Chile: building a computable general equilibrium model with an application to the Bío Bío region

Transcription

1 CEPAL REVIEW 106 april Chile: building a omputable general equilibrium model with an appliation to the Bío Bío region Cristián Mardones P. ABSTRACT This paper desribes the building of a regional omputable general equilibrium model appliable to the analysis of development poliies and major eonomi shoks for speifi regions of Chile. Then is generated an appliation for the Bío Bío region whih reveals that the effets of the urrent fisheries risis (aused by the sarity of jak makerel) an be expeted to result in the prodution struture beoming further speialized in the wood and ellulose industries. It also finds that setors with few prodution linkages to the fisheries setor are strongly affeted through indiret hannels that would be hard to identify without a general equilibrium approah. KEYWORDS Eonomi development, regional development, development poliy, eonomi indiators, eonomi onditions, exports, imports, inome, onsumption, prodution speialization, industry, ase studies, Chile JEL CLASSIFICATION C68, R11, R13 AUTHOR Cristián Mardones, Assistant Professor, Department of Industrial Engineering, University of Conepión. rismardones@ude.l

2 126 CEPAL REVIEW 106 april 2012 I Introdution Analysing regional eonomi poliies in a general equilibrium framework is intuitively attrative beause it makes it possible to establish indiret links that would otherwise be hard to detet quantitatively. By apturing first- and seond-order effets, omputable general equilibrium (ge) models an be used to identify transmission mehanisms and the total effets of a poliy or shok on domesti, interregional, external and fator markets, with expliit onsideration of the behaviour of eonomi agents in the form of adjustments via marketlearing pries. In pratie, however, alternative regional evaluation tools are more ommonly used, suh as multipliers based on input-output matries or eonometri models. Partridge and Rikman (2010) argue that the limited use of regional ge models is explained by their omplexity and by shortomings in their formulation, implementation and desription. Appliations using ge models at national level usually deal with international trade, publi finane, energy, the environment, inome distribution, and poverty, among other things (see Devarajan and Robinson, 2002). A variety of appliations for Latin Amerian ountries an be reviewed in De Miguel and others (2010). The literature on regional ge models is thematially diverse, but less plentiful. 1 Reent researh inludes the work of Julia-Wise, Cooke and Holland (2002), who analyse property taxes in the state of Idaho; Miguel-Vélez, Cardenete and Pérez-Mayo (2009), who study a rise in fuel taxes; Rikman and Snead (2007), who examine the growth and equity effets of subsidies to formal hildare for low-inome families; Liu (2006), who deals with the eonomi reperussions of building an industrial siene park in the south-eastern region of Taiwan; Conrad and Heng (2002), who disuss the role of publi infrastruture in regional growth; Seung and others (2000), who evaluate the reperussions of realloating water between the farming and tourism setors; Patriquin and others (2002), who use an environmentally extended model inorporating natural apital in a region of Canada; Gieseke (2002), who identifies the auses of growth The author is grateful to the National Fund for Sientifi and Tehnologial Development (fondeyt) (initiation projet no ) for the finaning it provided for this researh. 1 See Partridge and Rikman (1998), Rodríguez (2007) and Partridge and Rikman (2010) for an exhaustive review of the appliations. divergene between two regions of Australia; and Kim and Kim (2002), who onsider the growth and equity effets of a regional development strategy based on investment inentives in the Republi of Korea. In Latin Ameria, appliations of ge models for regional impat analysis are relatively thin on the ground, and publiations onentrate on ountries suh as Brazil and Colombia. In the ase of Brazil, Haddad (1999) uses the b-maria model, based on the multiregional monash-mrf model of the Australian eonomy, to evaluate strutural hanges in the eonomy and hanges in inequity in the event of unilateral liberalization of international trade; Haddad, Domingues and Perobelli (2002) onsider alternative eonomi integration strategies on the basis of a national model and then, in a seond stage, introdue an interregional model to generate a top-down disaggregation of the national results; Domingues and Lemos (2004) also fous on the regional onsequenes of trade liberalization strategies in Brazil, employing a multiregional model based on the monash-mrf model; Domingues and others (2002) explore hanges in the interregional trade flows of 27 Brazilian states. In the ase of Colombia, Iregui (2005) quantifies the welfare effets of a deentralization proess using a multiregional ge model; subsequently, Haddad and others (2009) onstrut a spatial general equilibrium model for the Colombian eonomy, inluding a detailed treatment of interregional trade, sale eonomies, market imperfetions and transport osts. The present study introdues a regional ge model that is relatively easy to implement for other Latin Amerian ountries wishing to evaluate eonomi reperussions in a speifi region. In Chile, there have been empirial appliations that have employed a general equilibrium approah, but only to investigate ountry-level impats, as no studies have used a regional ge there. The following may be ited as examples: Coeymans and Larraín (1994) analyse the reperussions following the signing of the United States-Chile Free Trade Agreement; Harrison, Rutherford and Tarr (1997, 1998 and 2005) investigate the effets of a poliy of unilateral trade liberalization and the signing of free trade agreements (ftas); Shushny, Durán and De Miguel (2008) evaluate the effets of ftas with Asian ountries; O Ryan and others (2011) examine the soio-eonomi and environmental effets

