Many trade and development economists, policy makers and policy analysts around the world believe that globalisation promotes growth and reduces poverty. There exists a large body of theoretical and empirical literature on how trade liberalisation helps to promote growth and reduce poverty. However, critics of globalisation argue that, in developing countries, integration into the world economy makes the poor poorer and the rich richer. The most common criticism of globalisation is that it increases poverty and inequality. Much of the research related to the link between openness, growth and poverty has been based on cross-country regressions. Dollar and Kraay (2000; 2001), using regression analysis, argue that growth is pro poor. Moreover, their study suggests that growth does not affect distribution and poor as well as rich could benefit from it. Later, they demonstrate that openness to international trade stimulates rapid growth, thus linking trade liberalisation with improvements in wellbeing of the poor. Several other cross-country studies demonstrate a positive relationship between trade openness and economic growth (see for example Dollar, 1992; Sach and Warner, 1995 and Edward, 1998). In contrast, Rodriguez and Rodrik (2001) question the measurements related to trade openness in economic models, and suggest that generalisations cannot be made regarding the relationship between trade openness and growth. Several other studies also criticise the pro poor growth argument based upon the claim of weak econometrics and place more focus on the distributional aspect (see, for example, Rodrik, 2000). Ultimately, openness and growth have therefore become an empirical matter, and so has the relationship between trade and poverty. These weaknesses of cross-country studies have led to a need to provide evidence from case studies. Systematic case studies related to individual countries will at least complement cross-country studies such as that of Dollar and Kraay. As Chen and Ravallion (2004, p.30) argue, 'aggregate inequality or poverty may not change with trade reform even though there are gainers and losers at all levels of living'. They further argue that policy analysis which simply averages across diversities may miss important matters that are critical to the policy debate. In this study, Sri Lanka is used as a case study and a computable general equilibrium (CGE) approach is adopted as an analytical framework. Sri Lanka was selected as an interesting case in point to investigate this linkage for the following reasons: although Sri Lanka was the first country in the South Asian region to liberalise its trade substantially in the late seventies, it still experiences an incidence of poverty of a sizeable proportion that cannot be totally attributed to the long-standing civil conflict. Moreover, trade poverty linkage within the Sri Lankan context has hardly received any attention, while multi-sectoral general equilibrium poverty analysis within the Social Accounting Matrix (SAM) based CGE model has never been attempted. In order to examine the link between globalisation and poverty, a poverty focussed CGE model for the Sri Lankan economy has been developed in this study. As a requirement for the development of such a model, a SAM of the Sri Lankan economy for the year 1995 has been constructed. Moreover, in order to estimate the intra group income distribution in addition to the inter group income distribution, income distribution functional forms for different household groups have been empirically estimated and linked to the CGE model in 'top down' mode: this will compute a wide range of household level poverty and inequality measurements. This is a significant departure from the traditional representative agent hypothesis used to specifying household income distributions. Furthermore, as the general equilibrium framework permits endogenised prices, an attempt was made to endogenise the change in money metric poverty line within the CGE model. Finally, a set of simulation experiments was conducted to identify the impacts of trade liberalisation in manufacturing and agricultural industries on absolute and relative poverty at household level. The results show that, in the short run, trade liberalisation of manufacturing industries increases economic growth and reduces absolute poverty in low-income household groups. However, it is observed that the potential benefits accruing to the rural low-income group are relatively low compared to other two low-income groups. Reduction in the flow of government transfers to households following the loss of tariff revenue may be blamed for this trend. In contrast, long run results indicate that trade liberalisation reduces absolute poverty in substantial proportion in all groups. It further reveals that, in the long run, liberalisation of the manufacturing industries is more pro poor than that of the agricultural industries. Overall simulation results suggest that trade reforms may widen the income gap between the rich and the poor, thus promoting relative poverty. This may warrant active interventions with respect to poverty alleviation activities following trade policy reforms.

This doctoral dissertation presents evidence based research into climate change policy. The research technique of political economy is used to investigate policy development. A major change in the Anglo-American growth paradigm from unconstrained to constrained growth is identified. The implications of this change for climate change policy are identified. The political economy of climate change policies is expressed in a new Spatial Climate Economic Policy Tool for Regional Equilibria (Sceptre). This is an innovative bechmarking approach to computable general equilibrium (CGE) that provides a spatial analysis of geopolitical blocs and industry groupings within these blocs. It includes international markets for carbon commodities and geophysical climate effects. It is shown that climate constrained growth raises local policy issues in managing technology diffusion and dysfunctional resource expansive specialisations exacerbated by the creation of global carbon markets.

This doctoral dissertation presents evidence based research into climate change policy. The research technique of political economy is used to investigate policy development. A major change in the Anglo-American growth paradigm from unconstrained to constrained growth is identified. The implications of this change for climate change policy are identified. The political economy of climate change policies is expressed in a new Spatial Climate Economic Policy Tool for Regional Equilibria (Sceptre). This is an innovative bechmarking approach to computable general equilibrium (CGE) that provides a spatial analysis of geopolitical blocs and industry groupings within these blocs. It includes international markets for carbon commodities and geophysical climate effects. It is shown that climate constrained growth raises local policy issues in managing technology diffusion and dysfunctional resource expansive specialisations exacerbated by the creation of global carbon markets.

