a simple estimator for simultaneous models with censored endogenous reggressors this paper presents a simple two step estimator for models with censored endogenous regressors and sample selection bias the approach unifies the literature on censored endogenous regressors and sample selection bias and provides extensions the procedure employs generalized residuals to adjust for the inconsistency caused by the endogeneity of the censored regressors the paper also provides two new tests of weak exogeneity an empirical example examining the trade off between fringe benefits and wages indicates that the estimation procedure works well a monte carlo experiment suggests that the proposed tests have good power properties copyright 1993 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

smallholder market participation concepts and evidence from eastern and southern africa abstract this paper reviews the evidence on smallholder market participation with a focus on staple foodgrains i e cereals in eastern and southern africa in an effort to help better identify what interventions are most likely to break smallholders out of the semi subsistence poverty trap that appears to ensnare much of rural africa the conceptual and empirical evidence suggests that interventions aimed at facilitating smallholder organization at reducing the costs of intermarket commerce and perhaps especially at improving poorer households access to improved technologies and productive assets are central to stimulating smallholder market participation and escape from semi subsistence poverty traps macroeconomic and trade policy tools appear less useful in inducing market participation by poor smallholders in the region

trade and agricultural development in the 1980s and the challenges for the 1990s asia abstract asian developing countries have had varying experiences in trade and agricultural development in the 1980s attributable in part to their differing stages of economic development and structural characteristics other important influences relate to the external economic environment and the policy choices made by their governments not only during the period but also in the proceding decade the achievements of asian developing countries under the adverse external conditions of the 1980s are discussed in terms of their macroeconomic and agricultural growth the commodity structure of agricultural growth their food production and trade the expansion and diversification of their agricultural exports and the policy and nonpolicy factors affecting them special attention is given to the role of policy reforms implemented in china and the south asian countries following similar policy developments in northeast and southeast asia in the 1960s and 1970s toward greater openness in their trade regime and increased private sector participation in the economy these reforms have contributed to the observed acceleration in gdp agricultural and export growth in the 1980s however macroeconomic imbalances have emerged that threaten the sustainability of economic liberalization in those countries the major challenges for the 1990s also differ among the asian developing countries in the industrially advanced northeast economics of taiwan and south korea the primary need is to ease the transition of the remaining rural population as farm incomes continue to fall and workers move to industrial and service activities this challenge has to be addressed in the context of growing external pressure to further open their domestic market for

measuring agricultural policy bias general equilibrium analysis of fifteen developing countries the measurement issue is the key issue in the literature on trade policy induced agricultural price incentive bias this paper introduces a general equilibrium effective rate of protection ge erp measure which extends and generalizes earlier partial equilibrium nominal protection measures for the 15 sample countries the results indicate that the agricultural price incentive bias which was generally perceived to exist during the 1980s was largely eliminated during the 1990s the results also demonstrate that general equilibrium effects and country specific characteristics including trade shares and intersectoral linkages are crucial for determining the sign and magnitude of trade policy bias the ge erp measure is therefore uniquely suited to capture the full impact of trade policies on agricultural price incentives a monte carlo procedure confirms that the results are robust with respect to tradability assumptions

fertilizing growth agricultural inputs and their effects in economic development this paper estimates the role of agronomic inputs in cereal yield improvements and the consequences for countries processes of structural change the results suggest a clear role for fertilizer modern seeds and water in boosting yields we then test for respective empirical links between agricultural yields and economic growth labor share in agriculture and non agricultural value added per worker the identification strategy includes a novel instrumental variable that exploits the unique economic geography of fertilizer production and transport costs to countries agricultural heartlands we estimate that a half ton increase in staple yields generates a 14 to 19 percent higher gdp per capita and a 4 6 to 5 6 percentage point lower labor share in agriculture five years later the results suggest a strong role for agricultural productivity as a driver of structural change

the effect of physician advice on alcohol consumption count regression with an endogenous treatment effect although there are encouraging trends alcohol abuse continues to be a significant public health problem econometric studies of alcohol demand have yielded a great deal of information for alcohol abuse prevention policy these studies suggest that higher alcohol taxes and stricter drunk driving policies can reduce heavy drinking and drunk driving in this paper we explore the role physician advice plays in the campaign to prevent alcohol related problems compared to alcohol taxation physician advice is a more precisely targeted intervention that does not impose extra costs on responsible drinkers compared to the resource costs of arresting processing and punishing drunk drivers physician advice may be a lower cost intervention to provide a basis for alcohol policy analysis we use an alcohol demand framework to test whether physician provided information about the adverse consequences of alcohol abuse shifts demand to more moderate levels there are three aspects of our alcohol demand model that complicate the estimation 1 the dependent variable is non negative it is a count variable number of drinks consumed 2 a non trivial number of sample observations have zero values for the dependent variable and 3 because the data we use is non experimental the treatment variable indicating receipt of advice from a physician may be endogenous we implement an estimation method that is specifically designed to deal with these three complicating factors our results show that advice has a substantial and significant impact on alcohol consumption by males with hypertension and that failing to account for the endogeneity of advice masks this result copyright 2001 john wiley sons ltd

pitfalls in the measurement of real exchange rate effects on agriculture abstract studies of the effects of real exchange rates on agriculture commonly assume that these effects can be identified as those which pertain to traded goods in the standard australian model of an open economy further it is common to assume that the indirect effects of changes in the real exchange rate have the same impact on the various production activities within agriculture this paper discusses the extent to which these stylized facts reflect reality focusing in particular on the extent of tradibility in agricultural markets the irrelevance of results based on free trade equilibria to policy analyses and the importance of the characteristics of crop production functions in estimating the effects of real exchange rate changes ignoring these considerations can cause errors in the measurement of policy effects on agricultural incentives

calculating levels of protection is it always appropriate to use world reference prices based on current trading status abstract protection measures such as the nominal protection coefficient npc the effective protection coefficient epc the producer subsidy equivalent pse and the consumer subsidy equivalent cse are conventionally calculated using world reference prices based on current trading status under certain conditions the conventional approach can lead to incorrect estimation of the degree and sometimes even the direction of protection this paper spells out the conditions under which use of world reference prices based on current trading status is incorrect and presents data for wheat in pakistan to illustrate how failure to consider these conditions can lead to misleading policy recommendations

