Page 1

ESTIMATING_

SH_OW _

I_T_

DISGOLNTFOP,,THE I_.!ILIPPINES

__M. ,Tatm I-I.

ea,.r_.

mz_ _. e_-o3

*This psptr, is an output of the UN_ project of the Nd_ipptne 7_8_Ltute fer Developuent Studies (?ZD$) on Shtdog ?rt_es and Project lh_Luat/on. In the course of the p_o;Ject, v_ coL1Lsborsted with the usmber8 of the Pro:Jeers Ecomm_cs S_tff of the gACiom_ Ecmu_dc and Develotmmt Author:LL7 (]_). We Sratef-l_y _knavledp _ suppoz'l:. Leah Gu_ie_es o.f t_e PIDS provided very &ble r_ 8ss_Lsl_mae.


1,

Ta_trodu_tton

:A re:lot t;-k in the ecoMutc evaluat,on of proJecte .

.

£e the v_tJ_m

..

of foods

and reeou_eea

used mad p_roduaod,

zf re:Irate fun_tlon efeictently andereely, obmbla _Im_

pr/_,

ehoeXdsuff_i_ntXy

/adleate the, vaXut/ma.

so_ver, =a:ket_pertect*ons do u..t,,_--',,F, ct,X.xy -tim X,_ de.loped countr*ee. semm_ _rket C_lpat£ttve

,aural.am i_r..Xy fr_

fa_lJ.u_,8such as the .rmsr_e elx_nts,

• pervuirely

_

eztezne_ties,

etc..

ee nonbut more

from Soverummtpo_IL_S:uthemelvu,

e.s.. Xn m_h e.mnm,

mad. moot _otebXy. the pro_e/oa

structure.

nax_t prices are d_tort_l,

not refXect:£ve of Urue

...

i.e.,

.

'x_hative sca:cit_8 of soodsend ruo_. method of calcul_tLon

is. required

coats and: be_f£t, '_da_

...to m_.J_..Tb.ts

: In t2m:l_L2_pines, more ti_ut In an7

there

other I_C,

.

The s_d)v

h_a

£8 the _ed

been attempts.

to e_C_te

fo_ use tn project ev_uation. • t_t-£ve ie :l.n the kut£ote..Pear -

vhidla you,d z_fZoat

of goods and resouz_:es.

pr:_i_.,

.

An _ter_tLv,

The nest

tbeu

sbedev p_e_

recent

.

provide8

estimates

_

and cube•

and _,eee.ia_

of the ehad_v, price

.

_hme

of f_

exchanse or the shader excbemserate • (SLY) £or "1974. shadow price the so_£al

of l_bor

or ehhdov vase rate

d£_ount

rate

and- theehedog

(SWQ for 1977 p_

of upitel


-

based,

on 1974.data.

to review prices

It

This

paper

shadow price

£s divided

2.

.

•rate

attributed in

exchange

_(OF_)"m_ght

The wedge

the

For where

rate

between

for

level of foreign

of

the

of

shadow of

the

and use.

also

referred

_s an often than

a signal £n the

the official

balance.

The latter, ettucture_

however,

a .disequilibriua

the protection

_s deemed ..

can be

(1)

way be required borrowing

exchange

a. correepondin8

trade

two factors;

to

misunderstood

for

(BOP) and (2)

in the protection

the

the SER and the 0ER, however,

a devaluation,

maker.

exchanle,

equilibrium

a combination

the former,

by a policy

and (3)

a discussion

an SER higher

balance-of-payments

the

(1)

shadow price

l_,uitations

(SER),

be .mistaken

to achieve

to

um_ly"

Exchange

of foreign

For example,

d_aluetiun

the

contains

- sources,

of Foreign

The shadew_price

concept..

(2)

shadow prices.

..

The Shadow Price

as the shadow

parts,

discount;

F_ach section

and the data •

K shadow

of these

three

paper

...-....

labor.

methodology

of

of this

estimatJ.n

estimates into

rate

purpose

in

exchange;

•sav/n s and the-social of

used

more recent

of fore£sn

.

-

is. the main

the methodologies

and obtain

price

2

up to the

structure. point

to be acceptable

.

.

calla

and not necessar'tly

for

a refom a devaluation.


An SElf higher LDC@elaply (used

than

reflects

relative

Zt does less,

not,

3

the

On

-

(as vould

the pre_Lua

or produced)

torted

-

we ere

when evaluatlng

prices

betweea

in itself,

suuest

a devaluation

to the

traded a need de_ee

This

protection

systea

only

relationships

maong tradable

of tradables,

in seneral,

the

prices

Anoag t_adable corrected

price the

role

tent

with

border

evaluation

for

such

each

superiority.

SSR 4.

factor

Tn this

factor

between

of the

conversion

further

for

project

of

connection,

reKarding

the

as the

SEIt, as against

£n theozT,

1/Or. alternatively, the SgR, in its reciprocal, border prices of tradables non-tradablee.

o£ the

if

their

amy be

relative

however,

It

border

for

the This

serves

to make their

literature

is

but aleo

to non-tredablu.

evaluation.

have

There

not

and non-tradablee.

tradables.

$ER

from the

distortion

correction,

there

non-tradable.

by the

ccemodiCAee

by usin8

non-tradables

prices

uuch

and affects

price

tradebles

ccmwditles.

arises

reXative

relative

evaluation

We would need distortion

prices

(and BOP disequilibrium)

in project

prices.

in relative

commodities,

the dis-

a, dWa_,uation,

indicate4

in

exehanse

to correct

for

case

on fora_

and non-traded

estinate,

price

be the

plac:l_

projects

exact

distortion

usually

is

as the

prices

cons_a-

-1/ been use

arguments

of a standard

a spec_Lfic general

latter

in

the

conversion

conversion

aBreement over

the project

factor

on the

former.

evaluation £s done in dolest£c currency, is used as the conversion faetor to brine consistent _r_Ch domestic prices of


In practice,

hmmvec,

ic is ofce= not couv_euc

co compute _ec_.f£c:couvmrs_ou

factc_a,

t6 decompos_non-cradables co,_letely prkmaz7 facco_

couvmrstau

tale

point

hamever,

in pro_e_t

projects.

£o_ domestic

oCh_

Thus, .m_

p_.aaz,y

Zesou_ce

7or tnstace,

Secoud,

It is used lu deri_nS

(except

_

ca_ be _-cerp_eted

u

fore_4_

ezchmqe

it

_e

che $1_),

ezporCen

_ecelvea,

o_ .M_-:t_.

is actuaZly

pro_ected

Yiaa.G.y, Usa SEK es_4=.-te

peua_Cy on expo_cs

By creat:bst

ed_mcZy.

pro_ecr_u

in e_ecc

/nposed

betsmmsthe frJ_

z _

and _ha Olaf, (spec:Lt_:Lc,s_y, a' 1mee= off:Lc::l_t _ c=ue value,

in 8eJ_

protecc_m

s_stem.

the Se=exal

system.

use as z _ut-of_

of protec_m

the /ndust_y

or pmml:bmd by the p_oCec_

is its

effec_L_

the absalxsce

shays

of ohm SSLo bea_tes

_rich a O_C 1ram *_hartCha SKK

t_ _

co Che derree

does no: t_Lcate

A ue_ SF_ nuure

_ore_u

factors

CosC (Dire) criCe_on

_s ptaducSaZ or szy/nS

accordhsS

by the protectims

F_sc

a project

chac tc

ladusc_es

zpp_Lcac_m

ev_uar_n.

implies

£_

t_adable msd

is nOC posslble os: co_ea.t.mst Co d_"L_m spec:Lf_:

in che Do_8_

but it

£nto their

fmc_o=s.

"Ttm_e _ce, ch_

as lC _s ofCe_ dLfficult

(see HedaJ.la, 1979).

components

uould need an SEK estimate

8aods _w.=e tc

or prac_tcal

=a_e, th_

geC leu"fo=

,4_,4.

em_.

1_ is euy to decersdne -hat _ pz=duct Ounce its shadow prJ_e) is £o_'eSu. L_ .i_: is a t:=ad_le, dmz"J.v'JI/_ a spew.:L1[:b: _mve_s.4.on f._tor is s_ple -- £t: vould jmsC be _ ba_de.z' pz_Lmt of the produc_.


-

2. I.

MechodoXosAes for

hcAnat£ng

In the esttnst_Lon

-

the Shadow _hanse

of the Sin, we use the

eupXoyed by MedalXa (1979) fo:e_LSn exchenae.

$

the msrSims], soc:l_d, vLILue of the Xut

•hAcb de_ve8

prococcS_n

t:ba free

inched

unXt _

scn_ture_

ezr_s_io

The dAffateuae

Ruwu

uet_u_l

_81;8 U the Zncorve_f_n

in the three

In cheat zespeGe_Ve ,_mpU_ns

_

fo"_tf4_ ezchmse

trade equAIAbrtua. _

raco_ 8rid (3) Che Opt:l,l_

n_l_

uethedoXoSLU

(2) the Ik_h_-TeyXor

shsdou _je rsco.

thre!

An her study on sb_Jau pricXnl

These 8_es (1) the _

8_ven the present

RaCe (SI_)":

_pp_s

r, Ssrdiq

(o_)

Jl_U8 lies

vitae tw_ls

poX£cy would he. f_Lr81: (U1¢'130)mchod 8_ven, viii

tnhe:encly

r_n

us_mAns

(at leut

he_lz8 ev_u_ted).

takes

thac the present

throushout

_lLchoush Ch£ssppz_t_h

evaluation

vAevpoXnt.

least

At begones £ncous£st_mt

couparat£ve

£n the lonj-t_,

would be e].4-tnated, shedc_ p:tce

l_rthets_re,

"

"

_Ji,

the face t_ltes

-

gh_

fl_ej._ since thst

IOTO pto_Ject

possess

ThAs SnpXAes that

the need for ©oncLnu_

/

-

the p_oJec_s

sdvsnco8e_

8oods and. resources

agsl_m

:ILs8pp_z_jl_

in £soX_tAon,

£8 desAsned to £dent££y

tea1 and l_s-z_n

pz_r_

the l£fat_Ano of Cho p_o_j0_£

used iu evsXu_tAn_ small p_oJe_t8 cou_reheu£ve

the preeenC cmtr_

st

procect£ou

tlme us need Co

chac the present

pg_LXc_

he

ILI_

3JothervLse, £f Lnte_venttou should reflect shadow pr_,ces.

pol£cy

£s opt£naX, masher prates


.