3 CEPAL REVIEW 106 april of ftas; Holland and others (2005) study agriultural priing poliies and identify their effets on the eonomy and on urban-rural migration; O Ryan, Miller and De Miguel (2003), O Ryan and others (2005) and Dessus and O Connor (2003) simulate environmental poliies and their reperussions on the eonomy; Pereira and others (2009) fous on the introdution of opper mining royalties designed to attenuate Duth disease and inrease export diversifiation; and Mardones (2010 and 2011) analyses various reforms to the Chilean tax system. The importane of having regional ge models is that these an be used to analyse poliies, shoks or both that are speifi to a region, and likewise those of a national or international harater, but onentrating on the eonomi reperussions for a partiular region. Their usefulness beomes apparent when evaluating simulations of ounterfatual senarios that have effets on a variety of representative households, eonomi setors and prodution fators whih are impossible to apture with a partial equilibrium analysis. General equilibrium effets an be important at the regional level insofar as poliies and shoks affet setors with strong prodution linkages or regions whose prodution strutures are highly speialized. The speifi issues that an be addressed with this tool are various, and may inlude determining how a region will be affeted by soial poliies, striter environmental regulations, energy prie shoks, development poliies aimed at partiular eonomi setors, 2 royalties on eonomi ativities, and employment subsidies, among other things. Generally speaking, it is possible to model any impat on an exogenous variable or parameter represented in the model. Although it is possible to use input-output models to obtain these proxies for a region, Rikman (1992) and Gillespie and others (2001) have shown that these overestimate eonomi reperussions in the absene of oversupply, sine the assumptions of fixed pries and perfetly elasti supply do not allow the displaement of other eonomi ativities and employment reation to be estimated. Furthermore, the lak of an eonomi struture means that fisal poliies annot be evaluated in input-output models (Partridge and Rikman, 2010). The regional ge models used in the literature an be lassified into two major ategories: regionspeifi and multiregional. The main onstraint ausing models of the first type rather than the seond to be hosen (apart from the diffiulty of developing and programming them) is the availability of region-level data, in partiular up-to-date input-output matries for eah region and interregional trade data. Chile does have regional input-output matries (base year 1996) that fit the region-speifi model, but interregional trade is not available, and even in the methodologial detail of their onstrution (Riffo and others, 2006) it is mentioned that the data on a region s trade with other regions are not diret but are simply an adjustment aount. A ge model for a speifi region is designed with referene to a partiular area within a ountry and is haraterized by its similarity to a ountry-level model, with the differene lying in the treatment of the external setor, whih in this ase onsists of the rest of the ountry and the rest of the world. Its main limitation is the inability to evaluate effets on other regions and on the ountry as a whole, something that beomes more important when the region is highly integrated into the rest of the national eonomy, sine the piture of impats that it provides is inomplete owing to the failure to apture interregional feedbak effets. This limitation would not be ompletely removed with a multiregional ge model, however, sine in empirial appliations the number of regions and setors is usually small beause of omputing and data onstraints (Wittwer and Horridge, 2010). The present study sets out to fill the gap in this area by implementing a region-speifi ge 3 for the analysis of Chile s regional eonomies, modifying the equations of a standard ountry-level ge model for this purpose (Löfgren, Harris and Robinson, 2001); this new model is alled regge. To show the benefits of this tool for the evaluation of regional publi poliies or eonomi shoks, an appliation speifi to the Bío Bío region is generated. This analyses the maro, intersetoral, employment and household effets of the urrent fisheries risis aused by the sarity of jak makerel, this hoie being guided by the reent availability of a soial aounting matrix (base year 2006) (Mardones and Saavedra, 2011) to alibrate the proposed model. This paper is novel, and not only at the regional and national level, sine the literature ontains just one published study using the same methodology to model falling fish athes and rising fuel pries in Alaska (Waters and Seung, 2010), although neither model speifies 2 In Chile, for example, there has been a growing onern in reent years to produe long-term development strategies for the ountry s regions based on efforts to use regional development agenies to onsolidate and fortify ertain setors of the eonomy. 3 The strategy of modelling a speifi region that has ommerial ties with the rest of the ountry and the rest of the world fully onords with the struture of the databases of regional input-output matries for Chile made available to the publi by the National Statistis Institute (ine) in 2004.