implications of agricultural trade liberalization for the developing countries abstract the developing countries as a group could expect to experience only small welfare gains if they chose not to actively participate in agricultural trade liberalization and relied solely on the benefits of partial liberalization in the oecd countries participation along the lines of the dunkel package with the developing countries reducing positive assistance by less than the developed countries would yield gains of the order of us 20 billion more comprehensive participation in trade liberalization involving reductions of both positive and negative protection would almost triple these welfare gains while some developing countries do not gain from trade liberalization even with full participation the number of such countries and the magnitude of their losses are greatly reduced

political economy of public policies insights from distortions to agricultural and food markets the agricultural and food sector is an ideal case for investigating the political economy of public policies many of the policy developments in this sector since the 1950s have been sudden and transformational while others have been gradual but persistent this paper reviews and synthesizes the literature on trends and fluctuations in market distortions and the political economy explanations that have been advanced based on a rich global data set covering a half century of evidence on commodities countries and policy instruments the paper identifies hypotheses that have been explored in the literature on the extent of market distortions and the conditions under which reform may be feasible

the political economy of regulations and trade wine trade 1860 1970 dramatic changes in the 1860 1970 wine trade provide insights on the political economy of regulations and policy instrument choice and trade an invasion of phylloxera in the 1870s turned france from the world s leading exporter to a massive importer of wine and grapes when french production recovered a combination of tariffs safety regulations and quality standards were introduced to protect its french producers causing dramatic changes in global wine and grape production and trade including in spain italy turkey greece algeria tunisia and morocco changes in wine regulations were caused by relative income and loss aversion factors in political economy tariffs were the preferred policy instruments as they directly restrict imports bring in revenues have low transaction costs and are preferred political instruments when there are information imperfections safety regulations and quality standards including labelling and input prohibitions reduce asymmetric information for consumers or undesirable externalities and simultaneously protected domestic producers regulations were often targeted at imported products wine and raisins when tariffs were ineffective or constrained by institutions such as on colonial wine hence tariffs and quality regulations were jointly used in wine policy both as complements and as substitutes in policy design

hmo plans self selection and utilization of health care services this study examines the effect of health maintenance organizations hmos on the use of health care services among the privately insured nonelderly population to consider jointly the possible self selection bias and high frequency of zero observations in the applied utilization measures we accommodate the endogeneity of health plan choice decisions in the censored regression model using data from the 2000 medical expenditure panel survey we find strong evidence for favourable self selection into hmo plans health maintenance organization enrollment is found to encourage greater use of office based and hospital outpatient services overall satisfaction with the quality of care among hmo members is relatively low compared to that among nonhmo members these findings suggest that more effort is needed to develop management strategies in hmos in order to contain the moral hazard in utilization and assure the quality of service provided within the network of hmo providers

how far down the path to free trade the importance of rice price stabilization in developing asia abstract international trade agreements are pushing the world in the direction of free trade but price stabilization which is inconsistent with completely free trade remains important in developing asia because of the large share of rice in economic output a policy of pure price stabilization for rice without consistent protection either subsidization or taxation can help to create the macroeconomic stability that is essential for sustained rapid economic growth by increasing the quantity and efficiency of investment throughout the economy pure price stabilization can also generate significant equity gains by protecting poor consumers and farmers from sharp fluctuations in prices while domestic commodity price stabilization schemes have a checkered history around the world the experience of asian countries in stabilizing rice prices offers more scope for optimism asian governments have been generally successful in stabilizing rice prices and there are several instances where this has been accomplished without sustained protection of either consumers or farmers however there is room for improved stabilization mechanisms that would lower the costs of intervention

impacts and incidence of agricultural commodity programs since the passage of the agricultural adjustment act of 1933 commodity programs have had a major impact on resource use and returns to factors in u s agriculture while the need to insulate domestic agricultural markets from the vagaries of international price movements has been emphasized in developing countries 2 farm price supports are often justified as a means of redistributing income from consumers to commodity producers 3 an important issue is whether producers are the ultimate beneficiaries of commodity programs john e floyd paul r johnson t d wallace and gordon c rausser and j w freebairn investigated social costs of commodity programs 4 these studies are based on estimates of producer and consumer surpluses that depend on price elasticities of demand and shortrun supply curves for example floyd employed linearly homogeneous production functions and demonstrated that in the short run farm price supports benefit landowners more than producers 5 recently d gale johnson focused on long run distributional consequences of commodity programs and argued that in the long run landowners are the recipients of all commodity program benefits if they do not benefit in the long run why do producers advocate price support programs for agricultural commodities the puzzle is resolved 1 if rent adjustment is slow and producers gain in the short run or 2 if producers are also landowners although the short run incidence of the benefits of commodity programs is influenced by the speed of

input subsidy programs in sub saharan africa a synthesis of recent evidence input subsidy programs have once again become a major plank of agricultural development strategies in africa ten african governments spend roughly us 1 billion annually on input subsidy programs isps amounting to 28 6 of their public expenditures on agriculture this article reviews the microlevel evidence on isps undertaken since the mid 2000s we examine the characteristics of subsidy beneficiaries crop response rates to fertilizer application and their influence on the performance of subsidy programs the impacts of subsidy programs on national fertilizer use and the development of commercial input distribution systems and finally the impact of isps on food price levels and poverty rates the weight of the evidence indicates that the costs of the programs generally outweigh their benefits findings from other developing areas with a higher proportion of crop area under irrigation and with lower fertilizer prices factors that should provide higher returns to fertilizer subsidies than in africa indicate that at least a partial reallocation of expenditures from fertilizer subsidies to r d and infrastructure would provide higher returns to agricultural growth and poverty reduction however because isps enable governments to demonstrate tangible support to constituents they are likely to remain on the african landscape for the foreseeable future hence the study identifies ways in which benefits can be enhanced through changes in implementation modalities and complementary investments within a holistic agricultural intensification strategy among the most important of these are efforts to reduce the crowding out of commercial fertilizer distribution systems and programs to improve soil fertility to enable farmers to use fertilizer more efficiently the challenges associated with achieving these gains are likely to be formidable

the stagnation of smallholder agriculture in malawi a decade of structural adjustment abstract malawi s efforts at structural adjustment have revolved around reforming the marketing and pricing of outputs and inputs in smallholder agriculture in practice the price oriented adjustment policies were not thorough enough and have led to disappointing results there is clearly a need to push for further reforms in pricing however structural adjustment in malawi will have to go beyond just getting prices right policies must also concentrate on structural and institutional weaknesses that constrain smallholder agriculture and contribute to widespread food insecurity and malnutrition

