Labor ( _LD_ ) is then decomposed into skilled ( _LDQ_ ) and unskilled ( _LDNQ_ ) labor, with the combination of these two factors being determined by a constant elasticity of substitution (CES) function, once again through a process of cost minimization. This assumption implies that changes in the relative wages of the two types of labor will lead the producer to modify the ratio between the two types of workers, subject to constraints on substitution linked to his production capacities. The total capital ( _KDT_ ) is decomposed into land ( _LAND_ ) and capital ( _KD_ ). The same CES function is used to link these two factors.

The capital is mobile between agricultural sectors and the land is fixed. Moving on to intermediate consumptions, we significantly enrich the EXTER model by decomposing these inputs into various sub-inputs. We first have the total intermediate consumption ( _CII_ ) that is decomposed into energy ( _CIE)_ and other intermediate consumptions ( _CI)_ . These two sub-inputs are linked with a CES function. The _CIE_ is further decomposed into fuels ( _FUEL_ ) and electricity ( _ENER_ )<sup>17</sup> . These two inputs are linked with a CES function, therefore allowing for substitution in these inputs. The fuels are further decomposed into fossil fuels ( _FFUEL_ ) and biofuels (BFUEL) with the same functional form (CES)<sup>18</sup> . Other intermediate consumption ( _CI_ ) was modeled as fixed shares from the input/output ratios computed from the data in the SAM. Given the CES function, the market share will be gained through a reduction in price of biofuels compared to the fossil fuels. Sector-specific elasticities of substitution are used to reflect differences among sectors in determining the mix of factors in each CES function.

In the CGE model, four agents are included (government, aggregate household, firms and the rest of the world). The government draws its revenues from goods and services tax, import duties, households’ and private firms’ income taxes as well as from transfers from the rest of the world (budgetary assistance). Its expenditure is made up of the consumption of public services and of transfers to other agents. The aggregate private firm draws its income from capital remuneration. It spends its income by paying taxes; making transfers to other agents and saves for investment. The rest of the world is considered as an agent in a standard fashion as it is used to model economic relations between Mali and the rest of the world including imports, exports and transfers to and from agents in Mali. Finally, we include a single representative household in the CGE module.

Our hypotheses reflect the fact that Mali is a small open economy for which world prices of imports and exports are exogenous. We posit the Armington hypothesis (1969) for import demand, whereby domestic consumers can substitute domestically produced goods with imports (imperfectly) according to an elasticity of substitution that is sector specific. On the export side, producers can sell the goods on the local market or export their production and are influenced by relative prices on each market and by their respective elasticity of transformation of the good for one or the other market. We used the GDP deflator as a numeraire.

> 17 Other sources of energies such wood and charcoal are included in the forestry sector.

> 18 Although Mali could produce ethanol in future, we have excluded it from this analysis as this study focuses on biodiesel.

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