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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.

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Bibliographic Info

Paper provided by Central Bank of Chile in its series Working Papers Central Bank of Chile with number 244.

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Date of creation: Dec 2003
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Handle: RePEc:chb:bcchwp:244

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  1. 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 ( (ed.), General Equilibrium Models for the Chilean Economy, edition 1, volume 9, chapter 11, pages 375-395 Central Bank of Chile.
  2. 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 219-34, August.
  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. 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.
  5. 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.
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