grain price stabilization in india evaluation of policy alternatives abstract stabilization of prices is an important element of food policy in india as in most other countries both developing and developed however since the magnitude of grain stocks held for this purpose as well as the costs of physical storage have become prohibitively high there is now a need for finding cost effective alternatives including non interventionist and market oriented methods for price stabilization in this paper we consider the case of rice and wheat which are staple foodgrains in india we make a comparison between alternative price stabilization policies including that of holding buffer stocks in terms of their impact on domestic price stability producer and consumer welfare and government costs a multi market equilibrium framework is used where private storage consumption supply and prices of rice and wheat are determined simultaneously indian exports and imports are assumed to affect world prices the alternative price stabilizing mechanisms are ranked according to both the criteria welfare and price stability achieved the main findings are as follows the ranking of alternatives varies with the criterion used greater price stability need not necessarily imply greater welfare the option of variable levies on private external trade turns out to be the most inexpensive and that of domestic buffer stocks the costliest in achieving price stability further the efficacy of buffer stocks and subsidy to private storage in stabilizing prices is lower under free trade as compared to the case where the economy is closed to private external trade

a microeconometric model of the demand for health care and health insurance in australia this paper develops a model for interdependent demand for health insurance and health care under uncertainty to throw light on the issue of insurance induced distortions in the demand for health care services the model is used to empirically analyse the determinants of the choice of health insurance type and seven types of health care services using micro level data from the 1977 78 australian health survey econometric implementation of the model involves simultaneously issues of discreteness of choice selectivity and stochastic dependence between health insurance and utilization health status appears to be more important in determining health care service use than health insurance choice while income appears to be more important in determining health insurance choice than in determining health care service use for a broad range of health care services both moral hazard and self selection are found to be important determinants of utilization of health care services

an evaluation of the draft final act of the uraguay round this paper presents an evaluation of the proposed draft final act dfa of the uruguay round of multilateral trade negotiations using the computable general equilibrium model used in nguyen perroni and wigle i 9ib section ii gives a very brief overview of the dfa and the following sections explain how we represent the agreement in our model section v then describes the estimated impacts of the dfa with some discussion of the various components of the deal in section vi finally we give some concluding remarks our earlier analysis looked at a more ambitious conclusion of the uruguay round where agricultural liberalisation and textiles liberalisation were more complete in that study we found that the comprehensive uruguay round agreement generated wide spread gains to industrial countries as well as middle and low income countries we also found that the gains were largest for the two parties for whom the round seems most contentious the us and ec our analysis of a uruguay round agreement based on the dfa suggests a similar conclusion although changes since our earlier paper market opening in the economies in transition in particular have meant that the gains to eastern europe are likely to be significantly greater than before the gains to the us are still significant although much smaller than from the comprehensive agreement studied earlier and world wide gains are in the same order of magnitude at over 200 billion some discussion of our results follows in section v

futures for farmers hedging participation and the mexican corn scheme administered commodity price schemes in developing countries have proved ineffective in raising farmers incomes and price stabilisation through futures markets is increasingly advocated as the alternative policy objective a potential difficulty is that farmers tend not to hedge extensively even in developed countries where access to futures markets is long established explanations for this reticence are examined here with context provided by the mexican hedging programme which incorporates financial incentives to spur adoption applying representative data for corn to a well known analysis of the hedging decision suggests that limited participation may reflect rational calculation rather than farmer inertia a policy implication is that permanent access subsidies are difficult to justify from the national perspective

the poor and the social sectors during a period of macroeconomic adjustment empirical evidence for jamaica considerable uncertainty remains about the human impact of macroeconomic adjustment analysis of the impact of adjustment on the poor and on the social sectors is difficult because it involves evaluating a counterfactual situation in which households are affected by prices incomes and public services with the possibility of substantial substitutions all within an economywide framework with complicated concurrent and lagged interactions time series data for jamaica is utilized in this article to examine whether macroeconomic adjustment initiated in the early 1980s but intensified in 1984 85 was associated with significant deterioration in various indicators of health nutritional and welfare outcomes particularly among the poor although the authors find evidence of substantial cuts in governmental expenditures on social services there is little confirmation of significant short run deterioration in human capital indicators during the adjustment period

sources of ec horticultural import growth from developing countries abstract a decomposition analysis of horticultural trade flows is carried out to identify the main sources of change in ec horticultural imports from different ldc regions sources of change are associated with each region s international competitiveness the relative openness of the ec market the degree of trade preference enjoyed by the region and the ec global import growth the main contribution to the ldc export growth of fruit and vegetables to ec between 1975 79 and 1985 89 is found to be attributable to the global import growth effect however it has been significantly counteracted by the negative effect of a declining share of non ec suppliers as a group marked interregional differences in changes in regional preferences show a lack of a strong correlation between ldc export performance and the existence of preferential trade agreements with ec while the potential for ldc export growth to ec is clear the results seem to indicate that in general ec protection policies have adversely affected import growth from ldcs various factors influencing ldc export performance in horticultural products are discussed apart from ec protection policies and changes in trade preferences domestic supply factors are of significance in explaining export growth including a liberal trading environment but also specific policies to promote exports of horticultural products while non price competition weakens the discriminatory effect of preferential tariffs there is a pressing need for developing countries to adapt to the demands of the european distribution system relating to quality grades and regularity of supplies

state conditional fertilizer yield response on western kenyan farms 15 16 17 we acknowledge with gratitude support from the rockefeller foundation the united states agency for 18 international development usaid leadership enhancement in agriculture program leap and the 19 coupled natural and human systems program of the biocomplexity initiative of the national science 20 foundation through grant bcs 0215890 the world agroforestry center icraf graciously hosted 21 the lead author for part of the research and provided soil test results we are also grateful to james

profitability analysis of foodgrain in the sudan s irrigated agricultural sector abstract this paper discusses the situation of irrigated sorghum and wheat with respect to their financial and economic profitability and international competitiveness in use of domestic resources in light of declared government policy which emphasizes shifting from traditional rainfed sector to irrigated sector for production of staple foodgrain domestic resource cost analysis has been employed using official and shadow exchange rates measures of domestic resource cost ratio international value added international competitiveness nominal and effective protection coefficients were also estimated results indicate that the economic profitability has been significantly higher than the financial one due mainly to variability in international prices yields and overvalued exchange rates but devaluation of the currency is not a sufficient condition for paying higherprices to farmers