' "

.m

• .

,.,

- .

'

,.,

:

•uo.r_U_ :

;o. _

, ,," :_. "

..

.-

.

..

_do

.

.., .,, ...,.,.._ ,,

,,...

;

... •

.

. • .

.

"

.

• ....._

:...

-..

.' "

,.

..

,

. ,.. ,...

.. •

.

.'

...,

,

,,,' ,

".'r ,,,..._ "._;.', , ,'.',.

• ...:

..',.,

uo_:_w_o,_d _a

• -..,,,,

_-

.. ....

. .

_n n _ _.,To, a _ (_ .. /._

.. ,

.

_,,.

..

_-...

.- ..

..

,. ,'

.:! .,'.y,,.,_..

._, ._

_u_ .,

.. ,,

J q-aug "amTl=s=.u_l_s, ,,w!:, .md_, ,_, np oTq'm_d

"';'._/'_,

'..".

_ _.. ',.'

.o,.,".',

,'" -

'_ "

_ ..

, .,_.-_ ,,

,_ ,,,;

;:L,.- . .,, "

"'

_

.... ",'._'_}'"!'.',

"

,_.,..-

..

,......

.-' • •

..,.

" -

_: ,...,

_ ,.: •

(C)'Pm _._:_;_ ou_:_=-;o.,am_---_;... ,".'

.

•u__

" .._,'''""'

".i_

",.

" i"

°'.

'.,

'

'_

".'._

'

;'"

.".

_-.-_ao ._ _;ou=o_oeo,

..:__,

._]r.=_n:o;_ :_qamoq p,L'.m_oq-._,,.a_.._ •_

_'t"_

.mrr.,_mum :.me.u_t "=:w 'arwSs'n:_p =',m=a.,.=i_

/

.,..

•rumao oq=_ _m._.4o-; :_u_ mmu,n ,e.t=_rXdEr :_ ._toe

• lpqSanl _O

wq:j _

'n(_a,T,_s',T,..,.anq=aq[) _lo=d4aJ _

•.

• (,

-

amq,T,

"US • oq:l ;0 o_rl=n -. ,,.,

...

_m mn_; amwh_m_a_w-=mu

:_ameu_ q_T._q'_'-.,J.:o='.=Ul:Odpue:_8 _


m

-

These thzqbe apprJschms yield

7

.

mm

tk_ toll_Jn_"

form_as

for escY_mCfm8

tbs _nf (I) The_

_t_mr_

(a) smtl

Et dui (l_t)

'_r' •-

+ JEdXj (J_SF__

z dnt + _ dx-t j. _

•.

v,_heze.dH'l and dXts are ee_rliMl eT_o_c

rupectSve_

fore_n

ezckaase.

srisi_

.

¢lwusu

t.a isilm_tl

f_am m addit_u_t

____4_of

_he Y's and SJS 8re implicit

taz_ffs

subsidies (export: Cazu) ms iapor_bXes"ad ._ies, zespe_Ctve_y,

ThLs _ormJla cam bo rawr£ttem

toads eJ_sctcic_es (b) 0_

E_

_

T.ezqts of

u.

Mi

+ Z tfj

X_(l_)

( I+Ti)

uhere Cfj ". I;ha @_ssCi¢i_Cyof NpP),y Of fore.tl_ frc_

Slit

.

eschsnse

ezpoz'c of coumod£cy j

_z.i (_sj .-.1) nxj + Cxj

rtxj -export

Supply elasticit'y

._or comttod;Lcy j


¢_j - export dew_ e_s=ic_ty (l-_ absolute_=_=e) £or cc_modicy j _L

" import: deEand e_Lsl:Lcil:y (ie. absolute v_lue), foc coumod£cy £ i"

ass_d

('rt _

:n_7.)

l;osethe_

£e _epresemted

LI

_onn_ usedin ch_ e_

ua._or ezpocUd_e8 _lUr,

exporCab_ea Th_

r.hac ehe JJport supply e_Le£Cy

_e 4c_

luupa _

..

_,_

and et].]. _upo_radJ_ee toKel:hmr. by"

SV._ (c)

_

.0 a I (I+'S 1) +.12

(I+S 2) + a 3 (l'¥r)

. c._]. xI

..

_':" "z " c_lxI_ c_2.%, %M

_d subscEipcs

!. and __refer

co ..-_or and m_.nor mcporCab_e_s

re_ecc_veJ.y (2)

The ILucha-Taylo_ i_sC£nmce The aeneas1 (a)

SEK2

_ocuuLs is SLveu b)':

_ (l

_.e_e L_

l_ (I+S_)5,

_e£er's c_ produce _-er

over aZl j's.

oL?__'s and J_ r_e produrl:


•,-

g

,,,, .

11,_ Hj.

_-

mad

, lrmr _

study.

_

n-N-'mi

_

J c_j x_

_oemuXa used Is

Co) s_, i" (l_z)az (Z_z) a_ (i_) (I-_:) nol:al_OnS ante tl_

sameas before.

The.fomula used for r_e study _l;_tns I_ _¢h_.

esporudGes

_

_w

Thus.

_ (l-sz-.Sz)

'% vbere Sf , SJ andT' ue, the ma_i_ (_mrr u=) _orus:jot nb_Ldy (ezporr

mi_cCablu,

LspL_e.tc r._Ut _muJtic

sales

tJx)

for _orr_lea. tax _I _=

for n/_or

ezlm:rabZes

respec_Ly, _

__

md v' _e.

___

IPor r2horest. o_ the notatJ_ms.. vx -

douestic

v-

dawr_

_.ts

._.

cm ezporr, ab1,se

sa_estax on/_p_r_es _o: i - 1. Z %i. "--°dli- "_

xL

end

ca . ..,

,,,m.O_. 1_ I/..

and

eyet.ea.


-

vhere

-

elestici_y

of home demend for

aporuble

e

-

elAstic-icy

of hone supply for

£upo=tsb£_

Dxi

m hone demand for

ouporcable

-

S_orcsbles

protection

houe supply for f=ou Pover's

($PPP, 1979).

& uuLfons _arL_f rate,

the ratio

J_StiCU_

£8ports,

£_lnitely

frol

each other).

"I - .._

_(1 + t),

namer export.

• export

Of _

rN

to the. _tde_

fo_ the 8eneral

tttlS

tex,

This vould reduce

in border prices the specJ_£c

from that

for

of

minor exports. than n.

_)

]

ere Mt thet 8restly

equal

st demand for

revenue

e£fects

to

_se

dmseet£c prises f_

the .s_ot

border pr£ce of the taport

terl-of-tcs_le

that 14 vould be much lover

prt_8

exports

ar£ein8

(less the_ lull ,nlte) de_ud eiaeticiL_V for m]o= differs

(1-

£8 umma4

m_or

the reSative

of uarS_sl

to the

[, or.

hlgh and do not di/fer

_4_ere K t8 the elasticity

the tax to the ratio

In e_fect,

(It

t x, on _J_iv£dual

to

of t_Jd8 _i_¢s

that demand elastJa_r._eg

are Se_rsl_y

2. An export

to

p_Lees of udao: ezports

srea¢ even for minor exports.

elesticLtie8

fo_ rati_n_

.....

rSt_O

from the fact

these

after

frsae_rk

equal

_n border prices,

This sdJuats

that arises

t,

of doaestic

tO the

frou uLuorexporto,

£

I , .where m is the s-1 of demmd for -4,-,r Uports, _te

mmld reduce

i

This is butcally:

eetJxssced averase elasticity

_Ort

-

edx i

For our OIS, ve dr_

1.

10

from s

expo_e

Tt iS SeaetaZly

subst_Ltute,

gh/ch

expected


-

3.

A zener_l

imports

in

p_ocess. are

destination

and deueet£c

included

the

11

sales

selling

Hoverer.

price

the

Kiven .credlcs

for

taxes

principle

value

added tax,

revenue

purposes.

This

at

sellers

for

-

any ecage

st

of

any stake

pald

in the

v.

on

iS

tax

the production

of

the

inputs.

production

Thus,

the

effective tax is equal to-. vPj- P'I aljPiv:" v (Pj - ZiaijPi)vhere PJ is

• the

prlce

price

before

of the

tax paid), value

input

and

added

tax

.tl_

Is

4. a tax

for while

aij's

are

Pi

the

the

Moreover,

is

(l_v)

amount of

input

domestic

eoe£ftcienCs.

the effective

would

sellins

the

pr_ide

sales Thus,

uniforn

a neutraA

only

Value

ueans

for

revenues.

c=edit

to exporters

equal

inputs.

_4-_r

vP t is

industries

Refund

tradable

(thus

taxed.

added tax .across seneratinK

of the output,

t proportion

This

exporCs

avoiding

to

to

of duties of

would reduce zero

(since

on _nporte_ the Value

inputs

and.

o_ domestic

the ef_ective_$etecttoa

the v'e

dlscrimAnatlon against

and t's

the use

vould

be zero)

og domestic

embe-

ttcutee. 5' _rket

Direct £ailuree

subsidies such

(or

as those

tax

credits)

discussed

co correct above.

for

other'


Usiutlly,

honver,

ue I_r_=oSseou; diffeL'ln8

heteropneous

from the _ported

sad t_

rates

the vedse atisLns

qu_Lty

and price

Thus,

from protection

_Ltve use the known tu:Lf!

is it,iron by

vhere

t -

the _

tsriff

f -

the pe:r.entsge

n -

mszk-up rate

c_ee,

Yor these

for the nco-homosoneou8

8rid Paver,

8rid _

T, for _ortsb:l_8

8 Stoup of

is a aonbLuatLon of both

(See lled_ls

rArLff,

export

2.3

products. si_.e

subotl_tes

or :avolv/ag

product,

are prderrod

differontLs_s

.. and for exportablu,

.products, ,QomaoclttLes

eLr3_r Lnvolvtns doaesti_ iuport

but eZoseZy subetitutsble

knmm teriff pods,

-

especLaUy for umlu_8_tu_ed

I.e.,

Ln quality

13

rste,

1979).

the _lplLcLt

rste

tax (sdvms

the J_pZt_lLt tetlff

88Ze8 tax rite)

v_L1 be the (neSst_Lve)

tsJc,

Wei8htin8 _1 tsz:lUEfs

ZuplLc_t TarLf_fs three estLmates ---

lscha-T_lo:,

the

o£ the SER 8ze veLKhted ave_nses

UIIZDO esttmste,

s related

J veishted

8tithIBt_Lc

• ought to be £_ _

Yor _U

_

chm_u

in exports

tn_Jff8 defZsted by .what

the _de_L veLsht8

to use _e

These .dependon trade eluU_Ltius

of .expoSe and iuporte.

