4 From theory to empirics

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

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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

16. 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

17. Economic & policy heterogeneity

18. 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

19. Private and social marginal costs

20. Labor mkt response to eff. wage

21. 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) <---