4 128 CEPAL REVIEW 106 april 2012 endogenous interations between fishing ativity and hanges in the biomass (stok) of the resoure. Although there are other models speifying dynami interations in eologial and eonomi systems, suh as Eihner and Pethig (2007) and Finnoff and Tshirhart (2005), these possess different harateristis to multisetoral ge models like the one analysed in this study. The rest of the artile is strutured as follows. Setion II details the struture of the proposed regional ge model and the regional soial aounting matrix used to alibrate it. Setion III details the appliation of the model to the Bío Bío region, using simulations of negative impats affeting fishing produtivity to represent the sarity of jak makerel, athes of whih have fallen by over 45% sine The aim is to determine the effets of this risis on regional eonomi development. Lastly, setion IV presents the main onlusions and future extensions of this study. II Methodology 1. Soial aounting matrix A basi ondition for applying a ge model is to have data available to alibrate it. In Chile, ine (2004) has published regional input-output matries (base year 1996), whih are essential for onstruting regional soial aounting matries (Pyatt and Round, 1985), these in turn being the data needed to alibrate a regional ge model. Although ge models do not generally use a very reent base year (trusting that alterations in the eonomi struture take plae in the medium and long term), 15 years is too long for the model appliation to onstitute a reasonable proxy for the regional eonomy. 4, 5 Consequently, use is made of a soial aounting matrix for the Bío Bío region (base year 2006) onstruted by Mardones and Saavedra (2011), who updated the ine regional input-output matrix with information from the 2006 Annual National Industry Survey (enia), national aounts, ustoms, the sixth Family Budget Survey and the 2006 National Soio-eonomi Survey (asen), among other soures, using the indiret ross-entropy method 6 developed by Robinson, Cattaneo and El-Said (2001). 4 mideplan (2005) provides a desription and analysis of Chile s regional eonomies based on regional input-output matries (base year 1996). 5 Rojas (2009) develops a soial aounting matrix for the Metropolitan Region of Santiago (base year 1996), the key inputs being the regional input-output matrix and assumptions about known linear relationships between national and regional data. 6 The optimization method an be used to obtain a soial aounting matrix from an older matrix by inorporating errors in the variables, inequality onstraints and updated information on some parts of the matrix and not only the row and olumn totals. The methodology used to onstrut it onsisted, in a first stage, in obtaining a regional soial aounting matrix (sam) for 1996, this being the initial element required to apply the updating methods. It was based mainly on the input-output matrix for the Bío Bío region, with base year 1996 (details of its onstrution in Riffo and others, 2006). Given the limited availability of regional setoral information, the sam inluded 20 prodution setors. Information on value added and regional intermediate onsumption by setor, updated to 2006, was then inorporated and this, along with the use of some estimates, allowed the intermediate onsumption matrix (a omponent of the sam) to be updated using the ras method, whih is an indiret method for obtaining an input-output matrix. The vetor of value added updated to 2006 was based on Central Bank of Chile statistis on regional gross domesti produt (gdp) by lass of eonomi ativity in the period. In the ase of manufaturing industries, both value added and total expenditure on intermediate purhases in these setors were obtained from enia 2006, prepared by the ine. The use of this matrix, some known information (suh as exports to the rest of the world and publi investment) and proxies that mainly involved taking as onstant some regional proportions from 1996 or some national proportions allowed an updated regional sam to be obtained using the ross-entropy method. Besides using the 1996 sam as a starting element, this method required the definition of onstraints given by known (or reasonably estimated) information, muh of whih ame from estimates arrived at using the ras method. Eah of these onstraints was programmed using the ross-entropy method, following whih the trial and error proess was initiated with a view to implementing

5 CEPAL REVIEW 106 april the greatest possible number of onstraints, so that the method would onverge on a solution. A problem that an arise when an indiret method is used to update the sam is that the original ratio between tehnial oeffiients is maintained. This means that even if the data are updated, the effets and ratios will be the earlier and not the latest ones. This point was addressed by employing an optimization proedure for updating the sam, whih inluded onstraints assoiated with the intermediate onsumption and value added of eah ativity on the basis of enia data or, if these were laking, ratios based on regional setoral gdp. This an be orroborated by observing the hange in the tehnial oeffiients of the 2006 and 1996 sams. To simplify the results, table 1 presents an aggregation of the 20 original setors into just five, labelled natural resoures, industry, onstrution, ommere and servies. By way of example, it is onluded that an eonomi transformation took plae over the deade, with apital intensity delining in the natural resoure setor and inreasing in the industrial setor, whih fits with what has been observed in the region. Speifially, this trend towards lower apital intensity and rising intermediate onsumption of inputs an be seen in the fishing setor (see figure 1). Regarding inlusion of the government in the sam, in Chile all taxes and operating surpluses raised, among other revenue, are transferred to the entral government (exept for the olletion of muniipalities autonomous revenues not transferred from the entre). These resoures are then transferred from the entre to eah region via a number of instruments suh as the Regional Development Fund, Regionally Alloated Setoral Investment and Loally Alloated Regional Investment (see Rojas, 2009, for further details). The output of the publi administration is valued on a ost basis. Beause of the above, it is onsidered that the revenues of the entral government and muniipalities are onsolidated in the Government Aount of the Bío Bío region s sam with a view to arrying out spending on goods, benefits, alloations or diret transfers, with the differene (saving/dissaving) being transferred to the entral government via the urrent aount balane with the rest of the ountry. By virtue of this, the ge model inludes just a single agent alled Government that expliitly redistributes these resoures, without modelling the entral government. This approah is usual in region-speifi models (see, for example, Miguel-Vélez, Cardenete and Pérez-Mayo, 2009). Conversely, bottom-up models that model a number of regions tend to expliitly differentiate a entral government and a regional one (Gieseke, 2002), while authors suh as Kim and Kim (2002) model a government for eah region. Another important point about the eonomy of the Bío Bío region is the question of where orporate profits go. Beause the parent ompanies are outside the region but inside the ountry, 68% of the payment to apital of firms established in the region flows to the rest of the ountry through the apital aount. Basially the aggregate shema the regional sam must have to alibrate the model is as shown in table 2. TABLE 1 Comparison of tehnial oeffiients in the 1996 and 2006 sams Nat. res sam Nat. res sam Industry 1996 sam Industry Constrution Constrution Commere 2006 sam 1996 sam 2006 sam 1996 sam Commere 2006 sam Servies 1996 sam Servies 2006 sam Natural resoures Industry Constrution Commere Servies Capital Unskilled labour Semi-skilled labour Skilled labour Soure: prepared by the author. sam: soial aounting matrix.