_so

optLua_ _nte_wontion s_wten.

q__,

imports 8rid mcporte,

nerqe|

seometri¢ averese_ and the OZS-Sn,

a re, shred Seo_tz%c avez_q_ebut of iaplicLt •they

of _spZ_e:Lt

=aki_

and Lnports

vo=ld prices as sirra, can be expressed

the uarSLn_

sad the levels the nuSJ_L

L_ trams of the domsetLe


-

supply

and demmd

produ_tton,

elasticities,

exports

e_

is

elasticity

-

ra£e,

drr

for

value)of

f

. Q-X)

total

dr -_

edx + Qsx

, 8iven

world

prices, prices,

system,

hapertables

equals

supply

exportables

supply

_uus

we s4,_.l/fy

2Q - X, respectively,

The weightin8

equal

syste:

to be equal

deBend elasticities

• 1.5 Q+M for

i_ortables

used

and 1.5

denote

further

by asst_Ln 8

We get wei_ts

dete0r_hled ,

But since demand for

(q - X), for

this

coees

i_ortables

£n Medalla

and universally This

also

(q + M) and denand

iu_orts

exports

£n elm

dP/P.

to be equal.

plus

chan_e

would

supply.

and Q - X,

/mpor_ables

by relative _,_q of supply and demand.

elasticities

'

to damesttc

The percen_ase

in domestic

elasticities

of 2q + M end

for

iF

q refers

demand for

exportebles.

chanse

these

des_nd

eda+Qemn]

exporcables,

•For our we_ghtin8 of

_ports,

elastlcit7 for expor£able8 and eex" the

O + M denotes

percentage

all

absolute

dr(Q+H)r r

whets edx is home _

e:dMmge

for

of.:

"

dX

home desmnd for

values

-

(in

For exports

Bence

For instance,

and

dM =

supply

w:lLth the

:

drlr

the eI_ticit7

iwort_les,

-

together

and luports.

-n. -

vbere

14

(1979) one half

yields

the welghts

- X for

exportables.

for

to Weights and exportables,

assumes

supply

the value of

of


-

supply

Setting elasticities

was

categories the

of

World

clear

vhy

output

influenced

If

we

supply

elasticities

than

could

be

studies _uld

generally

_tning; some 4

be

and

be that

factor

for

Rmpirical

Results

further find

greater

d__d

the

data

X, value

we need

of

estimates, special

exports, ve need

cases,

available Revenue

the

Code. Intervention

These

include lumber),

assembly

end

book

Tariff

and is

policies mostly

end

some

parts).

_anuÂŁactured Estimates

of

assumption8 example,

fut_ce

_muga_tu_

aKrtcultute be

implicit

sad

greater

by

ta_fs

and

prices.

(in

tax

rates

and

the

homogeneous

than

tariff

and

related

and

comparison

border

and

(2)

is

in

readily

products taxes

prices), tariff

National

products (e.g.,

veishts

hnplicit

For

The for_r

Code

price

the

production

products of

restr_ture

2Q + H stud

To derive

and

asricultural

in

of

tariff

other

to

dm-_nd

essentials.

est4Mtes

for

than

in

generally

_ports.

used

lowe_

For

than

Customs

is'" not

elasticity

factor

of

and border

The latter

pr.ice

and

the

(1)

our

eZasticities

averagins.

value

by

approxi_tion.

SER,

for

It

lonK-run

supply

on Q, value

domestic

from

for

and H.

the

various

,Accordlnsly,

would

we need

to

used,

that

tha_

velghts

be

the

elasticities

their correspond_

in

first

by some

SER,

hoverer, be

demand

used

often

8enerally

easier

of

for

dtaasgregatÂŁon.

non-essentials

TO estimate

view'

realistic

for to

and

de_md.

estimating

values

estimates

long-run

in

able

the

(1971)

should

a more

diversified a_Kht

a

t:o. restructure

work

one-half

elasticity

it may be

2q - X may represent

future

at

by Balassa

take

Indeed,

For

by

given

Bank.

rather

-

elasticities

K_)ds

elasticities.

15

Internal where

are (e.K.,

automotive relatives

in

effect. logs


-

were

mostly

derived

agricultural PC_

(_

made use

is

exportable,

+ _

" Q - X).

five

and rounded

denoted

sector

_,

Using

an average

implicit

implicit

correspond that

(1)

with

_

domestic to higher

_ports

of the

the only

Z-0

table

a sample

average

implicit

taken of its

X, _,

has

high

is

is

this not

tax.

w4th H --

is

weights, the

,Yor _

rates

would

_plyÂŁns

would be _portables

negl4gible)

those

a pure

For X and _,

tariff

a

subject

and (2)

actual

to lover

tariff

negligible).

project bean

of commodities tariff

hence, Hence,

to _4ddle

sector

by say

to derive

export

oÂŁ the

would be for

multiplied

considered

M and _

production

(imports

0_,

exported,

output

I-0 of

The result,

can be computed.

that

part

to be 4reportable,

rate

sector

t_e

on

_h_ch

each

importable,

decile.

low tariff

tariff

which

computed,

and the

production

At the

is

tariff

assumed

subject

(domestic

yes

is

would be the corresponding

was generally

for

Thus,

Table

T for

determine

Co be the proportion rest

products,

Transactions

part

X/Q

the resulting

tariff

to

nearest

20 percent

exporter.

(1983_

(BO_) study

tradable

an average

and which

The ratio

taken

exporting

C. David

Investments

I-0

To get

down to the

by a, is

e.g.,

ell

1974

was used

= a (Q-X) and the

it

of the

a rule-of-thumb

(Q-X)

--

products.

Q, X, end N directly.

sector,

works

we would want to cover

(1979)

gives

-

and the Board of

automotive

Ideally, Nedalls

from other

products

for

16

for

was being constructed. to include imporcab_es

done, Thus, in the

a newer

version

of

we decided

to use

derivation

of an

and an average

export

tax


-

for of

exportables. whether

lent (2)

to it

is

total

in

is

percent

exports

ation

it

--

a major of

a major

production

-

The commodities

(1)

one

17

the

year

the

top

20

of

gross

The first

is

set,

(or

so)

output

is

year for computlng

the

both

Medalla however,

a minimum for

the

level

or at

(3) the

to i_

as

level is

one

ie'a

there M.

For

described

to come

equivaset,

percent major

4-digit

or of local

(ASM)

classific-

Trade

Statistics.

Survey of Manufactures

The

(ASM).

this was used as the base

three

1lets are then combined to form

the final

cozenodities.

list,

X and

basis

set.

ASM is for 1979,

the weights.

the

year

I for the llst of conlnodltles used)

llst of selected

have

on

two lists make use of the ForeiEn

Since the most recent

In

--

a minimum

The third makes use of the Annual

(see Table

selected

imports

--

for

terms

import

total

export

are

would

still

these

cases,

we

follow

Instead

of

multiplying

above.

up with

be

proportion

cases

where

a sector

the

exportable,

method

used

X/Q by and

would by

5,

we multiply

by 3.-4/ Finally_

we need values

this study, we have We use a range _,

ranging

the elasticity

of values

from

for trade

estimates

for elastlclty

2 to 6, elasticity

from 3 to 6 (both z_Lnor and major

elasticities.

of

of Balassa

of demand supply

exports)

Agaln,

for

(1971).

for in_orts,

for exportables

end elasticity

of

--4/We took a s_le of export sectors (e.g., coconut oil, plywood and veneer, etc.) and confuted the X/Q ratio using 1974 T-0 data. This was found, in the average, to be close to 33 percent.


d_-d for

for

_jor.

assumed

-

from

6 to

11,

World

and world

de_umd elast£c£t_es

for

to be Inflnlte.

Correspondingly,

_por. ts

exports

-18

values

for

SER/OER (See

taking

consistently

lo_

teutly

high

we have

These

estates

2).

values

of

Hence, trade

alnor

we get foz

elaet_d_t7 exports,

a rsnse

rare

of

the 0N_DO esC_sate,

elasttc_t£es t

to consis-

SER1 ranging from 1.269 to 1.314. OER S/_tZa_iy, for Bacha-Taylor method, SER2 ranges from 1.245 to 0ER 1.291. The OIS-SER estimate ranges fras 1.09 to 1.114.

It v_ws

values,

Table

supply

are based

the present

as temporary

eietgen_

on the

foreign

scheduled

exchange _d

measures.

1983 tariff other

trade

rates. controls


Table

1.

19

-

List of Selected Commodities to be Included •Calculation _rith Corresponding _pllc£ts Production, Exports and Imports

Cm;modi-ty

Production P in border pri ces* 1979

Exports P FOR 1979

Imports _ C]F 197_

in SER Tariffs,.

Imp_icit Tariff lq83

Indirect Tax 1983

-%

Abaca

357.3

IS3. I

.

- 04

.01

Copra

860.6

652

-.075

• .01

,4 3_

.

-. 04

.02

Coconut 0il

7,025

Desiccated Coconut

1,012.5

78_

.

-.04

.02

4,003.2

1,552

.

-,06

.02

2,688.8

I, 45 ._T

-, 04

. I0

1,907.08

I,I:,9.7

-.04

.10

3,765

3,222

-.02

.

- .04

,

-.04

.01

-,C?

