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External Shocks in a Small Open Economy: A CGE-Microsimulation Analysis

ARAN - Access to Research at NUI Galway

Show simple item record Ahmed, Vaqar en O'Donoghue, Cathal en 2010-05-10T13:29:45Z en 2010-05-10T13:29:45Z en 2009 en
dc.identifier.citation Ahmed, V., & O'Donoghue, C. (2009) "External Shocks in a Small Open Economy: A CGE-Microsimulation Analysis" (Working Paper No. 0142) Department of Economics, National University of Ireland, Galway. en
dc.identifier.uri en
dc.description.abstract This paper studies the impact of changes in the external balance of a developing economy (Pakistan). We explain that the economic growth achieved during the past decade is highly dependent on the improvements in external balance. Between 2001 and 2007 Pakistan has benefited from, an increase in the inflow of remittances, foreign assistance from bilateral and multilateral sources, and a relatively stable exchange rate. This was also complimented by growth in the real sector. The GDP grew at an average of 6 percent from 2001 to 2007. During the same time period the investment to GDP ratio increased from 17 to 23 percent. After 2007 this performance came under pressure due to external price shocks. The increase in import price of petroleum, raw materials and other manufactured goods has the potential of reducing the growth performance, impacting the competitiveness of the economy and thereby threatening the gains achieved during the past years. We integrate a 33 sector CGE model with a detailed microsimulation model to study the effects of changes in foreign savings and import prices faced by Pakistan. A 50 percent increase in foreign savings leads to an increase in imports and a decrease in exports. Main sectors facing a decline in exports are textile, leather, cement and livestock. Changes in prices seem pro-poor as food and oil prices decline. Those factors of production that gain under this change are agricultural wage labor and non-agricultural unskilled wage labor. The later indicating a change in favor of urban poor. The increase in import prices of petroleum or industrial raw material leads to a reduction in exports. The prices impact the crop sector adversely. Return to land and profits to farm owners increase showing a change in favor of agricultural asset owners. Poverty and inequality increase. en
dc.format application/pdf en
dc.language.iso en en
dc.publisher National University of Ireland, Galway en
dc.relation.ispartofseries working papers;0142 en
dc.subject Microsimulation en
dc.subject Computable General Equilibrium en
dc.subject Poverty en
dc.subject Inequality en
dc.subject Balance of Payments en
dc.title External Shocks in a Small Open Economy: A CGE-Microsimulation Analysis en
dc.type Working Paper en
dc.description.peer-reviewed peer-reviewed en

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