6 130 CEPAL REVIEW 106 april 2012 FIGURE 1 Tehnial oeffiients for the fishing setor in the 1996 and 2006 sams Tehnial oeffiient Soure: prepared by the author. Agriulture and forestry Fishing Mining Food industry Textile industry Wood industry Cellulose industry Petrohemial industry Non-met. mining industry Basi metal industry Mehanial engineering industry Other industry Eletriity/gas/water Constrution Commere Transport Communiations Finanial servies Servies Publi administration Transation osts Capital Unskilled labour Semi-skilled labour Skilled labour sam 1996 sam Modelling design A relative fast way of attempting to model a region eonomially using the data struture of table 2 is to use a standard ountry-level model. However, the drawbak of this option is that the region s trade interation and apital flows with the rest of the world and the rest of the ountry have to be aggregated. This aggregation means that international shoks annot be simulated independently of the region s trade with the rest of the ountry; furthermore, the results obtained would be skewed by the exhange rate, sine proper modelling ought to take expliit aount of the fat that trade with the rest of the ountry is onduted in the domesti urreny (one to one fixed exhange rate between the region and the rest of the ountry), while trade with the rest of the world is arried out with a different exhange rate refleting the produt of the foreign urreny by the ountry s domesti urreny. Dividing trade with the rest of the ountry from trade with the rest of the world entails inorporating new equations, variables, parameters and elastiities into the standard ountry-level model (see appendix 1) and thereby turning it into an expliitly regional model, the most salient alterations being in the features that model export and import quantities and pries, with differentiated tariffs for the rest of the ountry and the rest of the world. It is also neessary to inlude two exhange rates and two urrent aount balanes, one for the rest of the ountry (whih will be in defiit, for example, if the apital is owned by the rest of the ountry) and one for the rest of the world (whih will be in surplus, for example, if the region is a net exporter). Interregional migration should be taken into aount to reflet labour mobility if there are pay differentials between the region and the rest of the ountry; given the omplexity of the proess and the fat that only one region is being expliitly modelled, it is assumed that the labour supply relates positively to movements in the region s wages relative to those of the rest of the ountry. The regional onsumer prie index (pi) is determined endogenously in the model, while the national pi is assumed to be exogenous (this assumption is failitated by the region s share of total national gdp, whih is about 9%, and its strong export orientation). It is also neessary to modify the region s maroeonomi variables and rules of losure so that the