.01

.05

Centrifuge

& Refined Sugar

Lumber Pl._mod

& Veneer

Copper Co_enurace Chromite O_e

237.5

16_,

Pineapple

]66.6

703

Banana

--.'_077 .08

Tuna

252._

252.4

Shr/l_tpa

263.-6

263.6

Wheat PertJlifter Mfg. & Ass_bly

732

.

-.04

,05

932. O_

922,8

+. 25

.

936.4

752.6

+.32

, I0

755.5

+.25

.

of Motor _'zhicles

CgL (H) CSU (Assembly) LC (components) (20Y.) Textile Imp°r cablesl

. 5_5._ __30.6

2,923,_7

•Exportabl_s

_63.3

& Paper

.

.

Impor cables 2 Paper

I11.7 . 15_.5

+1.00

,30

+.50

,

+. 10

.

+. 69

, I0

.

.I0

Produc_s

Imp°rtabl¢

s1

buportable_

2

, I ,'_35 ._

505 ._ .

+.lO +.80

. I0


-

Produccio_ P in border prices* 1979

Cmwod£cy

lioQd Manufacture Pe_roXe-m

20

-

_.porcs P FOB 1979

l_porcs _ C]F 1979

4,808.7

260.7

.

5,894.5

.

_,6_.2

2,390

.

lmpL£cic Tariff 1983

Xndirecc T_ 19_3

- .08

,10

+,20

.02

_£inex_es

Xaporcab Xes, - Gasoline

& ocher

- l_esel

o£1

_£gnc

eiXs

& othe_s

• zpor cabXes Produces

79.5

1,_9

79.5

. IO

.

A4.9

.26

.05

21.5

+. 91

• 10

.10

14 3.6

+. 10

• •

.91 •

& CoaX

of Petroleum

IS. 3

XmporcabXes] lmpo_cab le_ 2 14fl_. of Wear:Lag AppLrel Yootvear

IZ2.9

15.3 I_xclus_ve

of

7.super.CabXes

.

Exporcables

881.6

1,591.3

f'

o£ Glass

P_S.

lmporcab

_ G_LnssProduces

les I

.

X_porcables2 Y.xportabZes Nfg. Flour

34 6.8 1i8.5

of Pescicidu, l_]J._.ng

ljalmrCables

Insecc£c£des,

& Ocher

Hfg.

etc.750.1

of

Fru£Cs

880.2 & Vesecables .

Y_porCAbles

1,016.9

of Processed

_,_ld

& _£ry

+.35

39.2

-_. 20

.

+. 69

.05

40.7

+. 80

.10

730.8

.10

Produces

I

I_por cables 2 Hfg. of Soaps & Clean£n8

132.5

925.7

.

809.6

+. OS

.

.

+. 69

.

24O. 5

+. 20

Preparations

?

Imporcab les 1

. ]0 .10 "

Grains

Imporcables

Isuporcables

I

lmpor cables 2 Cann£n8 & Presecving

l_g.

. 39.5

.10


-

ProducC£ou P Lc border prices* I_79

Cemm_dity

21

-

Exporcs r FOB 1979

inpor'_s P CI¥ 1979

!mpLid._¢ Tariff )983.

Ind_ec_ Tax 1983

Hfg. of Soaps _ C1_ni.g Prepazacious IJmporcables2 F_porcablu Iron

& SC_!

. 63

. .

.

! ,363._;

+.OJ

.

464.2

,

.

+. 69

.10

.

.

156.l

.

13c.5

.

141.0

_.24

.05

9.4

.

15.1

+.b9

.05

.

.O5

478.2 189

lss_

!ndu ;_W

Zmpoctab Le_1

Imporcables 2 Canning, Presexv_J_. & Processing of Tish Imporcalzles l_ckexeJ.s& Sardines 0 chars Imporcableus

xwc g: Zxpor

• I0 .05

209.7

69.9

.

.

e.s

t_a_or ]_xports

-. 04

l_t._or ]Ezpo_cs

O. 0 +0. q8

lmportahles Foocno_es: 1.

symbol m

2.

_ symbol mean£nt_ (-)

3.

For exporCables, • e_port

export

tax and (,) for impor_ car

quanci¢ 7 o_ p_oducc-.'on

based on average

Q/X =at£o

of

_s approx£ma¢ely

Chre_- times

sample pure-ccporcables

che

value

.from cbe 1974 1-O

cables. 4.

Imporcables

I include

inCermediate

5. 6.

imporcables *Production

2 £nclude products £n border prices

b.,1979 implicit car£ff.

iapucs

_¢ich the

lower

aC chair hi_her s'.zge was derived by deflecinS

of

tariffs prodLscc_on. 1979 val-,e ot

produccion

of


-

22

-

Estlmate of SR__/OER, VaryinS Trade Elasticities

Table 2.

I : UNIDO _fxl.

_'fx2

1.67

_m

3

6

2,14

3

6

2,5

3

6

Taylor

SERI OER "

_

SEP,2 _

1.245

SE_ OE&

..;

1.090

i

I

2

1.269

6

1.382

1.365

i .151

2

1.185

1.162

,. 1.047

4

1•288

1•26_ "

6

1.332

1.311

2

1.260

1.235

1.0B6

4

1.338

1.317

1.127

6

1.376

1.358

1. 168

2

1.199

1• 175

1•054

4

I.282

I•258

I.097

6

1.327

1.306

1. 121

2 4

1 • 253 1.332

1 • 228 l .311

1.082 1.124

6

1.371

1.353

1.145

2

1.194

1,171

1.052

4

1.278

I.254

1•I00 _

1.124

1.095 E

;

6

1.324

2 4

1.235 1.317

.6

1.358

_

1.339

2 4

1. 183 1. 267•

1

).. 160 1. 242

6

1.314

=

3

3.53

6

I"

I

Cfxt

1.119

1.209 1.294

1.073 1.116 1.138

i

1.046 1.089 1.114

1.291 ....

]iotes:

1.302

,

,..

A

_

t

h

" supply

e_asticity

of

foreisn

exchange,

from major

exports

rfx 2 - supply

elasticity

Of foreign

exchange,

from minor

exports

._

- demand elasticity nxj(£T.j'l)

CfJ

"qxj

+ Cxj"

for

imports

nx ., supply c x _ _orld

As susp Lions I. World supply elasc£ctty 2. Norld demand elasticity

for for

elasticity

for

demand" elasticity

export:s for

imports _ inf£uite minor exports is tnf4nite

exports


-

Although of the

depending

t]atee

recomaends

estimates using

t_es

u_asures

only

the wedge

For the period

considered

Hence,

the

S_.

On

arisins

to be aether.

on the purpose

first-best

•of 1.114

distortion

aris_8

1979).

in the

This,

IPPP study

recommending

around

The estimate

using

1.974 is

hm,

(1974),

the

$Elt

was considered

to be at most

for

study'

Car£ff_tructure.

from a BOP disequilibrium

NEDA has been

the

any

elasticitieeS-5/est£mate

from the

Zt was estimated

yields

of the evaitmtor,

highest

(See••½edalla

(The SER/OSR estimate

5 percent

-

may be deemed appropriate,

the the

23

equal

to 5 percent.

1.2 x OER as

around

1.16,

the

plus

1.2.)

of the wedge between

SER and On

created

by a BOP disequil£brium is calculated by .eA/_ - A*/_* where is the present trade is

equal

to

obligation

debt

X + n_-

has been

For 1982, putting

tf

the

deficits,

trade

Per

For

1983,

conservatively deficit

ouc study,

outstanding

estimated $3.2

may net then,

deslred level and

the

reached

, A to as low as zero

seals.

A'the

foreign

at $25 billion.

billion.

even be enough

we conservatively

Thus, to external put A* at

geEo.

-_/Since our concern particular policy resiae, relevant.

is with the the highest

long-run effects of a elasticities may be most


-

Uslng

the

adjustment ponding

is

trade

the

The longer

is.

the

short

a very

from

the

Although run,

the

S_/OE2

The •Shadow l_iee

3.1

Deriving

the

ment.

It

el•.,

(Dassupta,

equal

Rate

etal.,

the for

_n the

the

ezcha_e in

obltsatJ_s, Hence,

of the

we take

wedge

structure

(Investment) of Discount

stream

referred

shadow price

1979).

¢equi:ed.

a BOP difficulty

be viable.

to (1.114)

of saving

_ucome

has been

(SPK) and the

trade

azisin$

6-/

of Saving

The shadow price aggregate

the

and the

(1.081)

- 1.204,

and the

SoCial

BOP that

1' 204.

Social

of the

chanse

of foreign

of protection

then

and low trade

hisher-would

sustain

level

corres-

we can wait

required

perhaps

1.118

edJuetlent

lo_er

as our estimate

effect

equals

3.

et

the

may not

1,08i,

is

the

rate

The hi_er

the

high

to

assumption

consideredp

BOP disequilibrium.

disequilibrium is

the

solution

The combined

1.0_

rate

Thus,

we can

value,

from

exchanse

exchange

lover

given

lons-tun

the mlddle

the

be.

BOP adjustments,

required

respectively.

period

elasticities

the

elasticities

lover

tun the

-

to range

assumption,

elasticities,

rate

above,

estimated

to high

elasticities

trade

formula

24

S4,4lar 1972),

and the

(SPS)

is

generated

tO also

Little

are

$hadma Price

the net

as the

present

found

shadow price (Manalaysay in the

end Hlrrlees,

in

D_t

of SavinS Value

by _1 of mazglnal

of investment

concepts

Race•of

invest-

of capital Rautilta,

UNIDO manual

and Squlre

and

Van der Tak. 6--/This differs frum our procedure in the case of the protection induced distortion because we consider the effects of a policy regime as if it were pezw_nent, vhlle the BOP deficit is 8cmeth/nS that must be corrected at least in an intermediate run.


-

The formula

25

(Manalaysay)

-

4s:

SPS = q'.sq t-sq where rate

q is

the m_ceiual

of dLscount,

of cepLt_,

and s _s the

In Mnnal_ysay's then adjusted

product

etedy,

q m

coaelstency

for

The Ee_es-U_._:ey

eaviug

£ £e (:he soc_l

retLo.

eettmtad.mpi_cally

w£th the shadou wage rate

(S_t),

(K-R)z_le

£_q-n l+n where

n is

the

to estJ_ate from

expected

rate

to 1,

an upper liuit

a. projected

rate

end an arbitrary

of Stovth

8smmpt£on

ut£11ty of consumption

The q used

.

