prices _pfobk_ **_k,r,s_** _,_ and import _cif_ prices _pcifk_ **_k,r,s_** as shown in figure 2. Changes in import tariff and export taxes are the policy variables here.

# **_a. Domestic Consumption_**

There are three broad categories of consumption of products and services manufactured in a country: private households, government and firms. In addition, each of these categories of agents also consume imports that are aggregated across exporters, based on the descriptions in section a above. For private households, GTAP assumes a Constant Difference Elasticity (CDE) functional form, which is flexible enough to handle Linearized Expenditure Systems (LES) and Constant Elasticity of Substitution (CES) as special cases. For government to consume different products and for firms to consume different intermediate inputs, the CES functional form is used. There is also a nested CES function between domestic and imported products for each of these agents.

# **_b. Domestic Production_**

Production functions in GTAP involve 3 levels of nests: (1) There is a Leontief function on the topmost part of production system, wherein intermediate inputs are a composite single input and primary factors as another composite single input are complements. (2) Within the intermediate inputs, there is a CES function. (3) Within the primary factor inputs, there is a CES function. Except for land and natural resources, which can move only within agricultural and extraction sectors respectively. Other factors are mobile across sectors. In the standard GTAP model, the only factors are land, unskilled labor, skilled labor, capital and natural resources. This is where our model deviates from the standard model; we have land, capital, natural resources, skilled female labor, unskilled female labor, skilled male labor and unskilled male labor, all substituting against each other.

We modified this standard production function as follows, because this standard formulation implicitly assumes gender equality and does not directly pose male and female labor as being substitutes on a one-on-one .

We let unskilled and skilled labor substitute each other in every sector as it would do in the standard model, but in separate nests for male and female labor. The elasticities here are taken from the standard model as well. In other words, male unskilled labor substitutes imperfectly with male skilled labor, with elasticities in the GTAP model that exist for all the factor endowments (ESUBVA).

- We let male and female composite labor act as perfect substitutes at a higher level of nesting than the above.

Another major change that we have introduced to the standard model is the estimation and inclusion of a labor supply equation. From the literature, we found that this elasticity of labor supply with respect to real wages ranges between 0.6 and 1 for the developed countries, such as Germany and the United States.<sup>26</sup> For South Asian countries, the literature on this area has been quite dated; therefore, we employed the long time-series

> 26 See for example (last accessed on Jan 15, 2020): <u>https://voxeu.org/article/aggregating-labour-supplyelasticities http://conference.iza.org/conference_files/ESSLE2013/merz_m878.pdf.</u>

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