<p>The dissertation consists of three self-contained essays on Public Finance.</p><p>“News Droughts, News Floods and U.S. Disaster Relief” studies the mass media's influence on the U.S. government response to about 5,000 natural disasters in developing countries in 1968-2002. These disasters took around 63,000 lives and affected 125 million people per year. Given the huge losses involved, it is essential that disaster relief is provided to those most in need. We show that U.S. disaster relief depends on the occurrence of other newsworthy events at the time of the disaster, such as the Olympic Games or the O.J. Simpson Trial, which are obviously unrelated to need. We argue that the only plausible explanation for this is that relief decisions are driven by news coverage of disasters, and that this news coverage is crowded out by other newsworthy events.</p><p>“Fiscal Policy and Retirement in the Twentieth Century” proposes a model that explains the trend in labor supply among older workers through changes in fiscal policy, including social security. The essay re-introduces social security as a major determinant of retirement behavior, while simultaneously offering an explanation to the two main puzzles in the literature: (i) the small contemporary retirement elasticities and (ii) the drop in the retirement age prior to the introduction of social security.</p><p>“Sustainable Fiscal Policy and the Retirement Decision” concerns the sustainability of fiscal policy in aging economies and the retirement decision. The essay develops an applied general equilibrium model, where the retirement age is endogenous and current fiscal policy is a response to future demographic developments. Three policies are analyzed: (1) raising taxes (2) reducing the replacement rate and (3) raising the Full Retirement Age. All policies are found to have a substantial impact on retirement. Sustaining fiscal policy will result in falling interest rates, inducing a general delay in retirement. This general equilibrium effect on retirement can be substantially larger than the direct effect of changing social security incentives.</p>

The dissertation consists of three self-contained essays on Public Finance. “News Droughts, News Floods and U.S. Disaster Relief” studies the mass media's influence on the U.S. government response to about 5,000 natural disasters in developing countries in 1968-2002. These disasters took around 63,000 lives and affected 125 million people per year. Given the huge losses involved, it is essential that disaster relief is provided to those most in need. We show that U.S. disaster relief depends on the occurrence of other newsworthy events at the time of the disaster, such as the Olympic Games or the O.J. Simpson Trial, which are obviously unrelated to need. We argue that the only plausible explanation for this is that relief decisions are driven by news coverage of disasters, and that this news coverage is crowded out by other newsworthy events. “Fiscal Policy and Retirement in the Twentieth Century” proposes a model that explains the trend in labor supply among older workers through changes in fiscal policy, including social security. The essay re-introduces social security as a major determinant of retirement behavior, while simultaneously offering an explanation to the two main puzzles in the literature: (i) the small contemporary retirement elasticities and (ii) the drop in the retirement age prior to the introduction of social security. “Sustainable Fiscal Policy and the Retirement Decision” concerns the sustainability of fiscal policy in aging economies and the retirement decision. The essay develops an applied general equilibrium model, where the retirement age is endogenous and current fiscal policy is a response to future demographic developments. Three policies are analyzed: (1) raising taxes (2) reducing the replacement rate and (3) raising the Full Retirement Age. All policies are found to have a substantial impact on retirement. Sustaining fiscal policy will result in falling interest rates, inducing a general delay in retirement. This general equilibrium effect on retirement can be substantially larger than the direct effect of changing social security incentives.

LVT (Land Value Tax), unlike other taxes, causes no distortions in economic decision-making and therefore does not compromise the efficiency of a market economy. While there have been various challenges to this conclusion, it seems that the neutrality of LVT has been proven in the literature. Although it has been established conceptually that LVT is non-distortive, it is important to empirically test the effects of LVT reform in diverse aspects. Unlike other studies, this dissertation examines the economic, spatial, and welfare effects of LVT reform in a second-best situation employing an urban (and spatial) CGE (Computable General Equilibrium) model. In addition, it examines the distributional effects among different income groups and the short-term aspects of LVT as well. The feature that the present dissertation incorporates as the second-best situation includes LLZ (Large Lot Zoning). The computation and the assumptions about parameters for the current CGE model are made based on demographic, physical, and economic features of the Atlanta urban area in Georgia. The results suggest the following: (1) LVT reform is economically feasible, (2) the tax on land rent stabilizes prices and contracts the CBD (Central Business District) and urban boundary in the economy where the CBD and urban area are endogenously determined, while the tax on land rent is purely neutral in the economy where the CBD and urban area are fixed, (3) LVT reform increases the money-metric welfare of residents by about 20% of the tax revenue in the economy where residents are landowners, while LVT reform increases the money-metric welfare of residents by about 45% of the tax revenue in the economy where the lands are owned by absentee, (4) LVT reform more increases the money-metric welfare of the less-income groups that own the smaller land area, which is contrary to the case of LLZ, (5) LLZ and property tax can cause the sprawl of an urban area, but at a very low elasticity of substitution between land and the other factors (0.1), even switching from the land tax to the property tax (or graded property tax) can contract the urban area, (6) LLZ, in the long-term during which housing capital and urban boundary are not fixed and in the economy where residents are landowners, can improve the welfare of households, while LLZ worsens the welfare of households both in the economy where the lands are owned by absentee and in the short-term during which housing capital is immobile in any economy, (7) When we consider that housing capital is immobile, the increase in the money-metric welfare due to LVT reform becomes weak, compared to the case with perfectly mobile housing capital.

