Trade and Employment From Myths to Facts - International Labour ...

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Trade and Employment: From Myths to Facts 3.3.4.5 Assessing the CGE approach One of the main weaknesses of the CGE ap proach is that the level of aggregation is very high and so it is not possible to identify where, when and for whom job loss will become a problem. Ackerman and Gallagher (2002) make three additional points when criticizing the use of CGE models to predict the gains from trade: First, in light of the fact that the projected benefits of liberalization of merchandise trade are small, especially for developing countries, and given the limited scope for future reduction, trade liberalization is unlikely to help reduce poverty significantly. Second, the assumptions and structures of first-generation CGE models are undergoing serious modification and divergent results are undermining the minimal consensus there had been. Third, employment effects of liberalization, while of fundamental concern to policy-makers, are “excluded by design” from most CGE models. Models based on more realistic assumptions about how markets actually function would produce an auditing of winners and losers from trade that would differ from the standard results. In short, the authors make the case that trade liberalization is essentially over and that any future benefits will be on a margin that is seriously diminished. 38 Table 3.6: Benefits of complete liberalization: GTAP versus LINKAGE Liberalizing sector High income Developing World GTAP LINKAGE GTAP LINKAGE GTAP LINKAGE Total Amounts1 Agriculture 42 128 12 54 56 182 Textiles 1 16 9 22 10 38 Other 17 57 1 10 19 67 Total Per capita 60 201 22 86 84 287 2 Agriculture 40 126 3 11 9 30 Textiles 1 16 2 4 2 6 Other 16 56 0 2 3 11 Total Percentage of GDP 57 199 5 17 14 47 3 Agriculture 0.16 0.38 0.24 0.50 0.18 0.44 Textiles 0.01 0.05 0.18 0.20 0.03 0.09 Other 0.07 0.17 0.03 0.09 0.06 0.16 Total 0.23 0.60 0.44 0.80 0.27 0.70 Source: Ackerman and Gallagher (2002). Notes: 1. US$ billions. 2. US$ per person. 3. For LINKAGE, estimate for year 2015. 38 Greenspan notes that the limits to the growth of benefits of globalization were already beginning to be felt in his admin istration as Chairman of the Federal Reserve (Greenspan, 2007). 100
Chapter 3: Assessing the impact of trade on employment: Methods of analysis World Bank economists have estimated global gains as much as US$520 billion with two-thirds of it going to developing countries. In the context of a US$50 trillion world economy, this is just over 1 per cent, observable, but not game-changing. Similarly, some 140 million people have escaped poverty due to trade liberalization according to World Bank economists. This effect is relatively larger; there are around 1 billion people in poverty worldwide, depending on how poverty is defined. Nothing in these numbers changes the general view that trade has only a peripheral impact on employment. The discussion offered by Ackerman and Gallagher (2002) also highlights the role of data in the debate, weighing in against previous tales about how underlying SAMs to which CGE models had been calibrated were inadvertently switched, but with no perceptible effect on the outcomes of the simulations! The larger effect of liberalization observed in the GTAP 5 database seems to have diminished indeed. The GTAP 6 database describes the year 2001 and incorporates trade agreements reached through 2005, including China’s entry into the WTO, the expansion of the European Union in 2004, and the end of the Multi-Fibre Agreement (Anderson et al., 2005; van der Mensbrugghe, 2007). The more up-to-date data incorporate the gains from previous tariff reductions, of course, but at the same time permit smaller gains from future reductions. 39 On a more theoretical level, Hammouda and Osakwe (2006) note three sources of weakness in CGE models: the theoretical framework or structure; database availability and accuracy; and the distinction between model parameters and endogenous variables. The authors join Taylor and von Arnim (2006) in identifying the Armington function and its estimated elasticities, as a central vulnerability. In this view, policy recommendations seem to hinge on a parameter that cannot be estimated with great accuracy. 40 All CGE model critics note that strategic considerations, power relations, regional hegemony and other local rigidities are entirely left out of the model specification. To the extent that these models are guided by the spirit of the Walrasian general equilibrium system, they miss some of the features central to the development process, such as restricted or entirely absent credit markets, uncertainty around property own ership and title, asymmetric information problems and general coordination issues. Adjustment costs, too, are often left out of the models. Many of these criticisms can be addressed using agent-based methods, but that work remains in its infancy (Epstein, 2006). 39 It is important to see, however, that tariff changes can happen in both directions, so the model is still useful in predicting what would happen, hysteresis aside, were some backtracking to occur. The tone of the critics notwithstanding, it is difficult to see the relevance of the critique of their CGE methodology as anything more than the recognition that diminishing returns to trade liberalization are setting in. The World Bank’s LINKAGE model predicted, for example, a gain for developing countries of US$539 billion in 2003 but by 2005 the impact had fallen to US$86 billion. Hertel and Keeney (2005) use the GTAP model to estimate the benefits available from removal of all remaining barriers to merchandise trade, some US$84 billion, mostly from the liberalization of agriculture. 40 The desktop CGE elaborated above can certainly be used to test this hypothesis. Raise the import price and lower the level of import growth: the model then mimics the presence of an Armington, without the computational complexity. 101
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Trade and Employment From Myths to
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Trade and Employment From Myths to
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PREFACE Trade negotiations -bilater
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Trade and Employment: From Myths to
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EDITORS AND CONTRIBUTORS EDITORS Ma
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ACKNOWLEDGEMENTS The editors wish t
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NEW EVIDENCE ON TRADE AND EMPLOYMEN
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Chapter 2: New evidence on trade an
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Region Annualized percentage change
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Region 1980 1985 1990 1995 2000 200
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Figure 2.4.b: Long-run association
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GENDER ASPECTS OF TRADE 5.1 INTRODU
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and income-earning opportunities ge
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Figure 5.1: Description of gender i
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A third view is that the type of jo
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REFERENCES Chapter 5: Gender aspect
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