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Review and Applications of the TEF Approach in Asia: From Theory to Empirics

This review explores the Transition, Endowments, and Factors (TEF) approach, bridging economic theory with empirical data on growth, policy issues, and environmental pressures in Asia. It delves into macroeconomic analyses, second-best scenarios, and the recovery of critical economic quantities to inform economic and environmental policymaking. The text also examines the application of generic models to calculate economic effects, wages, employment, and environmental impacts in various economic scenarios. Furthermore, it discusses the empirical shortcomings of generic models, including market failures, spatial heterogeneity, and the dynamic specifications necessary for accurate predictions in real-world contexts.

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Review and Applications of the TEF Approach in Asia: From Theory to Empirics

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  1. 4 From theory to empirics • Review & consolidation of the TEF approach • Empirical shortcomings of generic models • Development, resources and environmental pressures in Asia

  2. Review & consolidation of the TEF approach • ‘Macro’ approach (Copeland, Ulph) helps define growth/policy issues at broadest level • Links to welfare measures • Second-best analyses • Recovery of critical quantities and prices • From (p, v, t, s) recover prod’n & input dd, factor shadow prices, cons. dds, etc. • Extrapolate to environmental/NR outcomes

  3. Extensions & issues • Production externalities • Endog. factor endowments & comm. prices • E.g. double dividend argument • Heterogeneous consumers & inc. distb’n • And aggregation problems • Political constraints on economic or environmental policy

  4. Applications of generic approach • Back-of-envelope GE calculations • E.g. Implications of US reduction of barriers to Pakistan/African textile exports • Economic effects • Wages and employment • Environmental effects • Composition effects (TRI indices) • Scale and income (technique) effects

  5. Apparel 3220 | | V <---

  6. Empirical shortcomings of generic models • Market failures and distortions • Spatial heterogeneity and transport-transactions costs • Dynamic specification: transition to eq’m; non-convexity, irreversibility.

  7. Market failures • Land markets and property rights in natural resources • Capital markets • Financial repression as a development policy • Labor markets • Wage rigidity and unemployment • Insurance markets

  8. Spatial heterogeneity • Watersheds and ‘airsheds’ • E.g. Doolette and MacGrath (WB report, 1990) • E.g. Rains-ASIA model • Frontiers and margins (forests, coastlines)

  9. Spatial heterogeneity

  10. Development, resources and environmental pressures in Asia • Growth and structural change • Trade and trade intensity • Capital accumulation and FDI

  11. Economic & policy heterogeneity in ‘representative’ economies • Manufacturing industry policies • Broadly, ISI vs. EOI • Food policies • Exporter/importer; trade-based self-sufficiency policies • Nature of economic activity at land/forest margin • Subsistence, plantation, comm’l food & fiber

  12. Economic & policy heterogeneity

  13. Endog. prices, tax interactions and the ‘double dividend’ • In a second-best world, will an environmental tax raise or reduce welfare? • Gains from reduced pollution • Possible losses from tax interactions • E.g. Bovenberg & Goulder, AER 1996: energy producers pass on carbon taxes as higher prices, which reduces real eff. wage and labor supply, narrowing base of labor tax. • What about trade taxes? • Coxhead 2000, http://www.feem.it, paper # 88.2000

  14. Private and social marginal costs

  15. Labor mkt response to eff. wage

  16. Is there a double dividend? • Pollution tax raises revenue (area A) and improves welfare by area B • Can use A to reduce income tax rate --> DD through reduction in DWL (area C) • But fall in real net wage when tax costs are passed on • RNW = W(1 - t)/P, so tax/price equivalence • If |dP| > |dt| excess burden could increase (area D) <---

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