7 CEPAL REVIEW 106 april TABLE 2 Aggregate regional soial aounting matrix (sam) Aounts Ativities Goods Fators Institutions Capital aounts Rest of ountry Rest of world Ativities Domesti sales Goods Intermediate onsumption Final onsumption and government spending Gross apital formation and stok hanges Exports to rest of ountry Exports to rest of world Fators Payment to fators of prodution Payment to fators from rest of ountry Payment to fators from rest of world Institutions Prodution taxes, value added tax Import taxes Household fator inome Transfers between institutions Transfers from rest of ountry Transfers from rest of world Capital aounts Household and government saving Rest of ountry saving Rest of world saving Rest of ountry Rest of ountry imports Rest of ountry fator inome Rest of world Rest of world imports Rest of world fator inome Soure: prepared by the author. maroeonomi aggregates reflet the above hanges. Although the model permits different rules of losure, just like the standard ountry-level ge version, for this regional appliation it is assumed that investment is a proportion of absorption, that exhange rates are fixed and urrent aount balanes flexible, and that government saving is flexible in the presene of fixed tax rates. All these harateristis make it possible to obtain a model that provides a more realisti fit for a regional eonomy. The rest of the design deisions for the regionspeifi ge model are similar to those for a standard ountry-level ge model (Löfgren, Harris and Robinson, 2001). They inlude basi aspets suh as the number of representative onsumers, prodution setors, fators of prodution, institutions and the region s external setor. This is followed by the seletion of the funtional forms to be used to model onsumer preferenes, firms prodution tehnologies and the flow of resoures between institutions, whih affet problems of optimization for eonomi agents. 3. The regional ge model In the regional ge (regge) model proposed, the prodution of goods and servies reates demand for fators of prodution that generate value added and for intermediate goods and servies that are used as inputs. Intermediate inputs an be produed loally in the region or imported from the rest of the ountry, the rest of the world, or both. The demand for labour and apital as fators of prodution interats with the regional supply of fators of prodution in fator markets, determining the market-learing pries for these fators. Payments to fators of prodution determine inome levels for the region s households, whih in turn (and depending on the preferenes of these households) determine demand for goods and servies. Equilibrium ours when the pries allow equaling the supplies and demands in all the markets (of goods and fators). The model rereates an eonomi system haraterized by the interation of different agents whose behaviour, based on miroeonomi optimization, is defined by the speifiation of linear and nonlinear equations. These eonomi agents modify their onsumption and prodution deisions when there are hanges in the relative pries of produts, inputs or fators of prodution, or when exogenous shoks our. Like any model, the regge requires speifi funtional forms to be defined for its variables and parameters. The funtional forms are the standard ones in eonomis. The demand funtions are based on Stone- Geary utility funtions, while the prodution funtions are based on onstant elastiity of substitution (es) or Leontief funtions. There are also es funtions that allow a degree of substitution between regional and external prodution; this latter also nests a es funtion whih an be used to substitute external prodution in the rest of the ountry and the rest of the world. The general

8 132 CEPAL REVIEW 106 april 2012 behaviour of the model is illustrated and desribed below (see figure 2). Prodution Y i may be destined for exports X i or domesti sales D i, the transformation ourring via a onstant elastiity es funtion (σ et ) subjet to the relative pries of the two destinations. Furthermore, exports may be destined for the rest of the ountry X i restofountry or the rest of the world X i restofworld, and this depends on a es transformation funtion with elastiity (σ x ) subjet to the relative pries of the two destinations external to the region. Goods and servies (A i ) for intermediate or final use may be produed domestially or imported (M i ), the omposition varying in aordane with their relative pries and a es funtion with elastiity of substitution σ armington. In turn, imports may ome from the rest of the ountry M i restofountry or the rest of the world M i restofworld, and this depends on a es transformation funtion with elastiity (σ m ) subjet to the relative pries of the two suppliers external to the region. The final uses of goods and servies are private onsumption (C), investment (I), government spending (G) and exports (X). Private onsumption is arried out by households representative of the inome quintiles (H q ), whih maximize their (Stone-Geary) utility funtion subjet to their budget onstraints, giving rise to an extended linear expenditure system. In addition, households make transfers to other households, pay taxes and reeive government transfers, while the remaining inome is saved. The saving generated by households, government, rest of ountry and rest of world in the region is used as apital for private, publi and foreign investment. External saving or dissaving is represented by two urrent aount balanes and two exhange rates, one for the rest of the ountry and one for the rest of the world. If the urrent aount balane is fixed, then the exhange rate is endogenous, while if the urrent aount balane is variable, the exhange rate is fixed. The fators of prodution possessed by households are apital and labour (skilled, semi-skilled and unskilled), for the use of whih they reeive payment from the firms that employ them alongside intermediate goods to produe other goods and thus maximize benefits given the tehnologial onstraint available, this being a Leontief prodution funtion that nests funtions of value added (es funtion of prodution fators with elastiity of substitution σ va ) and of aggregate intermediate onsumption (Leontief funtion of the inputs of eah eonomi setor). To provide an indiret FIGURE 2 Simplified illustration of the workings of the regge model X i rest of ountry A i rest of world X i σ armington I G σ x X i D M i i σ m σ et rest of ountry rest of world Y i M i M i σ Leontief C H 1 H 2 H 3 H 4 H 5 S Taxes Transfers σ va σ Leontief KL unski L sski L ski A 1 A J Soure: prepared by the author. σ armington : Armington elastiity. σ leontief : Leontief funtion. et: onstant elastiity of transformation. ski: skilled work. unski: unskilled work. sski: semi-skilled work. H 1 : quintile 1, H 2 : quintile 2, H 3 : quintile 3, H 4 : quintile 4, H 5 : quintile 5.