what is the aggregate economic rate of return to foreign aid in recent years academic studies have been converging towards the view that foreign aid promotes aggregate economic growth we employ a simulation approach to i validate the coherence of empirical aid growth studies published since 2008 and ii calculate plausible ranges for the rate of return to aid our results highlight the long run nature of aid financed investments and the importance of channels other than accumulation of physical capital we find the return to aid lies in ranges commonly accepted for public investments and there is little to justify the view that aid has had a significant pernicious effect on productivity

estimating the level of protection the implications of seasonal price fluctuations abstract the nominal protection coefficients npcs effective protection coefficients epcs and producers subsidy equivalents pses are usually estimated from annual prices which are the unweighted average of seasonal prices in the presence of seasonal fluctuations in prices the npcs epcs and pses estimated from annual data can seriously over underestimate the actual protection received by the producers and consumers the bias results from the fact that price and quantity traded normally relate negatively and unweighted average price consistently overestimates the trade weighted average price the bias in the npc estimates is demonstrated both theoretically and empirically in most cases quantity traded at each price is not known and the paper suggests empirical methods for estimating the trade weights

food security and storage in the middle east and north africa in times of highly volatile commodity markets governments often try to protect their populations from rapidly rising food prices which can be particularly harsh for the poor a potential solution for food deficit countries is to hold strategic reserves which can be called on when international prices spike but how large should strategic stockpiles be this paper develops a dynamic storage model for wheat in the middle east and north africa mena region where imported wheat dominates the average diet the paper uses the model to analyze a strategy that sets aside wheat stockpiles which can be used when needed to keep domestic prices below a targeted price this paper shows that if the target is set high and reserves are adequate the strategy can be effective and robust contrary to most interventions strategic storage policies are counter cyclical and when the importing region is sufficiently large a regional policy can smooth global prices this paper shows that this is the case for the mena region nevertheless the policy is more costly than the pro cyclical policy of a targeted intervention that directly offsets high prices with a subsidy similar to food stamps

protectionary bias in agriculture a pure economic argument abstract empirical evidence suggests that the agricultural sector in the developed countries has enjoyed a greater degree of protection than the import competing manufacturing sectors usually this is attributed to strong farm lobbies and hence on political factors we provide a theoretical model and a possible explanation of this phenomenon based on purely economic arguments two importables are accommodated in a three good three factor model of trade and production one is a labor intensive manufacturing good and the other is an agricultural commodity this captures the trade pattern of a typical industrialized country with an agricultural sector such as europe and the usa we show that uniform tariffs in agriculture and labor intensive manufacturing will definitely hurt the land owners in real terms and may reduce their absolute return hence if there has to be protection it has to be biased in favor of agriculture

the pattern of agricultural price distortions in central and eastern europe abstract nominal and adjusted protection rates for nine agricultural commodities in seven central european and three baltic states are estimated for the transition period 1990 1995 our estimates indicate that agricultural and food price distortions differ strongly between central and east european countries between commodities and varied over time the average level of price distortions decreased in 1991 and 1992 after price and trade liberalization but increased again in 1993 as many of these countries reintroduced protectionist price and trade policy measures since 1994 the average level of price distortions has declined again accounting for exchange rate policy effects further reduces estimates of protection of agricultural producers

measuring soil quality dynamics a role for economists and implications for economic analysis measuring soil quality is extremely difficult yet it has clear economic importance in particular there is a great deal of empirical interest in the dynamics of soil quality evolution when land managers respond to policies and other incentives yet current methodologies for measuring changes in agricultural land quality are largely static and rely heavily either on incomplete measures such as proxy variables or ad hoc indexes of selected soil characteristics moreover much empirical work relies on static econometric techniques or simulation models in this paper we develop a means to infer soil quality changes from input and output data using a dynamic production function model using data from field experiments we estimate the model in a way that allows the recovery of a dynamic measure of soil quality whose evolution depends on variations in management practices our methodology and findings will help provide firmer empirical foundations for analyses of the economic implications of land degradation and the soil quality implications of agricultural policies

domestic price stabilization schemes in developing countries preoccupation with the presumed adverse effects of price instability has led developing countries to establish a wide variety of mechanisms to stabilize domestic prices not only of internationally traded goods but of nontraded goods as well however despite the ubiquity of such schemes and the obvious importance with which price stabilization is regarded the development literature is virtually mute on their characteristics and how they have performed in this article we discuss the topic of domestic price stabilization programs in a comparative cross country context we do not examine here the question of whether instability has adverse or positive economic effects as a burgeoning literature continues to debate this issue rather we take as given that stabilization is a desideratum of virtually all governments in the developing world our goals are to describe some of the characteristics of the different schemes used to stabilize

how do agricultural policy restrictions on global trade and welfare differ across commodities for decades the world s agricultural markets have been highly distorted by national government policies but very differently for different commodities hence a weighted average across countries of nominal rates of assistance or consumer tax equivalents for a product can be misleading as an indicator of the trade or welfare effects of policies affecting that product s global market this is especially the case when some countries tax and others subsidize its production or consumption this article develops a new set of more satisfactory indicators for that purpose drawing on the recent literature on trade restrictiveness indexes it then exploits a global agricultural distortions database recently compiled by the world bank to generate the first set of estimates of those two indicators for each of 28 key agricultural commodities from 1960 to 2004 based on a sample of 75 countries that together account for more than three quarters of the world s production of those agricultural commodities these reveal the considerable extent of reforms in agricultural policies of developing as well as high income countries over the past two decades

health insurance and the demand for medical care evidence from a randomized experiment we estimate how cost sharing the portion of the bill the patient pays affects the demand for medical services the data come from a randomized experiment a catastrophic insurance plan reduces expenditures 31 percent relative to zero out of pocket price the price elasticity is approximately 0 2 we reject the hypothesis that less favorable coverage of outpatient services increases total expenditure for example by deterring preventive care or inducing hospitalization

domestic price distortions and agricultural income in developing countries abstract the static effects on agricultural crop production and income arising from the correction of three common policy biases in developing countries the underpricing of food agricultural export taxation and currency overvaluation are examined analytically and empirically using philippine data based on a model of the agricultural sector with the food export crop tradeoff in production as a key component the findings argue for a careful examination of the relative efficiencies of different liberalization policy instruments in advancing specific development objectives in cases where possibly for socio political reasons not all price distortions in interrelated markets can be corrected