The human society exerts its influence on the ecosystem through economic activities. While the robustness of an economy manifests through its industrial structure, human impact on nature is well represented by an economy's energy consumption patterns. Therefore, evaluating the industrial structure and unraveling its interconnection with energy consumption is crucial for achieving sustainable development. In this dissertation, I address the topic from several perspectives. First, I start with an exploratory analysis on the industrial structure itself, developing an easy measure, revealed comparative dependence (RCD), to compare regional dependence on sectors. Building on the RCD measure, I indirectly evaluate the economic resilience of U.S. states by quantifying their economic diversity. Second, I bring the measure for industrial structure into context with energy consumption patterns. RCD is used to characterize sector interactions, which are then used to explain the historical trend of regional energy consumption. I find that while the expansion of low energy intensity sectors does reduce energy use, these sectors' level of interaction with other sectors also plays a key role in determining energy use. As a third step, I investigate how regional structure affects an economy's response towards energy efficiency improvements, i.e., the economy-wide rebound effect. My regional computable general equilibrium (CGE) model proves that production-side energy efficiency improvement induces moderate rebound effects, while feeding back into the industrial structure by changing sectoral production scale in different directions. I also identify sectors being able to trigger different levels of energy saving and energy rebound, and explore the mechanism for their impact propagation throughout the industrial structure. This study establishes the linkage between regional industrial structure and energy consumption from different perspectives. From the scientific perspective, it improves the fundamental understanding of how industrial structure and energy consumption are intricately connected to each other. From the policy perspective, it informs policy makers of the importance of considering sector interaction when designing energy policies, as well as the effectiveness of efficiency measures in achieving energy conservation.

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The economic impacts of a government-funded, forest-based sequestration program were analyzed under two different payment schemes. The impacts were obtained by developing a regional, static CGE model built to accommodate a modified IMPLAN SAM for a determined region in the United States for 2008. The IMPLAN SAM was modified to accommodate the more conventional factors of production (labor, capital and land) and to account for land heterogeneity using the Major Land Resource Areas (MLRA). The regional aggregation considered included the Southern, Northeastern, Southwestern and Midwestern regions. The two policy scenarios considered consisted of two CO2-offset payment schemes: 1) the government compensates the generation of CO2-offsets only by the land converted to a carbon graveyard and 2) the government additionally compensates the CO2 offsets generated as a by-product by the existing commercial logging activity. By doing an analysis of the model with different budget magnitudes under the two scenarios, two different CO2-offset supply schedules were obtained with their respective CO2-offset price and quantity sets. For a budget allocation of $6.9 billion, approximately 1 billion metric tons of CO2 offsets (15% of U.S. 2008 total GHG emissions) were produced in the first scenario versus 0.8 billion metric tons (11% of U.S. 2008 GHG net emissions) in the second one. Fifty million acres were diverted out of agriculture and commercial forestry land to the carbon graveyard mainly in the Northern, Western and Central Great Plains in the first scenario. Twenty two million acres were diverted out of agricultural land to the carbon graveyard and commercial logging mainly in the Northern and Western Great Plains; and the Eastern and Western boundaries of the Appalachian Mountains in the second scenario. Both scenarios resulted in higher land and agricultural commodity prices, lower consumption of agricultural commodities by households, lower agricultural exports and higher imports. The payment structure of the second scenario benefited the commercial logging industry, increasing its production and exports, and decreasing its imports. The non-agricultural sectors mostly impacted by the two policy scenarios were the manufacturing, construction and government employment sectors.

This paper studies the cost effectiveness of climate policy if there are technology externalities. For this purpose, we develop a forward-looking CGE model that captures empirical links between CO2 emissions associated with energy use, directed technical change and the economy. We find the cost-effective climate policy to include a combination of R&D subsidies and CO2 emission constraints, although R&D subsidies raise the shadow value of the CO2 constraint (i.e. CO2 price) because of a strong rebound effect from stimulating innovation. Furthermore, we find that CO2 constraints differentiated toward CO2-intensive sectors are more cost effective than constraints that generate uniform CO2 prices among sectors. Differentiated CO2 prices, through technical change and concomitant technology externalities, encourage growth in the non-CO2 intensive sectors and discourage growth in CO2-intensive sectors. Thus, it is cost effective to let the latter bear relatively more of the abatement burden. This result is robust to whether emission constraints, R&D subsidies or combinations of both are used to reduce CO2 emissions. / Abstract in HTML and technical report in PDF available on the Massachusetts Institute of Technology Joint Program on the Science and Policy of Global Change website (http://mit.edu/globalchange/www/).