£n the

K-R rule

c_p£tal,

a hypothetical

Th£8 led edjuatlnt thet

reflects

This

vould

rationale

der£ved

w£th the to

the

per

velue

capita

the

from

Us

was used _

eet£metad

of conmmpttou

elut4a£ty

the

the actual equ£1ib.rium

(S)

of mnr81nnl

adjusted

q.

marS£n_

product

va£ue,

However,

adjusted

of for

_.

the queation£nK

of q for

k lov_

about

t=gh

is

consistency

K_vth

(h)

the K-R _ule not

of population

of

be replanted for prev£ouoly

returns

from

by the foliOrl_

need

for. an7 such

We want an SPS and an t

any purpose. real

the

£nveetmeut

actual

and reinvestment.

unadjusted

the adJuatment

q.

The

prnaedure


-

was that

since

ve must It

we were

value,

that

we should

segregate

It

=18o adjust

(distorted)

asaln,

we do not want

actual

(distorted)

with

for

If we use government

is

satisfied

the

savings

q taplytn8 •(savins led

we are

level

is

£s

su££tctent

Still.

doinS,

This its

some more about

there

of

based

adjustment

on the

the

for

assmaing program,

in this pol_.t£cal

consis-

This

the

or at least

i.e.,

regard,

and other is less

epparent

than

contradiction

a prem'Ltna on it role

that

the government

an £ that

the E-R rule

over

og populatinn

takes

may be more consu_tlon

consumption

£s postponed,

it.

although

Hence,

mainly

constmptton)

_ovth

evaluation.

The derivation vhtle

based

values

means that

us£nK K-R, we get

we place

us to think

but

iaplicItly

given

t8 optimum and yet

an equilibrium

of q, £ and SPS.

best

than one.

not

For SPS and !,

an optimum savt=8

it

equiltbrlun

an assumed

labor,

the

estimation

an SFS 8rearer

in project

that

the

is

its

o£ capital.

ve elJJntu,:te

study,

thk K-R rule,

that

toward

of labor. values

in dteequ£1£bt_,--,

wlth

of htrin8

pcoduct

optt:mm proKram.

constraints.

waSe rate

n_u_g_-_1 product

has implemented

• constrained

cost

equ£1ibziwn

the ,SWR from

t8

But our S_

social

warg£nal

this

to be cons£st_t,

q in accordance

function.

£s the

labor

The economy

4_ we move the

on the

Thus,

-

surplus

capital.

production

wage rate.

tency

assua£n$

assume scarce

was thousht

26

theremay

_1 of investn_nt

also

Into

account

£n the

future

be more people

v111

yield

the If

fact present

to share

q £n the future,


-

27

-

the actual rate bof growth of per capita consumption is only 1l+n+ q

-' 1. -7/ Zf the

saving

pro_Tam

(and thus

the ¢onsu_Lton

path) is optimal, this must be exactly offset by the rate of discount

applied

to value

K-R rule

derivation i_

of future

of the

social

q-n

l+q.1"

l+n

l+n

consumption. rate

-8/ Thus.

of discount

the

ÂŁ8

What the above argument also points out is that we cannot toe,are the values of future and present consumption directly. We nust values

adjust wtll

who share

them for

differ in the

population

in accordance consumption.

differences, since the with

If,

for

the e!-eker example,

of people a loaf

of

bread Is shared by t_wopeach gets half a loaf which has 8 marslnal utillty Kreater than half that of a whole loaf.

!We assume a constant

ratio

of 8avinK

to (_P.

--8/Otherwise, the marginal social Value of cousumptiou foregone in one period will not equal the marginal social value of consumption gained in another period,, implying that social welfare can still be 4_ptoved by a red_trtbutien of consumption _ different periods.


-

A problem analysis,

does

income have

arimes, not

be shared

a value

different

growth

were

zero.

_ equal

to

Thus,

under

rate

rate the is

put

for

progr_,

future

values

procedure n plus

the by the

Thus,

•. q*- n l+n

+ n.+.

•. (q-n) (l l+n -

growth)

q-n+nmq

is

rate

n

in

practice

B.

:+q

social £1ows

i,

That is,

the

the Value

social o£

grO'dl".h. This is

not

irov_h.

of i instead,

an opttsmm

n

=

to q.

by both

of population

under

q., .l+n

equal

population

the Value

n

end

B

income

o£ fall

conventional

and adjust in.

(n).

appropriate

o£ absolute

and the

since

.

Hence,

.:+=eq-n

the

the rate

(consu_tion),

very +convenient

we add to i,

=

to discounting as

population

we get

a stream

defined

if

by n and i,

I+

population

£ut_re

growth

B

saving

that

t_rns.

of population

I

(i)£or

capita

Q

(B) both

project

i_w_ome8will

would apply

them in per

-1,

an opc_nn_

numeraite

that

which

rate

fact

Yet future

benefice

_ = q is equivalent

discount

the

(i+=)(I+I)

of discount

follow

that

:B

unadjusted

setting

from

(l

o£ discount

(i.e.,

conventional

by more people.

future

ib

(i+i)

because

consideration

che_ by the

If we Chert discount

• BI

into

We ut

we must discount

define

however,

take

will

28-

.saving

to We can i.e.,

program,


-

29

-

A

We now substitUte q, SPS is under

_ for

equal

the

Co unity.

Keynes-Ramsey

contradiction

noted

The question of

an opt_um

others,

the (1)

relatively

_nvestl_nt. in project between

that

savin8

figures.

and

one.

suESastlng (3) a question

Finally, remains

is

inefficSency

of

rather savin hand,

surest much usa

that as

of

it

that

should

for

should. saving

in

predominate of income

S.

are

study

by

over-estimated balance

is

the in

badly

in

IMF suggests

the

official

deficit,

saving.

saving

the need

for mare

we should use project

(at the expense

and monetary

as instruments

its

than the dlstrlbutlon

a recent

trade

addressed:

despite

as the

"Among

a

miEht

saving

existence

indicate

considerations

as to whether

Fiscal

be

data

••This

even if we 8rent

as means of increaslnE

appropriate

income

income.

invest_aent the

should

for the Philippines,

a need for more

of investment).

is

Philippines

other

equals

The apparent

important

end

t

we assume

optimal.

a very

be

sinc_

if

program

efficiency

Moreover,

is

be

the

national

to

On the

saving

considerations

the

consu_tion

should

and

we assu_

evaluatlon,

(2)

that

what

it

SPS,

disappears.

capita

Thus,

is

for

not

ratio

seems

This

formula

or

official

country,

the

to whether

following

mow per

The problem

above as

saving

in

rule

saving

The

very high

a poor

±

savln S, evaluation

of efflc£ency

policies" may be more

for increaslns

8avins.


-

The first program.. _plles, need

Justifies

Hence,

not

use

used again

to

increase

of an optimum

- q and SPS equal

discount

of capital

if

saving rate

Thus.

in project

saving

to unity.

The '_hird

may be sub-optlmal,

different

project

saving.

predo_nate

SPS must

i

that although

a social

productivity

-

an assumption

we use

however,

30

selection efficiency

evaluation

froB

we •

the ,mrginal

wou_ld not

be

consideration so that

should

_ equals

q and

be unity.

Zf we assu_e, can be used

ou the

to increase

other

saving,

hand, the

that

project

second

implies

evaluation that

we

A

would need different

to eetilate

a social

from q (and thus

To do this, an independ.ent

of discount

an SPS different

we can use estlNate

rate

of

two approaches. the social

race

from

i which

is

,nity).

One, we could of discount,

i,

add to It, I plus in, i.e., A

i-i+n+In This, in effect, discounts future incomes by both I and n. The This value

independent however

estimate entails

of h (Squire

i could

be g h, as noted

an arbitrary

assusption

and Van der Tak sugsest

above.

regarding a value

the

between

one and two). Second,

one could

premium on saving

independently

and investment

assume (i.e.,

an arbitrary

an SPS) and then

derive i from an e_pirlcal estimate of q using the formula for

SPS above.,

Hence,

get and


-

31

SPS

-

+

sq A

(We can work

backwards

setting

Then

to

i = gh,

3.2

optimum

and

project

selection

either

we derive quite

that

the

can

we get

arbitrary,

or

as

noted

above,

Estimatins

the study

is

derive Marginal employs

that

an gh,

i

implied

derive

kno_ng

from

i -

to

increase

saving

than one.

In

our

that

assumption

directly

an

-I.

8.)

assmae

SPS greater where

First

If,we

wants

we assume

saving

through

that

about arbitrary

is

case,

h

is

SPS

bound and,

this.

Productivity basically

h.

h,

only

government

from

be

The

then,

i

to

the

we could

The conclusion, not

derive

1+i 14_

of three

Capital approaches

to

estimate

q

--

by estimating: 1)

the

2)

the inverse plus

3) 3.2. I.

rate

of

return

the international of return

The first two methods and will ylelds, study for

only be described is also suggested

due the

to

more

worsening, recent

manufacturing

of the incremental

an estimate

The rate

in

in years.

of factor

capital

shares,

(private)

rate

brlefly

in Manalysay terms

of

(ICOR),

and

and the ICOR.

in detail

here.

ratio

of borrowlng.

to manufacturing are discussed

output

A third

in Manalysay approach

(1979)

-- Stock

(1979) but is not done for the

quality

and

availability,

of

data


- 32 -

Since equalize

the in

_ate

the

long

be an estimate

of

The method manufacturing labor ment

of

run, q

of

second

represented

by

Y

Y

constant.)

is

K

and

The marginal

AK

where

NDP

(_ainly

by a measure

developed

by

a Cobb-Douglas

should

in

rent and of

Power,

replace-

also

production

of

Y

with

L

is labor,

is the share

productivity

in

IPPP).

function

of labor.

of capital

respect

to

Ks

u

is the share (A

is then simply

is a the

i.e.

Y

by ratio

income accounts.