agriculture reform and food crisis in syria impacts on poverty and inequality abstract the paper pursues a twofold objective from a methodological viewpoint it shows how to carry out an impacts evaluation of exogenous shocks on poverty and inequality in a context characterised by out of equilibrium poorly adjusting markets as it is the case in many developing countries using a social accounting matrix framework from an empirical viewpoint it provides an assessment of how the cereal price spikes of 2007 2008 and the global recession of 2008 2009 have impacted the welfare of syrian households and how did they compound with the on going agricultural sector liberalisation implemented by the government of syria since mid 1990s this will contribute to shed some lights on the economic background behind the spreading of unrest across the country over the last couple of years or so the results show that liberalisation impacts are very different and largely affected by the adopted budget closure rules while reforms aiming at reducing agricultural market distortions such as production subsidies and price support for strategic crops could generally have a positive effect on growth poverty and inequality the elimination of food security interventions such as food stamp schemes determines an adverse distributional impact against rural household and an increase of poverty the recent macroeconomic shocks food price crisis and the global recession determined a generalised poverty increase and showed an income distribution bias against rural households three fundamental policy implications can be drawn by this study first the liberalisation of agricultural sector shows a significant growth potential and is likely to determine positive effects on poverty through a generalised increase of incomes as well as public budget savings that could be used for pursuing other policy goals second in the short run there is a structural trade off between equity improvements and poverty alleviation the policy options that will more likely reduce absolute poverty show undesirable distributive biases both on overall inequality and on rural households vis a vis urban households third the reform should include a careful design of the use of budget savings mainly to address equity goals that are likely to be generated in the short run by liberalisation

the impact of health maintenance organizaitons on health and health care costs it is found that health maintenance organizations hmos initially increase but will eventually significantly decrease a population s health care costs thus hmos appear to require a significant amount of time to control effectively physician and patient behaviour and achieve reductions in costs unlike health care costs hmos are found to have no significant impact on a population s aggregate health in either the short or the long run thus hmos are found to achieve savings in health care costs in the long fun and they apparently do so with no resultant decline in health the paper also has important implications for the national health service nhs in great britain given the similarities that exist between hmo physician reimbursement and nhs funding of its general practitioners

the political economy of public research investment and commodity policies in agriculture an empirical study the paper tests a political economy theory of simultaneous government decision making on income redistribution through commodity policies and on public research investment in agriculture we use data from 37 countries on agricultural protection and public agricultural research expenditures pari the empirical results are consistent with the political economy hypotheses the analysis suggest that structural changes in the economy have important effects on the political incentives for governments not only to subsidize or tax farmers but also to invest in public agricultural research furthermore the analysis supports the hypotheses that the impact of such structural changes on government decision making on pari is non linear and conditional on other factors regarding the impact of political institutions the results suggest that more democracy neither leads to more distortionary transfers agricultural protection nor to lower investment in public goods pari

toward a green revolution in africa what would it achieve and what would it require the current global food crisis has reemphasized the costliness of africa s failure to achieve food security and poverty reduction the instrument by which other more successful developing countries achieved these outcomes was a green revolution in agriculture while previous research has provided largely discursive appraisals of the viability of an african green revolution this article adopts a more rigorous methodology to address that question first an economy wide multimarket model augmented with existing poverty growth elasticities is developed to assess the likely impacts of a rapid acceleration in food production of the kind witnessed in previous green revolutions on food prices consumption and demand farmer revenue and poverty our results suggest that a rapid growth in staple production together with more integrated regional markets would reduce food prices by roughly 20 40 for consumers and 10 20 for producers among the major crops this translates into a large rise in farm revenues annual agricultural growth rates of 6 5 or higher broader income growth and food security and over 70 million africans being lifted out of poverty the article concludes by emphasizing the kinds of fundamental policy actions and resources that would be required for achieving these outcomes

agriculture aid and economic growth in africa how can foreign aid to agriculture support economic growth in africa this paper constructs a geographically indexed applied general equilibrium model that considers pathways through which aid might affect growth and structural transformation of labor markets in the context of soil nutrient variation minimum subsistence consumption requirements domestic transport costs labor mobility and constraints to self financing of agricultural inputs using plausible parameters the model is presented for uganda as an illustrative case three stylized scenarios demonstrate the potential economy wide impacts of both soil nutrient loss and replenishment and how foreign aid can be targeted to support agricultural inputs that boost rural productivity and shift labor to boost real wages one simulation shows how a temporary program of targeted official development assistance oda for agriculture could generate contrary to traditional dutch disease concerns an expansion in the primary tradable sector and positive permanent productivity and welfare effects leading to a steady decline in the need for complementary oda for budget support

structural adjustment and soil degradation in tanzania a cge model approach with endogenous soil productivity abstract in this paper a model of the nitrogen cycle in the soil is incorporated in a computable general equilibrium cge model of the tanzanian economy thus establishing a two way link between the environment and the economy for a given level of natural soil productivity profit maximising farmers choose input levels and hence production volumes which in turn influence soil productivity in the following years through the recycling of nitrogen from the residues of roots and stover and the degree of erosion the model is used to simulate the effects of typical structural adjustment policies like a reduction in agro chemicals subsidies reduced implicit export tax rate etc after 10 years the result of a joint implementation is a 9 higher gross domestic product gdp level compared to the baseline scenario the effect of soil degradation is found to represent a reduction in the gdp level of more than 5 for the same time period

the uruguay round agreements impact on developing countries abstract implementation of the results of uruguay round will bring about significant increases in trade investment income and welfare for developing countries this derives from increased market access to developed countries markets and from enhanced efficiency originating from their own liberalization commitments although the distribution of benefits will be uneven developing countries will also benefit from improved rules for trade and investment coupled with enhanced institutional enforcement of these rules and greater exposure to global competition within a more predictable secure and credible international trading environment to maximize the benefits however developing countries will need to continue with recent unilateral reforms to improve their supply response

the origins of agricultural policy in ivory coast 1960 86 there is a more limited degree of urban bias in cote d ivoire than in most other african countries different explanations for relatively high producer price shares reliable extension services etc are required for the periods 1960 70 and 1970 86 the arguments offered focus on the composition of the income portfolios of senior political elites and on the rise of special kinds of urban informal associations that have acted as lobbying organisations on behalf of rural household members the article seeks to dispel the notion that differences in opportunities for political participation alone can account for the variations in the outcomes observed in the african cases