9 CEPAL REVIEW 106 april measure of migration, a labour supply funtion linked to the region s wages relative to those in the rest of the ountry is generated. All this rereates an eonomi general equilibrium model in whih pries are determined endogenously within the model and lear the markets for goods, inputs and fators of prodution. The equations, variables and parameters of the proposed regge model are presented in appendix 2. One it has been ensured that the model an be solved by heking that it presents the same number of equations and variables, the next step is programming, whih onsists in odifying the new system of non-linear equations representing the model. Then, during the alibration stage, the value of the parameters of the behavioural equations is inferred from the sam values and the values for the elastiities are determined. It is also neessary to programme the outputs or reports with the results to assess whether the model repliates this matrix in the baseline senario. Lastly, the ounterfatual senarios are generated as simulations by hanging the values of an exogenous variable or parameter. III Appliation to the Bío Bío region of Chile 1. Eonomi desription of the Bío Bío region Between 2003 and 2009, the Bío Bío region s share of national eonomi ativity dropped from 9.5% to 8.7%. The average rate of regional gdp growth in the period was 2.5%, whih was below the national average of 3.8%. Manufaturing industry is the main eonomi ativity in the region, ontributing 36.2% of regional gdp, i.e., more than a third, while nationally manufaturing ontributes just 16.2% of gdp. The fishing setor aounts for only a small share of regional gdp (averaging 2.7% between 2003 and 2008), but has the strongest bakward linkages in the region, whih means that some of the region s poor eonomi performane in reent years an be put down to the deline in fishing ativity resulting from the sarity of jak makerel. 7 Servies and ommere aount for 56.1% of employment in the region, industrial ativity for 13.6% and fishing for just 1.6%. From an international trade standpoint, eonomi ativity in the region has a strong export base (in 2009, exports represented 38.3% of the Bío Bío region s gdp), the mainstays of whih are wood, ellulose, the food industry, fishing, agriulture and petrohemials. 7 Ativity in the fishing setor has delined, with negative growth rates of 11.1% in 2007 and 9.3% in 2008 (there are as yet no offiial figures for 2009 and 2010). 2. An appliation of the model to a regional shok: the jak makerel risis Industrial fish athes in the Bío Bío region have fallen steadily over reent years. Aording to figures from the National Fisheries Servie (sernapesa), the ath was 1,600,132 tons in 2006, falling to just 1,100,690 tons in 2009 (preliminary figures for 2010 give a ath of 487,901 tons, a substantial drop on 2009, but this partly reflets the onsequenes of the earthquake of 27 February that year). The main speies impliated in the deline is jak makerel, athes of whih fell by 45.4% between 2006 and 2009 (and by 83% between 2006 and 2010). The non-industrial ath has experiened substantial flutuations, rising from 808,667 tons in 2006 to 948,470 tons in 2009 before dropping bak to 596,676 tons in 2010, with the bulk of the ath onsisting of sardines, while the jak makerel ath represented just 1.7% of the total in 2009 and 4.8% in In perentage terms, there has been an average annual deline of 11.8% in the total ath (industrial and non-industrial) and 16.3% in that of the industrial setor taken by itself (see tables 3 and 4). The setor s export volumes have been heavily affeted in all produt ategories (see table 5). With the sarity of jak makerel, the urrent situation in the fishing industry is very diffiult. The longrun sustainability of the ativity has been ompromised by over-exploitation of stoks, and this has led reently to a disussion of hanges in the quota system. A brief historial summary will now be given to explain the situation.

10 134 CEPAL REVIEW 106 april 2012 TABLE 3 Bío Bío region: industrial fish ath, (Tons) Year Total Jak makerel Anhovy Sardine Atlanti makerel Hake Hoki Alfonsino Other fish Soure: National Fisheries Servie (sernapesa). TABLE 4 Bío Bío region: non-industrial fish ath, (Tons) Year Total Sardine Anhovy Baaladillo or mote Atlanti menhaden Jak makerel Pomfret Pompano Other fish Soure: National Fisheries Servie (sernapesa). TABLE 5 Bío Bío region: fishing setor exports, (Tons) Produt Tinned jak makerel Hake fillets Fresh and frozen produts Fishmeal Other (not otherwise speified) Soure: National Institute of Statistis (ine), Bío Bío region. Fishing grew strongly in the first half of the 1990s, with athes reahing some 4 million tons a year. Ativity then slowed in the seond half of the deade, however, owing to rising sea temperatures aused by El Niño in 1997, whih drove jak makerel away from the oasts. Furthermore, fishing outside the exlusive eonomi zone by the Chilean, Russian and Chinese fleets (these latter two using fatory ships) led to a substantial deline in biomass. In 1999, Chile established ath quotas to bring some order to the industry, but the urrent situation is so prearious that although a jak makerel quota of over 1.3 million tons was authorized in 2010, just 224,000 tons were aught that year. To preserve stoks, the National Fishing Counil approved a ut in the jak makerel quota to just 315,000 tons in The onsequenes of the jak makerel risis have been partiularly serious in the Bío Bío region, as it aounts for 90% of the national ath. 8 Thus, the redution in stoks has diretly affeted the produtivity of the fishing industry. A priori, the expetation must be 8 A report providing bakground an be seen at videos.aspx?id=92311