AY

divided

(i - _)

capital-output

from national

manufacturing

f_ctors

is capital,

is then approximated

incremental

in

should

economy.

a method

8Y

K

return

sectors

A K _L I-_

in output

derivative

all

out from the total value-added

then

employs

is the output,

of capital

partial

=

of

for

of all other

(using

method

rate

taking

This

capital

capital

for the whole

contributions

The

where

to

the

involves

compensation). cost

return

Pt-

_

,

i.e.,

the inverse

(ICOR), where

data

of the

are available

Specifically,

Pt'1

It_ I

is net domestic

product

and

I

is net investment.


-

3.2.2.

The In

schedule

International

Figure

1,

and

horizontal vertical

S,

the

be

domestic

gives rate

Rate of

(Prlvate)

MEI

the

axis axis

let

33 -

the

marginal

supply

the

amount

of

interest

Borrowing efficiency

curve

of

of

investment

investible

tnvesttble aud

of

funds

funds. (IF)

and

The the

MEI .

S i

ib

y " "

"

_

II

we assume

nationally) Investment would I2

-

be I1

a perfect

capital will

amount the

invested,

foreign

marginal

efficiency

marginal

productivity

market

i

and

perfectly

at an international

be where

fb II

borrowings of

investment of

capital)

) IF

12 Figure

If

MEI

equals the

borrowing

MEI.

amount

(FB)

will

rate

(interib,

then

Zn the figure, supplied

supplied

(which

mobile

will equal

at also i b.

12

domestically, rate then

tb be

and the

the


34

Suppose, i.e., _.

however,

the _ountry Outstanding

level so that Or the country of foreÂŁEn Figure

that foreign

cannot

borrow

external

supply

may

borrowing

is ratloned_

as much as it wants

debts

may have reached

of foreign

itself

debts.

-

capital

seek

becomes

to regulate

an alarmin 8 inelastlc.

furthe_

In any case, we can represent

at rate

accumulation

this by

2.

S

,S'

,"/ q

.

._I"

.

,

-

•

b

_.,

_

L_ ...... Figure

?-2


-

Suppose

the

represent

will

Investment

economy the

will

can

proceed _

the above

of foreign

E C X.

capital

suggests

borrowed,

rate during

in real terms,

the end of the period, ylelds

rate

interest

an effective

ib Et+ 1

by

the real

international exchange

•3.3 Emplrlcal 3.3.1.

To calculate

taxes,

SS'

funds. equals

supply.

is t that_ the international of q.

However,

X

Suppose

in foreign

currency,

the period.

in domestic

payment

would

Hence,

currency,

is

Et+i,

equal

equal

X is

_

after Et+IX

to

ib Et+ I Et

of

borrowing

should

be

adjusted

changes.

Results

The Rate

following

demand

rate of interest

rate

rate

investible

in t + I becomes

ETX

i.e.,

Then

in ib is necessary.

If the real exchange

which

I I.

a lower bound.

some adjustment

borrowed

12 where

-

could be an estimate

and Ec is the real exchange the amount

of

discussion

it should be considered

the amount

supply

13

be less than q.

(private) rate of borrowing

Still,

only

up to will

-

borrow

aggregate

Wlth FB rationed, What

35

of Return

to

Manufacturing

the net returns

to manufacturing,

items from gross manufacturing

2) operating

costs,

output

3) cost of resale

we deduct

- I) indirect

goods

sold,

the


- 36 -

4)

total

payrol1's

and benefits,

5)

unpaid workers,

6) depreciation

land.

source

The main

Manufacturers Statistics available.

(NCSO).

However,

and 7) imputed

inventory fixed

The net returns

fixed assets.

assets

are no longer

are already

of unpaid

workers

cost of capltal. gives

Using

is estimated.

discussion

of the data.)

divergence

to be estimated

by Manalysay,

and (4)

by Power,

taxes

for 1977, while

for the two years

for a discussion

(e.g.s

to land). by a measure

source of data

inventories, book value

for more

of

cost detailed

is estimated

the gross

18.73 for 1976 and 25.42

is still

etc.).

the replacement

(Agaln see Manalysay

the dlfference

9/See Hanalysay

the main

and ending

The rate of return net of indirect 10.75 for 1976 and 16.17

and returns

Again,

investments,

the method

aggregated,

is then divided

(1) beginning

(3) gross

available

we follow Manalysay

to manufacturing

of capital

is estimated

the 1976 and

data for the later

For the rest of the data requirements, labor income

of

are

for the study, we use only

for 1979 and 1980:

(2) depreciation,

of

The ASM for 1979 and_1980

figures

is the ASM which

returns

and

years(for

of the replacement

of

Census

detailed

in imputing

income

Survey

by the National

1977 ASM due to lack of more example,

labor

of data is tile Annual

(ASM) published

Office

imputed

to be

rate of return

for 1977.

Though

the

is not as great as observed substantlal. 9/

We have

the

of the indirect

tax issue.


- 37 -

choice

of

whether

choose

the

to

estimate

Manalysay,

the

than

sectors,

of

other return.

it

n_

for

very

simply choose

in

1974

be

around

differs

since

somewhat

for implicit

This

converted

to border

tariff

returns.

-- the rate of

tax.

(to

im_llclt

output

tariff

to be the same as

taken

occurred),

estimated

of

.72.

to

This

-- she used the EPR as a proxy cost

replacement returns

to

land

Taking

the formula

others

are

thus estimated

tax and 18.83 percent

the mlddle

an estimate

the marginal

of capital,

and

The rate of return

this suggests

by using

higher

manufacturing

factor

net of indirect

Using the ICOR method, is estimated

among

to border prices

have

a conversion

income,

prices.

of indirect

rate

by Maualaysay,

q

of an average

reforms

Similarly,

labor

of

lower

an average and

For example,

an estimate

for 1977 is 9.26 percent

Manalysay (1979), 3.3.2. The ICOR method

our estimates

from Manalysay

costs,

by

for 1977.

gives

tariff.

is

yielding

estimate

or

is generally

as noted

for 1977 (this is still

operating

inclusive

assume,

years

observations

among, fir_s

industries

and outputs),

no major

.385.

to

the higher

by one plus

for manufacturing

to

two

From

estimate

rates

go

to adjust

price inputs

is deflated

the

reasonable would

We still need shadow

year.

the

in manufacturing

divergent

seems

between

a particular

to _--ufacturlng

return

average

Furthermore,

investments

Hence, we

the

rate of return

With

industries, that

take

of

value q

as in equal

productivity

to 14.05.

of capital


- 38 -

AY = u_

q

where

_

is the share

AY

of capital

in output

and

NDPt - NDPt-I It-i

AY -_

To estimate accounts. Appendix

An average 2.)

is also

we use the data for period

This yields

To estimate data

,

the national

is taken to be one minus employees

in national

compensation

of employees

yields

out to be near

must

equal

factor

conversion

output)

the estimate to 13.82.

_

limit of

value

is added

limlt of

ranging from

u of

and property

payments

estimate

be adjusted AYIAK

to

estlmate

_.

This

.298 to .601.

which

still

turns

to border prices.

by SCF/CCF

for manufacturing factor.

SL_F (which is the reciprocal

Hence,

of

source of

share of compensation

we use the middle

Ay/_

coversion

on manufacturing

The upper

at an upper

limit

to

The main

Then entrepreneurial

a lower

_'his is done by mui_iplying

is the capital

equal

.5, as used in Manalaysay.

Furthermore,

standard

accounts.

to arrive

an estimate

As our final estimate,

,29.

rent and dividend

of labor share and hence procedure

A짜 _

for

the percentage

income.

income net of estimated

(See

follow Manalysay.

income

income

1973 to 1982 is taken.

an estimate

_ , We again

from the national

where output

From Medalla

SCF is the and CCF

(1979)_

of one plus the implicit

is around

of q using

,72 while

the ICOR method

the

tariff

the CCF is around .76. is calculated

to he


-

3.3.3.

The International look

We Borrowing

Borrowing at

Rate

the

US PrÂŁme

we want

these rates are prime

Likewise, change

Race

To reduce

and

rates

the flve-year

(1976-1980)

14.5 percent.

is computed

Interbank

of the international

q to be used in Table

of borrowing,

annual

This brings

London

(1978-1982)

are presented

of 14.12 percent,

0.38 percent.

the

the impact of random variation,

a long-run

The figures

hIEher rate

Rate

for the last five years

(Furthermore, pEojects).

-

(LIBOR) for an estimate

rate of borrowing. the average

38a

the average average

for future 3.

Since

we choose

the

US prlme

rate.

real exchange

(See Table 4.)

our estimate

is computed.

rate

ThSs is around

of q to around


-

39

-

Table 3 Interest Rates

YEAR

U.S.PRIME RATES

LIBOR

1969

9.62

8.77

1970

8.56

7.80

1971

5.96

5.43

1972

5.72

5.22

1973

IQ.15

9.26

1974

11.98

10.93

1975

7.15

6.52

1976 1977

6.79 6.80

5.59 6.11

1978

9.07

8.85

1979

12.60

12.07

1980

15.24'

14.11

1981

18.88

16.89

1982

14_81

13.20

14.12Z

13.02Z

Average annual interest rate 1978-1982

Sottrce:

International Currency Review 1983 Economic Pla-_ng and Development Authority

and Research Staff of the National Economic


-

Table

4.

40

Real Exchange

-

Rate

Changes:

1971-80

5 GDPIPi 4

GDP_I

R

GD

I"_

ZA

7O

Sl. 765

1. 250

3._41

4.069

71

93- 385

i. 075

3. 6275

3. 900

-4.151

72

i00

i. 000

3. 7354

3. 735

-4.23

73

117. 915

i. 170

3. 652

4.272

14- 38

74

154. 645

i. 4605

3.8558

5.631

31.82

75

167.37

1. 248

3,732

4.65-8

-17.27

76

182.93

1.077

4.0566

4 - 371

-

6.15

77

196.525

1.068

4 - 0898

4.370

-

O. 04

78

214.61

1.04

4.0687

4.231

- 3.16.