exchange rates and fiscal policy in a popular model of international trade this paper develops a reinterpretation of the devaluation analysis in a popular model of international trade developed by charles bickerdike joan robinson and lloyd metzler it has come to be known as the elasticity approach 1 that model developed in terms of independent markets for imports and exports has been criticized for its apparent lack of general equilibrium properties the assumptions underlying the model have remained by and large implicit and vary across users and the integration of this analysis with the absorption approach and macroeconomics has never been demonstrated all this is very much recognized and indeed application of the model is consistently accompanied by appropriate partial equilibrium impact effect or upper bound caveats these shortcomings notwithstanding the model continues to enjoy substantial popularity in policy discussions and interpretations of current events in empirical work and in recent textbooks in the field of international economics the brm model is likely to remain the preferred tool in the analysis of trade balance issues along with the foreign trade multiplier model it is therefore interesting and useful to enquire into its formal general equilibrium implications this paper is concerned with one such interpretation involving a nontraded goods sector and a well defined government policy that makes the analysis consistent with the absorption approach while it may well be possible to generate alternative interpretations the present analysis would seem to have the advantage of simplicity while at the same time pointing out the essential properties that would have to be satisfied by alternative treatments in section i a brief review of the brm approach is offered in section ii that approach is interpreted in terms of a simple model with nontraded goods and constant terms of trade the implicit assumptions of the brm model are brought to the f oreground by an explicit consideration of the market for home goods the equilibrium conditions and the role of the relative price of nontraded goods 3 following that analysis section iii considers the subsidiary issues that are raised by variable terms of trade the notion of total elasticities is given an interpretation in section iv where we return to the composite traded good model to explore alternative assumptions about absorption policies

beyond export led growth abstract in light of the adverse conditions in the current international economic environment this paper reassesses the feasibility of continuing to rely on manufacturing export led growth as the major development dynamic for most ldcs during the next decade this paper argues that after the initial stages of industrial development the emphasis in policy toward agriculture should shift from surplus extraction to surplus creation and to the generation of demand linkages with the rest of the economy the author compares the relative merits of two alternative open development strategies export led industrialization and agricultural demand led industrialization adli by means of several simulation experiments the experiments are performed with a computable general equilibrium model of a small low income semi industrial open economy which is a stylization of south korea of 1963 they are carried out in an international environment assumed to represent the next decade based on a rate of growth of international demand for imports of about half the 1960 1973 rate the results support the adli approach on all counts

promoting resource degradation in latin america tropical deforestation soil erosion and coastal ecosystem disturbance in ecuador throughout the developing world depletion of natural resources hampers the ability of many countries to meet expanding agricultural demands in africa asia and latin america the benefits of water resource management is being jeopardized by pollution the total impact of the depletion of natural resources in developing countries can be felt all over the world damage to natural ecosystems threatens biological diversity and the conversion of forests into agricultural land contributes to the greenhouse effect there are solutions such as pricing timber more realistically to end the waste of forest resources in several southeast asian countries and eliminating tax breaks that stimulate excessive land clearing in brazil to reduce deforestation the international agricultural research centers have failed to develop and implement sustainable farming practices for small holders in environmentally fragile areas it is difficult to identify and implement effective conservation strategies for developing countries because the use and management of natural resources remains at an incipient stage the complex of national policies contributing to renewable resource degradation in latin america is discussed in great detail primary attention is paid to ecuador with sections devoted to the causes of resource degradation governmental intervention in markets failure to invest in the national scientific base the causes extent and consequences of tropical deforestation soil erosion disturbance of coastal ecosystems and policies reform

the uruguay round and welfare in some distorted agricultural economies abstract the uruguay round s induced changes in world agricultural prices will affect the welfare of developing countries the standard terms of trade effect calculation can mislead since the distortion effect operates alongside the terms of trade effect this study of the uruguay round s impact on nine agricultural economies reveals distortion effects which are many times larger than terms of trade effects in three of nine cases the distortion effect reverses the impact of the terms of trade effect in two other cases the distortion effect raises trivial terms of trade effect up to around 1 of national income

global effects of developed country trade restrictions on textiles and apparel this paper uses an applied general equilibrium model to analyze the impacts of quota and tariff restrictions used by developed countries against textile and clothing imports from developing countries in the model countries are represented by their actual size in terms of gdp weakening rent transfer effects compared to partial equilibrium analysis results based on 1986 data suggest annual global gains from elimination of quotas and tariffs of around 23 billion in aggregate developing countries gain around 8 billion suggesting that gains to developing countries from improved access more than offset losses from foregone rent transfers as quotas and tariffs are abolished copyright 1990 by royal economic society

modeling the market and welfare effects of mexico s agriculture by contract program agriculture by contract hbox a times hbox c is the main mexican government program aimed at mitigating price risks for agricultural producers in mexico hbox a times hbox c has unique features involving forward contracts and the provision of basis subsidies and subsidized exchange traded futures options for both producers and intermediaries a simulation model is developed to analyze the market and welfare effects of hbox a times hbox c when applied to corn results show that hbox a times hbox c exerts substantial impacts and causes large transfers across sectors even if hbox a times hbox c reduced intermediaries market power to the largest extent feasible results indicate that it would still cause important losses in aggregate welfare

nudging farmers to use fertilizer theory and experimental evidence from kenya we model farmers as facing small fixed costs of purchasing fertil izer and assume some are stochastically present biased and not fully sophisticated about this bias such farmers may procrastinate post poning fertilizer purchases until later periods when they may be too impatient to purchase fertilizer consistent with the model many farmers in western kenya fail to take advantage of apparently profit able fertilizer investments but they do invest in response to small time limited discounts on the cost of acquiring fertilizer free deliv ery just after harvest calibration suggests that this policy can yield higher welfare than either laissez faire policies or heavy subsidies

explaining african economic performance africa has had slow growth and a massive exodus of capital in many respects it has been the most capital hostile region we review and interpret the aggregate level and microeconomic literatures to identify the key explanations for this performance there is a reasonable correspondence of the two sets of evidence pointing to four factors as being important these are a lack of openness to international trade a high risk environment a low level of social capital and poor infrastructure these problems are to a substantial extent attributable to government behaviour and the paper includes a review of the political economy literature which addresses that behaviour

evaluation of external market effects and government intervention in malaysia s agricultural sector a computable general equilibrium framework the purpose of this study is to evaluate the effects of changes in the external trade environment and domestic economic policies on the agricultural development of malaysia the scope of this research also includes providing further insights into the strengths and weaknesses of the computable general equilibrium cge methodology for agricultural policy analysis the first analysis focuses on the export agriculture sector which encompasses malaysia s two primary agricultural commodities rubber and palm oil heavily dependent on exports of rubber in the 1950s and 1960s malaysia has since built a more diversified economy with strong emphasis on manufacturing export agriculture however is still an important component of the national economy the second objective examines the influence of domestic policy on agricultural development the simulation results demonstrate the growing resiliency of the malaysian economy to external shocks also they point to the domestic economy s ability to buffer internal policy induced distortions

