Doha Development Round & Egypt :

“What If The Capital is Endogenized?

The Turkish Team

D.Selim PASLI, A.Emre AKEL, Iclal SINCER

OUTLINE

• INTRODUCTION

• RESULTS

– DEMAND SIDE

– SUPPLY SIDE

• CONCLUSION

Introduction

• What would happen to Egyptian economyin the long run during DOHA Development

process? :

`the exogenous variable “capital” becomes endogenous…`

So, the initial model reflects the short run while our model reflects the long run…

Version

• Version : egypt200

• 26 x 12 sectors and regions

• Egypt, China, EU, LDC, India, USA… etc.

• Apparel and Leather Products, Fibers, Textiles, Trade and Financial Services, Metal Products, Wood and Paper… etc.

Closure• Trade balance is fixedswap dtbalr("LDC") = dpsave("LDC");swap dtbalr("CENTAM") = dpsave("CENTAM");swap dtbalr("Mexico") = dpsave("Mexico");swap dtbalr("MERCOSUR") = dpsave("MERCOSUR");swap dtbalr("CHINA") = dpsave("CHINA");swap dtbalr("INDIA") = dpsave("INDIA");swap dtbalr("JAPAN") = dpsave("JAPAN");swap dtbalr("USA") = dpsave("USA");swap dtbalr("Egypt" ) = dpsave("Egypt");swap dtbalr("ROW") = dpsave("ROW");

• Capital is endogenized

swap qo("capital" , REG)= expand("capital" , REG);

# change in investment levels relative to endowment stock #

(all,i,ENDWC_COMM)(all,r,REG),

EXPAND(i,r) = qcgds(r) - qo(i,r)

What we have changed…

Shocks & Solution method

SHOCKS from CEPII DDA Scenarios and elimination of agricultural export subsidies;

• Shock tms(AG_COMM, REG, REG)• Shock tms(NONAG_COMM,REG,REG)• Shock txs(AG_COMM,REG,REG) = target% 0

Solution Method

• Gregg 2-4-6 steps extrapolation

We made no change in this part

Results

Welfare Effects (Million $)

70 74

0 0

-101

-33

0 11

104

211

0 0

-111

-35

0

169

-150

-100

-50

0

50

100

150

200

250

1 alloc_A1 2endw_B1

3 tech_C1 4 pop_D1 5 tot_E1 6 IS_F1 7 pref_G1 Total

Egypt-SR Egypt-LR

• Total welfare increased from 11 ml $ to 169 ml $.

• Allocation efficiency and endowment effects are the main contributors.

SR=initial report

• The driving factor leading allocative efficiency from 70 ml $ to 104 ml $ is the capital : 0 to 30 million dollars…

– tax rate on capital : 9.8%– dvol increases 300 ml $

Results-Demand Side

• Endowment effect increases from 74 ml $ to 211 ml $ :

– Capital stock qo (capital) increases from 0 to 0.74%

– All of the sectors increased their demand on capital; especially Wheat, Livestock, Paddyrice and Cereal.

SO, IT IS THE FIRMS DRIVING THIS INCREASE IN DEMAND OF CAPITAL

Results-Demand Side

• The total welfare of the world also increased: 54 bl $ to 120 bl $...

• In the short run savings decreased about 11%. Contrarily in the long run, savings increased about 12%...

• By looking through the rate of return values, we saw that ‘rore’ decreased from 0.3 to -0.35 in the long run…

• The price of the capital falls….

Results-Supply Side

• In the long run, trade liberalization effects welfare much more

positively compared to short run ! Egypt also benefits welfare

increase…

• The effects of allowing capital to expand has so many complicated

linkages, generally as a mix composition of supply and demand side

effects…

• Further digging is essential and is on the process…

CONCLUSION

THANK YOU