is complementary to achievement of the Millennium Development Goals, the authors also find important growth-human development trade-offs in the near term. The estimates show that the resource requirements for achieving the key Millennium Development Goals by 2015 are large, reaching US$82 per capita in an illustrative foreign-grant financed scenario. Increased intake and retention of students contribute to rising scarcity of unskilled labor, buttressing unskilled wages, while high demand for skills from the sectors related to the Millennium Development Goals raises the returns to human capital. These developments lead to improvements in the welfare of the poorest members of Ghanaian society and contribute to a small reduction in overall inequality.

Population Policies, Achieving Shared Growth, Public Sector Expenditure Analysis & Management, Economic Theory & Research

Abstract:
The present study uses the GIDD, a CGE-microsimulation model for Global Income Distribution Dynamics, to understand the ex-ante dynamics of global income distribution. Three main robust results emerge. First, under a set of realistic assumptions, there will be a reduction in global income inequality by 2030. This potential reduction can be fully accounted for by the projected convergence in average incomes across countries, with poor and populous countries growing faster than the rest of the world. Second, this convergence process will be accompanied by a widening of income distribution in two-thirds of the developing countries; the main cause being increasing skill premia. Third, a trend that may counter-balance the potential anti-globalization sentiment is the emergence of a global middle class: a group of consumers who demand access to, and have the means to purchase, international goods and services. The results show that the share of these consumers in the global population is likely to more than double in the next 20 years. These ex-ante trends in global income distribution suggest that the mid-1990s could be seen as a turning point after which global inequality began showing a negative tendency.

Inequality, Poverty Impact Evaluation, Economic Theory & Research, Achieving Shared Growth

Abstract:
Globalization, governance and economic performance affect each other in very complex mutual relationships. In this Paper, we establish a clear and well-circumscribed hypothesis: 'Is there an effect of globalization on governance?' To test this hypothesis or, even more specifically, to test how openness can affect the quality of domestic institutions, we survey available theoretical explanations of causal relationships between globalization and governance. Microeconomic theory helps us identify trade policy, competition by foreign producers and international investors, and openness-related differences in institution building costs and benefits, as three major transmission mechanisms through which openness affects a country's corruption levels. Examining a large sample of countries covering a 20-year long period, we found robust empirical support for the fact that increases in import openness do indeed cause reductions in corruption, a crucial aspect of governance. The magnitude of the effect is also quite strong. After controlling for many cross-country differences, openness' influence on corruption is close to one third of that exercised by the level of development. Some cautious policy conclusions are derived.

Corruption, globalisation, governance, international trade

Abstract:
This paper identifies and estimates the strength of the reduction in poverty linked to improved opportunities for women in the expanding maquila sector. A simulation exercise shows that, at a given point in time, poverty in Honduras would have been 1.5 percentage points higher had the maquila sector not existed. Of this increase in poverty, 0.35 percentage points is attributable to the wage premium paid to maquila workers, 0.1 percentage points to the wage premium received by women in the maquila sector, and 1 percentage point to employment creation. Given that female maquila workers represent only 1.1 percent of the active population in Honduras, this contribution to poverty reduction is significant.

Rural Poverty Reduction, Population Policies, Achieving Shared Growth

Abstract:
This paper assesses the potential impacts of the removal of agriculture trade distortions using a newly developed dataset and methodological approach for evaluating the global poverty and inequality effects of policy reforms. It finds that liberalization of agriculture and food could increase global extreme poverty (US$1 a day) by 0.2 percent and lower moderate poverty (US$2 a day) by 0.3 percent. Beneath these small aggregate changes, most countries witness a substantial reduction in poverty while South Asia - where half of the world's poor reside - experiences an increase in extreme poverty incidence due to high rates of protection afforded to unskilled-intensive agricultural sectors. The distributional changes are likely to be mild, but exhibit a strong regional pattern. Inequality is likely to fall in regions such as Latin America, which are characterized by high initial inequality, and rise in regions like South Asia, characterized by low initial inequality.

Economic Theory & Research, Rural Poverty Reduction, Population Policies, Inequality, Achieving Shared Growth

Abstract:
NOTE: The following is a description of the paper, and not the actual abstract.

Trade and environment linkages are under increasing scrutiny, and a vast literature has emerged on the subject. Important linkages have been identified and major conclusions have been drawn in terms of economic policy. However, many questions still remain. Most countries are now engaged in a trade liberalisation process, while being aware of environmental problems, and the coherence between environmental and trade policies is a major concern. This paper aims at offering a quantitative analysis of the linkages between economic activity and the environment in Costa Rica, and specifically at evaluating the joint impact of environmental and commercial policies. Three main aspects of the CGE model presented in this paper account for its specificity with respect to previous analysis. First, it embodies a high level of disaggregation for pollutants, products, sectors and types of households. Second, this model explicitly includes dynamic features so that growth interdependencies of environmental and commercial policies can be studied. Third, most economy-wide studies on growth and environment linkages rely on effluent intensities associated with output, and do not allow for substitution between non-polluting and polluting factors. By contrast, in our model pollution emissions are linked to polluting input use, rather than output. Technical adjustment by substituting non-polluting factors to polluting factors may therefore be assessed.

Abstract:
Because of a combination of external factors and domestic policy failures, Colombia experienced a sharp increase in Informal activities over the last twenty years. The large share of domestically owned assets that are outside or on the margins of the formal economy caused a significant structural distortion in capital markets. In this paper we present an initial analysis of the potential negative economic effects of this distortion. We argue that the incomplete property rights of these Informal assets generate a series of negative outcomes, amongst which: rent seeking, diluted rates of returns in legitimate activities, insufficient domestic and foreign savings, fiscal failure and a general bias against tradeables. Because all of these reasons, Colombia is contending with a variety of undesirable social economic and social trends and cannot realize its economic potential. Our proposal to overcome this problem is centered on a normalization of the status of all domestically owned assets, allowing them full property rights and participation in the formal economy. Such a one-time amnesty would greatly facilitate the country's transition to more sustainable and balanced economic growth and modernization.