79

247.22

1.078

4.2123

4.542

7.35

80

285.62

1.0867

4 -B422

4. 718

3- B86

Average

from

1971

to 1980

-

Averaae

from

1976

to 1980 -

-3772 4.112

So_rces: INEDA

Rational

•2Central

Income Accounts

Bank "Thirty-Sacomd

(c_uter

Sta_iatlcal

print Bulletin

out). 1980.

3R is the weighted average of exchange rates of the currencies of the different countries with which the Philippimes does tradz. The weights are the ratios of the voluBe of trade between the Philippines and a particular country arid the total volume of trade be_t_een the Philippines and the world. Data source is the InternaCionai Financial Statistics of the International Menetary FuDd (IMF). 4GDpIPI is the implicit price index of GDP taken from the National Accounts Staff of the Natlonal Economic and Development Authority (NEDA). 5_ is the weighted averaae of the "_mport and price indices veighte_ by. shares of imports & exports in the Philippines tow trade. The price indices were taken from the Central Bank's Statistical Bulletln 1980 and rise trade shares from the ForeiEn Trade Statistics of the Philippines 1980. .... r--,


-

The second

approach

for SPS (based on what should be.)

-

sets,

Instead,

government

For example_

1.3, 1.5 and 2.

42

feels

we could

the premium

set the value

We can then derive

of q from the formula

an arbitrary

i, using

value

on saving

of SPS at

our estimate

for SPS:

A

i

-

q(l-s) SPS

+•

sq

A

Thus, we get the corresponding implied

Summary

i

i

.118

.091

1.82

1.5

,I06

.079

1.58

2

.087

.061

1.21

and Conclusions in pro_ect

study -- that we ought

depending

A convenient future

upon

the number

way to do this

discount

rate

costs

differences

income by population

the social

evaluation

to adjust

time for population

differ

h

1.3

An innovation

over

for i and i and

value for h.

SPS

3.4

set of values

is suggested and benefits

since

of people

(which avoids growth)

(as usually

in the

accruing

their values who share directl7

is to adjust defined

them.

discounting

the value

-- i.e.,

of fall in the value of the numeralre-consumption)

w_ll

of i,

the rate

by adding


-

to it n plus value

of

optimal

,i

i n_ to

rate

I. Saving program

Otherwise, of

the

to

as it should,

unity

we need

discount,

is optII_m

as a means

yields,

SPS equal

we have

To summarize,

be used

q and

program.

SPS and a soclal

-

Such a method

equal

saving

43

not

or that project saving.

an

estimates

equal

following

of increasing

under

to

a

for

q.

casesz

would not

select/on Then

A

i = q

Three

and

approaches

tabulated

SPS = I "

were

used

to

estimate

q.

_

....

•

Method Return

q

to manufacturing

14.04

ICOR method

13.82

International

Wechoose national

borrowing

the higher

borrowing

represent

a lower

Derive

to

•

estimate

and the

of 14.5 percent

as discussed

government

saving.

an independent

estimate

Than, i = i + n + i n, and

(l-s) SPS

14.5

from inter-

earlier,

thl8 should

bound,

increase

from gh.

rate

rate since,

is not optimum

selection A,

are

below.

......

II. Saving

Results

q

= i - sq

of i

wants

to

use project


-

Depending percent

while

44

o_ the value SPS ranges

-

of h, i ranges 1.18 to

from

2.47.

from 7.6 to 12.7 For h ffi1.5

A

(the mlddle

B.

value),

i = 10.2 percent

Set an arbitrary

premium

while

SPS = 1.59,

on SPS.

Thus A

i.

(l-s) q

+ sq.

SPS

For example, correspondingly

for SPS equal

equal

to 1.3, 1.5 and 2.0, i would

11.8 percent,

10.6 percent

and 8.7

percent. 4.

The Shadow Price of Labor 4.1

Determining

the

Shadow Price

The shadow price labor

of labor

for urban project

(SWR), is estimated

of Labor

(more speciflcally

employment,)

in Hedalla's

unskilled

or the shadow wage

study

(Bautlsta_

rate

et al._

as L

8 (l-s)(d-l) where _ is the

conversion

z is the marglnal

product

the ratio of labor force w is t_e wage

factor

for agricultural

of labor

in agriculture,

tO employment

rate in the project,

output,

in urban

L/N is areas,

s is the average

saving

1979)


-

ratio,

sW

45

-

is t|te.worker's saving d is the income

price of saving,

ratio,

SP$ is the shadow

distrlbutlonwelght

and

B 18 the ratio of OER to SER.• The first direct

term of the formula,

opportunity

employment,

For each

urban sector, misratlon

unemployment

(fairly

mlgra_ion

will

L/N workers

cost of hiring

rate, given

suggest

to restore

from rural

the

for project

job created

in the

that ruzal-urban

an equilibrium

the rural-urban

will migrate

, indicates

unskilled.labor

permanent)

theories

be induced

L

_z

wage

sector

differential.

thus foregoing

•L z oatput.

This is multiplied

prlces, l_[- The conversion appropriate

to agrlcultural

The L/N factor For non-urban This

sho_Id

be drawn

o, should

output

dlrect

areas.

then be

for urban projects.

z since

cost would labor• would

The implicit

is that all migration

that there is no migration

to border

foregone,

opportunity

be a regional

from surrounding

here, however,

factor

is applicable•only

projects= perhaps

by ¢ to convert

regionally

is rural

be z. probabll

assumption to urban

from rural

and

to rural.

lO-_We first derive S_ in border prices then multiply this by SER/OERtoconvert to domestic prices which is what is compared wlththemarket wage.


-

The last

(w-z) indicate

two terms

B (s-s w)

-

(w-z)

which

employment

factors,

except

surplus

product,

. Thus, in hiring consumption

are

B (l-s)

cost or the cost

from project

increased

-

of the formula,

(SPS-d)

the indirect

(resulting

46

(d-l)

of additional

of rural

labor).

labor, will be paid'by these other

cost

involved.

will be paid by an industrial

Surplus

a basic assumption

of labor, above,

than its marglnal

taxation,

inflation,

true if we were

goods.

that it is reasonable

to the worker else.

Van der Tak, is Simply

that

elsets

a government Otherwise,

expense

of

however,

as well

as

we count

as a cost and a benefit

of Little the whole rather

be not

we now think

incomes

of more

Moreover,

is also the general

through

will not

of the worker

for by the output

is not in this case offset This

cost

that did

project

that other

investment,

income

That might

so that the •extra consumption

have to be provided

goods at the

of someone

to assume

the indirect

income of the worker

or some other means.

considering

consumption

be affected,

in deriving

is that the increased

(w-z) would be at the expense

someone

is no

•,

However,

will

there

labor, however,

produc t.

produce

Primary

their marginal

resources,

wage higher

eonsumptlon

the

consumption benefit

by a disbeneflt assumption

and Mirrlees. increase

to

of Squire

and

The difference

in worker

consumption

the

by

than this less

maou_t


-

which

the cons_tion The result

4?

-

of others

is a much

simpler

L SWR -- _z _ + B (w-z) This is SWR inborder

is reduced.

(l-sw)

prices.

To convert

to compare

the market

multiply

this by I/B (i:e., $ER/OER). for incorporating

of the SWR is to encourage more

sa_ing

and more

considezations

are valid

not just wage

income.

way in which when

evaluating

carried

out,

labor),

resources

product. labor

project

to a11 incoues,

we devised

an alternative

can be incorporated

being proposed

full employment

will

be used

_nskilled

than an avera_

to

relatively

But if _hese

apply

cost of labor

which

Qnd evaluated

(except

somewhere

labor, will

Thus, any project

of increased want

Accordingly,

assuming

surplus

that produce

a project.

If a particular

except

else.

be paid

hires

Everything,

by its marginal

proportionately

project,l--I/would involve

consumption

is

taken

to

a higher

more cost

and it is this gap that we really

be

the

alternative

iS not

for unskilled

measure.

11/This

prices

_rate, we simply

to the poor.

they should

the indirect

wage

to domestic

SPS and d into the calculation

projects

Income

for the SWR

(SPS-,d)

in order

The reason

with

expression

project.


-

48

-

m,:

Hirln 8 propqrtionately it would since

affect

the proportlonof

the worker's

others.

income

Two,

goln8

more or less labor has two effects.

savln8

it would

The more unskilled

labor would

s is the proportion

is the proportion we should

adjust

multiplying

of income the income

accordingly

sj

the proportion

pj.

lower is sj but the higher project,

saved by the proJea_,

rate, sw, is assumed

affect

to the poor,

income

to be

on s and p are opposite,

be employed

by the project,

is pj.

Suppose

of income that would

8o to the poor. project

1 + (sPs-1)

Estimating

and

Then

J by

sj

, and

i + (ses-1)

I

+

4.2.

be saved

by

(2) pjd + (lopj)

+ (d-l)pj

i + (d-l) additional

cost and benefit of

is thus incorporated

Hence,

the

that for an average

that would

of a par tlcular

._(sPs) + (I-_)

consumption

than

The effects

(sPs) + (1-sj)

of the

sj,

of the project's

.......

The effect

lower

One,

to estimate

increased

in sj and pj

SWR, we need only

the SWR when all incomes

(glven s and p). L to estdmate Uz _.

are adjusted

for saving

end

income distribution. From the above discussion, to (in

border "

prices) L

SWR ffiaz _ .

the SWR estimate

has been reduced


-

For

coconut

tariff

oll,

copra

is negative

and

desiccated

of wage

(4th Quarter

computed.

coconut,

the

implicit

of the three

close

rates,

and corn domlnate,

palay

to

-.04).

took u = 1.0.

L The factor _ is derived

more work

-

(an average

Since in 'the weighting we slmply

50

from the Labor

1980 and 1981).

as 50 percent

unemployed,

Dlvldln 8 the labor

emplryment,

Counting

L/N is computed.

Force

Survey

the _mployed

total

wishing

employment

is

force by thls estimate Thls

of total

Is 1.26 for 1980 and 1.30

for 1981. Estimates following

of the SWR for 1980 and 1981 are given

table,

together

raw data from Medallats

with

earlier

an estimate study.

for 1977

Results

in the

uslng the

are tabulated

below.

Year

SWR in border prices

SWR in domestic prices

...........