evaluation of the incentive structure a survey and application to cameroon abstract this article uses a simple general equilibrium framework to evaluate the incentive structure of a country pursuing a mixed import substitution export promotion strategy it illustrates how features of general equilibrium analysis can be incorporated into the traditional balassa corden effective protection framework which is supplemented by the evaluation of the incidence of protection on firms importing and exporting households consumers and taxpayers and the government its application to a less developed country ldc cameroon shows that the burden of tariff protection is shifted 25 in the short run and 64 in the long run on to the unprotected sectors especially exports as a result average nominal protection 58 8 is much higher than protection actually provided to the protected sectors the welfare effect of protection is ambiguous households viewed only as final consumers lose when they are viewed as taxpayers protection may become beneficial in the long run taking substitution possibilities into account when measuring protection has an impact on the ranking of firms according to their nominal and effective protection

explaining the volume of north south trade much of the recent literature on scale economies has been motivated by the large volume of trade among the industrialized countries relative to north south trade this paper presents theoretical and empirical analyses of two alternative hypotheses one based on differences in north versus south gnp and one based on higher protection levels in the south counter factual experiments using a numerical general equilibrium model support the hypotheses that north south trade is relatively small because the south is poor and highly protected copyright 1990 by royal economic society

foodgrain stocks and macrodynamic adjustment mechanisms in a dual semi industrialized economy abstract in this note we proceed to a macroeconomic analysis of speculative foodgrain stocks and of partial food price stabilization policies in a dual semi industrialized economy of the type proposed by rattso 1989 we adopt a dynamic perspective which allows us to highlight the medium run effects on industrial employment of their interaction with wage indexation in industry

explaining price policy bias in agriculture the calculus of support maximizing politicians a model is developed to explain observed patterns of policy intervention in agriculture we analyze the interaction between political support seeking politicians and supportsupplying citizens society consists of a rural and urban group we determine the effects on transfers of relative group size disparities in income endowments between groups and the deadweight loss of redistribution the framework advanced is an alternative to that of the interest group model and is used to explain for example why the export sectors in developing countries are taxed more and why the united kingdom is less adamant for higher price supports than germany

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 18 developing countries for the period 1975 84 are estimated the direct effect is measured by the proportional difference between the producer price and the border price adjusting for distribution storage transport and other marketing costs the indirect effect has two components 1 the impact of the unsustainable portion of the current account deficit and of industrial protection policies on the real exchange rate and thus on the price of agricultural commodities relative to nonagricultural nontradables and 2 the impact of industrial protection policies on the relative price of agricultural commodities to that of nonagricultural tradable goods the authors found that a in almost all cases the direct effect is equivalent to a tax on exportable goods and to a subsidy for importables b the indirect effect also taxes agriculture and dominates the direct effect and c the direct policies for both importables and exportables stabilize domestic producer prices

terms of trade fluctuations and stabilization of producer prices by compensatory taxation abstract a small general equilibrium model is presented which highlights the role of the real exchange rate in the south in determining the terms of trade between the south and the north the dynamics of the model may generate terms of trade instability for some values of the parameters of the system compensatory taxation of export earnings by a stabilization fund in the south is shown to increase the likelihood of instability

estimates of the demand for medical care under different functional forms we estimate price and income elasticities from a linear log linear and the almost ideal demand model with and without an adjustment for selectivity bias in an effort to show that special attention should be paid to the underlying assumptions of consumer behaviour when estimating a medical care demand model the literature on medical care utilization is extended by incorporating two major components of spending as separate demands in a system of medical care spending we find that estimates of elasticities vary depending on the functional form of the estimating equation thus questioning the usefulness for policy purposes of single estimates of elasticities

determinants of agriculture s relative decline thailand during economic development agriculture declines as a proportion of aggregate national output a number of theoretical explanations for this phenomenon have been advanced in the economic literature but their relative historical significance has not been clear this paper develops an econometric methodology to analyze this issue and applies it to time series data for thailand the study investigates the importance of relative commodity prices factor endowments and technical progress as explanations for changing sectoral gdp shares of agriculture manufacturing and services it is concluded that the movement in thailand s aggregate factor endowment relative to labor was the most important determinant of agriculture s relative decline

policy making and the adaptability of informal institutions this article discusses several of the insights generated by a theory of the formation of relationships between heterogeneously risk averse individuals who lack access to formal insurance an example illustrates the policy relevance of the theory and demonstrates a relationship between the emergence of entrepreneurship in developing economies and higher income inequality reducing aggregate risk is a strict pareto improvement if relationships in the status quo are assumed to remain constant but is shown to be particularly harmful for the most risk averse individuals and to exacerbate inequality when the endogenous network response is taken into account the least risk averse individuals abandon their roles as informal insurers in favor of entrepreneurial partnerships

achieving the millennium development goals in sub saharan africa a macroeconomic monitoring framework this paper presents a macroeconomic approach to monitoring progress toward achieving the millennium development goals mdgs in sub saharan africa at the heart of our framework is a macro model which captures key linkages between foreign aid public investment disaggregated into education infrastructure and health the supply side and poverty the model is then linked through cross country regressions to indicators of malnutrition infant mortality life expectancy and access to safe water a composite mdg indicator is also calculated the functioning of our framework is illustrated by simulating the impact of an increase in foreign aid to niger at the mdg horizon of 2015 under alternative assumptions about the degree of efficiency of public investment our approach can serve as the building block for strategy papers for human development spahd a more encompassing concept than the current poverty reduction strategy papers

household responses to economic and demographic shocks marginal logit analysis using indonesian data abstract we analyse the responses of indonesian households to demographic and economic shocks and examine how these responses vary in relation to the household s permanent income and the extent to which the shock is common across the community households respond in different ways to demographic and economic shocks economic shocks are more likely to result in a labour supply response from the household and this probability is further increased if the shock is common for rural households use of savings increases with permanent income the article also examines the role of the interviewer in influencing survey responses