11 CEPAL REVIEW 106 april that this would affet the rest of the region s eonomi system beause of the lose prodution linkages that exist with the food, hemial, metal-mehanial industries, among others, and beause of the effets on employment and household inomes. Given these irumstanes, the present study applies the regge model, simulating a negative impat on the produtivity of the fishing industry in order to identify the indiret eonomi effets of the jak makerel risis. The following arguments an be made to justify treating the deline in jak makerel produtivity as a deline in the produtivity of the fishing setor as a whole for modelling purposes. In the Bío Bío region, jak makerel, sardine and anhovy, all pelagi speies, aount for about 80% of the total industrial ath. Fishing grounds are multispeies, so it an be onluded that the prodution struture of the industrial ath is similar. Furthermore, all three speies are used mainly for the manufature of fishmeal, suggesting that prodution linkages are similar in the region. Nonetheless, Peña, Bash and Vergara (2003) argue that there is a signifiant degree of prodution heterogeneity in the fleet in terms of differenes in the fishing yields ahieved by boats of different sizes and displaements. Just one artile was found in the published literature studying the 31% redution in the walleye pollok allowable ath in Alaska and a 125% inrease in fuel pries using the implan omputable general equilibrium model (Waters and Seung, 2010). The appliation proposed in this doument is novel, sine it does not use an existing model, as the above-mentioned study does, but onstruts the model it employs. 3. Calibrating the model with a sam, Bío Bío region The Bío Bío region sam used to alibrate the regional ge model has a setoral disaggregation of 20 eonomi setors: agriulture and forestry; fishing; mining; food, beverages and tobao; textile, wearing apparel and leather; wood and furniture; ellulose and paper; petrohemial; prodution of non-metalli mineral produts; basi metal; metal-mehani; other industry; eletriity, gas and water; onstrution; ommere, restaurants and hotels; transport; ommuniations; finanial servies; servies; and publi administration. The labour fator is disaggregated into three oupational ategories (skilled, semi-skilled and unskilled labour) and households are divided into inome quintiles. This matrix was updated by Mardones and Saavedra (2011) from the 1996 regional input-output matrix (see setion II, point 1). The aggregate detail of this matrix an be seen in appendix Simulation results The alibrated model repliates the baseline senario for the Bío Bío region in Given the information about the overall deline in the jak makerel ath (industrial and non-industrial) from 2006 to 2009 (2010 is exluded beause of the effets of the February earthquake), ath volumes are projeted as a trend over the medium term. The results projet a umulative drop of 40.8% for the region s total ath, with jak makerel stoks being almost wholly depleted by 2012 (see table 6). Lak of availability of fish stoks ould thus be simulated as delining produtivity in the setor, sine with the same fators of prodution there is a smaller ath (or, alternatively, as an alarming deline in the size of the speimens aught, whih is what is observed). To make the results more sensitive, redutions of 30%, 40% and 50% in the fishing setor s total fator produtivity (relative to base year 2006) are onsidered. Furthermore, given that a stati ge model is being used, senarios with lower and higher elastiities are tried out in order to vary the reation speed of resoure realloation with a view to assessing the temporary TABLE 6 Bío Bío region: projeted fish ath, (Tons) Year (p) 2011 (p) 2012 (p) Total Jak makerel Soure: prepared by the author. (p): projetion.

12 136 CEPAL REVIEW 106 april 2012 effets of the shok over the shorter and longer term (see appendix 4). 9 For the shorter-term effet, speifially, use is made of lower elastiities between apital and labour (0.6); value added and aggregate intermediate inputs (0); elastiity of spending in the linear expenditure system (les) demand system (0.6); and trade elastiities of 0.6 for primary setors, 0.4 for industry and 0.3 for servies. For the longer-term effet, use is made of larger elastiities between apital and labour (1.2); value added and aggregate intermediate inputs (0.4); elastiity of spending in the les demand system (1.4); and trade elastiities of 1.8 for primary setors, 1.2 for industry and 0.9 for servies. The main effets on the region s eonomy of a negative impat on fisheries produtivity resulting from the jak makerel risis will now be desribed. 9 Regarding this way of looking at the reperussions of a 40% deline in produtivity, it should be pointed out that this does not atually happen all at one but is gradual, so it would be more aurate to divide the drop in produtivity into annual delines and use a dynami model to simulate it, sine the stati model will overstate the impat. One way of dealing with this problem is to allow greater long-term substitution with greater elastiities. However, this approah is only an approximation that does not inlude dynami proesses or apital aumulation (this footnote has been inluded in response to an anonymous referee who piked up strongly on this point). Fishing ativity is drastially urtailed by the shok, but while this was expeted to impat setors diretly onneted to this ativity, suh as the food and metalmehani, other setors are even more affeted, inluding other industry, onstrution, ommere, finanial servies, transport and ommuniations, among others. These results may not seem very intuitive a priori, and they would be unlikely to be identified by a partial equilibrium analysis (the indiret link aounting for many of these effets will be identified in the following paragraphs). Conversely, ativity in a few setors inreases, among them mining, ellulose, wood and hemials. This reinfores the idea of the prodution struture of the Bío Bío region beoming inreasingly speialized in the wood and ellulose industry as a result of the jak makerel risis (see table 7). The deline in fishing ativity leads to a marked redution in fisheries exports both to the rest of the ountry and to the rest of the world. Beause of relative prie hanges and resoure realloation, however, there is a rise in the exports of the wood, ellulose, hemials, non-metalli mining, basi metal, metal-mehanis, and agriulture and forestry setors, among others. The perentage hanges in the volumes exported to the rest of the ountry and the rest of the world (see tables 8 and 9) are fairly small between the two regions, whih TABLE 7 Bío Bío region: setoral ativity level Ativity Baseline senario a Low elastiities Medium elastiities High elastiities Fish 30 Fish 40 Fish 50 Fish 30 Fish 40 Fish 50 Fish 30 Fish 40 Fish 50 Agriulture and forestry Fishing Mining Food industry Textile industry Wood industry Cellulose industry Petrohemial industry Non-metalli mineral industry Basi metal industry Metal-mehani industry Other industry Eletriity/gas/water Constrution Commere Transport Communiations Finanial servies Servies Publi administration Soure: prepared by the author. a Millions of pesos.