4.3.

Estimating

_

1i

i[

1977

9.28

11.14

1980

13 .33

16 •00

•54

1981

15.81

18.97

.60

the additional

consumption

of increased

consumption

in the S_.

of SPS and d, the lncome

.66

cost of hlrln8

We still trled to see what happens

estimates

SWR W

labor

if we include

This

requires

distribution

the cost

consistent

parameter.


-

in

the

Technical

51

Notes

-

of

the

ZPPP project,

a method

estlmatin&

the Income

distribution

parameter

The latter

is defined

as the ratio

of the marginal

of consumption hired

of a particular

workers),to

average

level.

by _O(c)

= c

class

the marginal Assuming

of

(d) is shown. utility

(in our case the newly

utility

of consumption

a social welfare

f_nction

at the

i_plied

-h

where

_ is

,

average

consumption,

h is the elasticity MU is marginal Assuming we have

of marginal

utility

annual

of c from c

and

we get _1,216

is consume_,

(his former wage

O

in the project).

as F12.16

If we multiply

and again by 0.4 to account dependents,

consumption

of consumption.

of the worker

to c n (his new wage

data give these

respectively.

utility

all of the income

in agriculture)

is .workers'

function.

the range of values

preliminary

c

and

_31.82

Our

per day,

these by 250 days per year

for the consumption

and P3,182,

of his

respectively,

for

consumption.

Then we must

ask what we mean by average

In the IPPP project "average"

rather

50 percent but we will

we selected

than mean

higher.

We

nevertheless

median

consumption,

are not sure follow

consumption째

consumption which

as our

is about

that this is right,

the same procedure

here.


-

52

-

We have data for overall per capita consumption, which was P4,152 in 198] (the year of our other data).

To estimate

•median consumption, we multiply this by the ratio of median to mean income from the 1971 household survey.

This involves

two heroic assumptions -- first, that the skewness in the two distributions is about the same and, second, thaw the shape of the distribution did not change much over a decade.

We hope

we can do better, but we will proceed now on that basis. ast_ted

Our

value of _ is, than, P2,727.

Integratlng our expression for d over the whole range of values

from c

0

to c

n

. _f.

(cn-c o) d

dC

0

•-h

= C

C

-h

dc

c

'= c __,o

_

h=l

cn

h _ 1,12/

Zf. we put h = 2 (the upper limit for Squire and van der Tak (S-T) and the lower limit for the IPPP project), we get d m 1.92.

S-T recommend setting h arbltraTily at unity in

the absence of any information that would thrQw light on the questlon.

That would yield d = 1.31.

d = 1.56.

12/for h = 1, (en-Co)d

_, c Incn

c

o

In between, h = 1.5 gSves


-

If

we

do not

use project values

assume

evaluation

an

-

optimal

saving

to increase

for SPS which

also depends

1.18 for h equal to 1.0, q _.145,

._3

program

on h.

We have

and confirmed

by a procedure

The principal

reason

wage rate;

1.0 used

slmilar

seems to be

risen far less than overall is true also

(though

in the I짜2P project

that farm wage

above.

rates have

consumption.

to a lesser degree)

are the implications

(This uses

to that used

per Capita

1.59 _nd

All of the values

The same

for the urban minimum

so this is a second contributing

What

2.47,

1.5, 2.0, respectively.

than the

to

saving, we need correspon_g

s = .20, g = .05, and n ffi.025.)

for d are much higher

and want

cause.

for the estimation

of the SWR?

Recall

that

The results

for three h

SPS

SWE

.076

2.47

1.5

1.56

.10Z

1.59

19.56

1.92

.127

1.18

4.42

of h.

h at the higher

high value

i

for h are:

1.31

Obviously,

plausible

d

guesses

1.0

2.0

the value

different

social

the SWR is very Moreover,

sensitive

rate of discount

to be consistent

7.6 p_rcent, rate.

with

about

If we _et a

(i) and SPS, we get a very

for d that puts the SWRvery

SWR above the mlnlmumwege

to the assumption

we seem to face a dilemma.

end of the range

we get an i of only

41.78

low.

an extremely

At the other high

end;

SPS and an


-

We would the

range,

of income

of

that

a very high

to poor

estlmaC1ng

d,

d for any

the

we

medlan two

for

could

method

h.

First,

throughout

that

high values

for

1.5,

gives

is concerned째

be

closer

If this isnot too high.

should

intensive of about

rate

of

the most

1,5.

the

estlmete

Income_

income,

to

the

so

mean. too

low.

rather

that

the

Thus

for

Finally,

full time

worklng

true, we have set their

So we c---or blame

plauslble

the method

to make

against.

This means

result

It is always

would

we should that

for h, the middle

i _f about

by some argument

10 percent

investment,

reason,

for d,

be dlecrlmlnsted

discount

low

of the consumpt$on

of

are

because

in our method

median

may be

of

a transfer

downward

taken

that

farm workers

The corresponding

Justified

But

that

the skewness

than

a pure rate of time d_scount be

bias

biases

consumption

on the low elde, however.

have tO

h.

end

very highly

It same- that of the range of values value,

upper

d downward-for

we have

less

the

the year.

the

an upward

probably

should

and consumption

for the

value

Second,

"average"

assumed

we have

income

probably

our

upper

adjust

our

consumption

reasons

at

d (we are valuing

than mean as the average. is

be

Zf there were

given

distribution

should

workers), we get an implausibly

farm

however,

-

i

with

for the SWRo

_n fact, of

agree

consistent

thls ylelds

value

all

54

so far as the SWR I0 percent

open of course

It higher째

note

as tO why future

too

favorable

the

corresponding

the initial

to add

This would

If we are concerned be

seem

to

generations that a capitalSPS

Invest:sent cost in a


project ments

should are at

expense it

the

represent

intenoÂŁty.

of other If

e etron8

th_s

10 percent

if

were

us,

that

we Judge

investments,

deterrent

What _4Kht worry

an i of

-

50 percent

expense

of consumption.

would

that

be raised

55

new

rather

than a_ the

done in project to excessive

hoveverj

would be accepted

is

invest-

evaluation, capital

the possibility

and the

SPS isnored.

t

4,4.

Conclusion. All

oÂŁ the

incorporate

saving

completely section

above

(i.e., 4.2

and income all

above.

difficuÂŁties

incomes,

are

avoided,

distribution not

however,

if

considerattono

just

wage incomes)

Then the appropriate

social

more as

rate

we

in

of discount,

A

i,-is is

to q, L to az _,

equal equal

chose

to ipore

entirely

the marsinal Note

saving

in project

that

product this

or

the more complete

manner described

represents

innovation

a real

recommend that

it

would

and income

evaluation,

be carefully

of capital, be true

distribution

end the Sk_ either

parameters

if we incorporate in section

in project considered.

if we

4.2.

evaluation

them in The latter end We


-

TABLE 5:

56

,-

WEI_TED AVERAGEFARM_'AGES, BY CROP A[_D I_ COMBINE;DREGIO_S: 1979-!980

PHIL

i

ll

1879

10.87

10. °_0

1!. 17

1980

10.73

10.26

1981

12.51

1!.19

1979

10,07

?. 91

t0.02

1980

10.14

9. _2

1981

11 . 19

1979

3,11

IV

'

!3.85

I0.52

'_12.04

I_0.04 ""

10.61

,15.45

!1.37

!0.91

10.09

:,0.4g

t2._

9.27

10.20

12.35

12.00

_. 99

11. 26

!0.52

I0.00

:0.89

9.8_-

_.0,63

1980

10,54

-

12.27

9.43

9.64

i981

12• 23

-

15.25

11 •C2

10.61

COm9

•OOCOh'Ir_


-

TABLE 6:

57

-

AVEP.,._E ',qT,_EIt&I:ES, BY COI_Slh'EDR,EGZONS: • 1979-i980

FlIZL

I

II

_I

.......

IV v,

v'

1.979

10.61

10.71

llil. 99

10.51

10.50

lgSO

10.55

10.13

12.1.5

9.80

10.22

198I

12.16

12,22

15.09

!1.10

lfJ.96


-

Append:J.x 1:.

Year

58

-

The l_tverse of the Iucremenl:L1. _pica_4.-.oucpuc _c_n O:coe,)

_gl)P (AY)

_net jgCuec

1973

4,633.33

7,354.67

.62998

1974

2,851.67

8, 383. O0

.34017

1975

3,908.33

13,935.67

.357.:19

1976

4,993.33

14,107.00

.35396

1977

4,16:5.00

16;532.33

.25193

1978

3, 98 3. O0

16,134 • 33

.24656

1979

4,661.67

17,607.33

.26476

1980

4,218,67

19,655, O0

.21464

1981

2,8 34• O0

20.315 • 67

• 1395

1982

2,491.66

20,190.67

• 12341


Appendix =2: The

59 -

5h_re of Labor aud Capis:al

• .

(_)

" '(I-Q)

.

73

z3,6ss.7_

.39s_8

_.7_

t2,:9o3.17

41,ssT,s3

.7o532

74

32,721.80

.40326

7.5,7_0

18,134.07

57,64.5.93

.71042

75

37,187,48

.i._0433

86,122

20,812'$7

bS,309.&3

.71009

7_

_.t92.;,;

.4034t

;0:,,:_4

_,272.:53'

7s,071.47

.Tl_ee

77

50,911.38

'40712

117,905

25,993.80

90_9|1.20

.72698

78

57.933.76

.40397

134,168

31,290.37

102,877.63

.71736

79

_,35o.os

.3_o3z

t._,29_

4o,792.e3

_z7,4_.:jz

.67oge

'39058

193.761

48'124.30

145,636.70

.67987

.39139

223,297

$4, $5"7.13

168,739.87

.M495

'80

.83,666,00

•-81

_re_tie

96,419; 64

_:_

(_ (_e_lr_e

1973-82 • sJuu_e-of

• 39878 .60122

,70174


Reference8 Bacha,

K. and L. Taylor, Review o£ Current LXXXV (_y 197D.

"¥orei_ Theor£es;

Exchm_ge Skadov Prices : A Critir.a1"" Quarterly Journal ..of Ecouomi.98.,

B_assa,

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