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On The Removal of Agricultural Price Bands in Chile: A General Equilibrium Analysis

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  • David Holland
  • Eugenio Figueroa B
  • Roberto Alvarez
  • John Gilbert

Abstract

Chile has supported its agriculture with the use of price bands on selected commodities namely wheat, vegetable oils and fats, and sugar. In this paper we consider agricultural reform and how urban unemployment, and rural-urban migration, may alter the expected welfare effects of agricultural reform. We utilize a new CGE model of the Chilean economy based on the Harris-Todaro ramework, incorporating imperfect labor mobility, and consider both price band removal and more extensive agricultural reform that eliminates all tariffs on agricultural and food commodities in Chile. Results show that if trade reforms damage the rural economy in Chile, potential gains in welfare from lower agricultural prices are offset by increased urban unemployment and lower rural wages resulting in net welfare loss from trade reform.

Suggested Citation

  • David Holland & Eugenio Figueroa B & Roberto Alvarez & John Gilbert, 2003. "On The Removal of Agricultural Price Bands in Chile: A General Equilibrium Analysis," Working Papers Central Bank of Chile 244, Central Bank of Chile.
    • Handle: RePEc:chb:bcchwp:244
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    References listed on IDEAS

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    1. Neary, J Peter, 1981. "On the Harris-Todaro Model with Intersectoral Capital Mobility," Economica, London School of Economics and Political Science, vol. 48(191), pages 219-234, August.
    2. Corden, W M & Findlay, Ronald, 1975. "Urban Unemployment, Intersectoral Capital Mobility and Development Policy," Economica, London School of Economics and Political Science, vol. 42(165), pages 59-78, February.
    3. Colin A. Carter, 1997. "The Urban-Rural Income Gap in China: Implications for Global Food Markets," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 79(5), pages 1410-1418.
    4. Devaragan, Shantayanan & Lewis, Jeffrey D. & Robinson, Sherman, 1990. "Policy lessons from trade-focused, two-sector models," Journal of Policy Modeling, Elsevier, vol. 12(4), pages 625-657.
    5. John Gilbert & and Mia Mikic, 1998. "Imperfect Labor Mobility and Unemployment in LDC's: Comment," Southern Economic Journal, John Wiley & Sons, vol. 65(1), pages 178-181, July.
    6. Hertel, Thomas, 1997. "Global Trade Analysis: Modeling and applications," GTAP Books, Center for Global Trade Analysis, Department of Agricultural Economics, Purdue University, number 7685, December.
    7. Devarajan, Shantayanan & Lewis, Jeffrey & Robinson, Sherman, 1990. "Policy Lessons from Two-Sector Models," CUDARE Working Papers 198566, University of California, Berkeley, Department of Agricultural and Resource Economics.
    8. David Holland & Eugenio Figueroa & Roberto Álvarez & John Gilbert, 2005. "Imperfect Labor Mobility, Urban Unemployment and Agricultural Trade Reform in Chile," Central Banking, Analysis, and Economic Policies Book Series, in: Rómulo A. Chumacero & Klaus Schmidt-Hebbel & Norman Loayza (Series Editor) & Klaus Schmidt-Hebbel (S (ed.),General Equilibrium Models for the Chilean Economy, edition 1, volume 9, chapter 11, pages 375-395, Central Bank of Chile.
    9. Xu, Yingfeng, 1994. "Trade liberalization in China: A CGE model with Lewis' rural surplus labor," China Economic Review, Elsevier, vol. 5(2), pages 205-219.
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    Cited by:

    1. Marcos Minoru Hasegawa, 2010. "The Tax Policy in the Chilean Economy: a Regional Applied General Equilibrium Analysis," Documentos de Trabajo en Economia y Ciencia Regional 05, Universidad Catolica del Norte, Chile, Department of Economics, revised Dec 2010.

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