13 CEPAL REVIEW 106 april TABLE 8 Bío Bío region: volume of exports to the rest of the ountry Ativity Baseline senario a Low elastiities Medium elastiities High elastiities Fish 30 Fish 40 Fish 50 Fish 30 Fish 40 Fish 50 Fish 30 Fish 40 Fish 50 Agriulture and forestry Fishing Food industry Textile industry Wood industry Cellulose industry Petrohemial industry Non-metalli mineral industry Basi metal industry Eletriity/gas/water Constrution Commere Finanial servies Servies Soure: prepared by the author. a Millions of pesos. TABLE 9 Bío Bío region: volume of exports to the rest of the world Ativity Baseline senario a Low elastiities Medium elastiities High elastiities Fish 30 Fish 40 Fish 50 Fish 30 Fish 40 Fish 50 Fish 30 Fish 40 Fish 50 Agriulture and forestry Fishing Mining Food industry Textile industry Wood industry Cellulose industry Petrohemial industry Non-metalli mineral industry Basi metal industry Metal-mehani industry Other industry Transport Communiations Soure: prepared by the author. a Millions of pesos. an be explained by the fat that relative interregional pries have not been altered in the modelling (even though it is possible to simulate different pries with the proposed model). Imports from the rest of the ountry in all prodution setors deline, mainly beause of lower inomes. The largest perentage deline is seen in basi metal; other industry; wood; non-metalli mining; servies; eletriity, gas and water; textiles; hemials; ommuniations; and metal-mehanis. Imports from the rest of the world deline in all eonomi setors exept the fishing setor, although the base volume is so small that the setor s initial trade pattern remains unaffeted. Differenes in the perentage hanges between imports from the rest of the ountry and the rest of the world are fairly small between the two regions, and this is owed, as in the ase of exports, to the fat that relative interregional pries have been left unaltered in the modelling (see tables 10 and 11).

14 138 CEPAL REVIEW 106 april 2012 TABLE 10 Bío Bío region: volume of imports from the rest of the ountry Ativity Baseline senario a Low elastiities Medium elastiities High elastiities Fish 30 Fish 40 Fish 50 Fish 30 Fish 40 Fish 50 Fish 30 Fish 40 Fish 50 Agriulture and forestry Mining Food industry Textile industry Wood industry Cellulose industry Petrohemial industry Non-metalli mineral industry Basi metal industry Metal-mehani industry Other industry Eletriity/gas/water Commere Transport Communiations Finanial servies Servies Publi administration Soure: prepared by the author. a Millions of pesos. TABLE 11 Bío Bío region: volume of imports from the rest of the world Ativity Baseline senario a Low elastiities Medium elastiities High elastiities Fish 30 Fish 40 Fish 50 Fish 30 Fish 40 Fish 50 Fish 30 Fish 40 Fish 50 Agriulture and forestry Mining Fishing Food industry Textile industry Wood industry Cellulose industry Petrohemial industry Non-metalli mineral industry Basi metal industry Metal-mehani industry Other industry Eletriity/gas/water Commere Transport Communiations Soure: prepared by the author. a Millions of pesos. Given that the region has a fixed exhange rate with the rest of the ountry (the peso) and a fixed exhange rate with the rest of the world (the peso multiplied by the foreign urreny), urrent aount balanes with both zones are endogenous. In the baseline senario, exports to the rest of the world are greater than imports from the rest of the world, the result being a build-up of reserves (although these resoures are subsequently transferred to the rest of the ountry). Exports to the rest of the ountry are lower than imports from the rest of the ountry, whih means that the region has a negative urrent aount balane.