aid dutch disease and manufacturing growth abstract we examine the effects of aid on the growth of manufacturing using a methodology that exploits the variation within countries and across manufacturing sectors and corrects for possible reverse causality we find that aid inflows have systematic adverse effects on a country s competitiveness as reflected in the lower relative growth rate of exportable industries we provide some evidence suggesting that the channel for these effects is the real exchange rate appreciation caused by aid inflows we conjecture that this may explain in part why it is hard to find robust evidence that foreign aid helps countries grow

the evolving role of agriculture in poverty reduction an empirical perspective abstract the role of agriculture in development remains much debated this paper takes an empirical perspective and focuses on poverty as opposed to growth alone the contribution of a sector to poverty reduction is shown to depend on its own growth performance its indirect impact on growth in other sectors the extent to which poor people participate in the sector and the size of the sector in the overall economy bringing together these different effects using cross country econometric evidence indicates that agriculture is significantly more effective in reducing poverty among the poorest of the poor as reflected in the 1 day squared poverty gap it is also up to 3 2 times better at reducing 1 day headcount poverty in low income and resource rich countries including those in sub saharan africa at least when societies are not fundamentally unequal however when it comes to the better off poor reflected in the 2 day measure non agriculture has the edge these results are driven by the much larger participation of poorer households in growth from agriculture and the lower poverty reducing effect of non agriculture in the presence of extractive industries

international capital markets and interest groups capital market integration has increased the scale and mobility of capital movements within and among nations to unprecedented levels integration is fairly recent frankel concludes from his review of the literature that barriers in the major world financial markets were sufficiently low that by 1989 financial markets could be viewed as being fully integrated the scale and mobility of capital flows among nations has numerous implications to currency values interest rates wealth and through current capital account linkages to relative product and factor prices capital flows that have real economic effects also affect the functioning of policy instruments and how effective they are in remunerating an interest group at the expense if any of others this paper provides insights into the process and linkages by which the integration of capital markets has altered economic policy through interest group pressures on government if economic policy is viewed as the outcome of interest groups seeking through the power of the state that which cannot be provided by the market alone then capital market adjustments that affect the return to policy instruments can also affect the returns to lobbying resources and hence the balance of political influence among the various groups 2 this type of explanation for economic policy has been forwarded under the rubric of models of rent seeking krueger 1974 3 the paper is organized as follows 4 selected historical evidence linking capital markets to pressures for legislation in the united states and other countries is briefly reviewed in some cases capital market adjustments have eased pressures for protection while in other cases adjustments either forced policy change because of a liquidity constraint or made unprofitable the lobbying for sustaining policy in face of these adjustments the discussion in the next section provides deeper insight into capital market lobbying linkages discussion focuses on the results from a simple model of rent seeking where government intervenes in markets and provides sector specific public goods

health plan choice and the utilization of health care services the effect of health plan membership on the utilization of health care services is of interest to both consumers and policymakers often estimation of that effect is difficult because data are nonexperimental and the dependent variable exhibits a high proportion of zeros the authors propose a model of utilization that addresses both problems after controlling for chronic illness and other observed variables they find no evidence of further selectivity bias in equations for physician contacts and inpatient days the authors estimates of the effect of health plan membership on utilization of services are similar to those from experimental data coauthors are roger feldman steven cassou and michael finch copyright 1991 by mit press

regional integration and agricultural trade in central america abstract the renewed movement toward regional integration in central america has adopted for the first time a multisectoral approach in which agriculture has been included the liberalization of regional trade in basic agricultural products and the establishment of a common protection scheme with respect to agricultural imports are the main components of the program of agricultural integration this article assesses the impact of freeing agricultural trade within the region with maize rice and sorghum being the case studies selected a partial equilibrium model of pure trade creation is adapted to the data available and applied empirically to each central american country

food pricing policy in developing countries further evidence on cereal producer prices recently two independent studies have produced contradicting evidence regarding the extent of price discrimination in developing countries the objective of this study is to reexamine the evidence of direct and indirect distortion in cereal producer prices nominal protection coefficients for wheat maize and rice are calculated for fifty one developing countries spanning the period 1980 86 black market exchange rates are used to adjust the nominal protection coefficients to reflect the indirect effect of price interventions through exchange rate policies the results confirm the conventional wisdom that although developing countries tend to protect domestic cereal producers taxation caused by overvaluation of official exchange rates exceeds any direct price protection offered domestic producers

aid and growth what does the cross country evidence really show abstract we examine the effects of aid on growth in cross sectional and panel data after correcting for the possible bias that poorer or stronger growth may draw aid contributions to recipient co

aid and growth regressions this paper examines the relationship between foreign aid and growth in real gdp per capita as it emerges from simple augmentations of popular cross country growth specifications it is shown that aid in all likelihood increases the growth rate and this result is not conditional on good policy there are however decreasing returns to aid and the estimated effectiveness of aid is highly sensitive to the choice of estimator and the set of control variables when investment and human capital are controlled for no positive effect of aid is found yet aid continues to impact on growth via investment we conclude by stressing the need for more theoretical work before this kind of cross country regressions are used for policy purposes

the dynamics of real asset prices the real exchange rate trade reforms and foreign capital inflows abstract this paper explores the dynamics of real asset prices in chile in the last 15 years in a framework where a central role is played by the real exchange rate tariffs and foreign capital inflows working with time series models the real prices of land capital stocks and housing the empirical results show that at a time when structural reforms took place 1976 1982 including a trade liberalization tariffs contributed significantly to explain the real price of land while macroeconomic conditions were dominated by foreign capital inflows after 1982 the real exchange rate plays a key role in many respects

aid and the supply side public investment export performance and dutch disease in low income countries contemporary policy debates on the macroeconomics of aid often concentrate on short run dutch disease effects ignoring the possible supply side impact of aid financed public expenditure in the simple model of aid and public expenditure presented here public infrastructure generates an inter temporal productivity spillover which may exhibit a sector specific bias the model also provides for a learning by doing externality through which total factor productivity in the tradable sector is an increasing function of past export volumes an extended computable version of this model is used to simulate the effect of a step increase in net aid flows the simulations show that beyond the short run when conventional demand side dutch disease effects are present the relationship between enhanced aid flows and real exchange rates output growth and welfare is less straightforward than simple models of aid suggest public infrastructure investment that generates a productivity bias in favor of non tradable production delivers the largest aggregate return to aid but at the cost of deterioration in the income distribution income gains accrue predominantly to skilled and unskilled urban households leaving the rural poor relatively worse off under plausible parameterizations of the model the rural poor may also be worse off in absolute terms