Lotze, Hermann: Integration and Transition on European Agricultural and Food Markets: Policy Reform, European Union Enlargement, and Foreign Direct Investment - Four Essays in Applied Partial and General Equilibrium Modeling -
Integration and Transition on European Agricultural and Food Markets: Policy Reform, European Union Enlargement, and Foreign Direct Investment
- Four Essays in Applied Partial and General Equilibrium Modeling -
Dissertation

zur Erlangung des akademischen Grades
doctor rerum agriculturarum
(Dr. rer. agr.)

eingereicht an der Landwirtschaftlich-Gärtnerischen Fakultät
der Humboldt-Universität zu Berlin

von Hermann Lotze ,
M.Sc., Dipl.-Ing. agr./Großbritannien, geboren am 23.02.1966 in Hage, Ostfriesland

Präsident der Humboldt-Universität zu Berlin Prof. Dr. Dr. h. c. Hans Meyer

Dekan der Landwirtschaftlich-Gärtnerischen Fakultät
Prof. Dr. Dr. h. c. Ernst Lindemann

Gutachter:
Prof. Dr. Harald von Witzke
Prof. Dr. Dieter Kirschke

Tag der mündlichen Prüfung: 19.November 1998

Schlagwörter:
Agrarpolitikreform, EU-Osterweiterung, Ausländische Direktinvestitionen, Angewandte Gleichgewichtsmodelle

Keywords:
Agricultural Policy Reform, EU Eastern Enlargement, Foreign Direct Investment, Applied Equilibrium Models

Zusammenfassung

In der vorliegenden Arbeit werden verschiedene Fragestellungen zur Integration und Transformation auf den europäischen Agrar- und Ernährungsmärkten untersucht. Eine Weiterentwicklung der Gemeinsamen Agrarpolitik, die anstehende Osterweiterung der Europäischen Union (EU) sowie Auswirkungen von Ausländischen Direktinvestitionen (ADI) im Ernährungssektor mittel- und osteuropäischer Transformationsländer werden mit Hilfe von partiellen und allgemeinen Gleichgewichtsmodellen simuliert. Das Ziel der Arbeit ist die separate, quantitative Analyse ausgewählter Aspekte der Integration und Transformation sowie das Aufzeigen von Wechselwirkungen zwischen ihnen. Die Ergebnisse sollen dazu dienen, die politischen Rahmenbedingungen in der europäischen Agrar- und Ernährungswirtschaft zu verbessern.

Als Hauptinstrumente einer neuen EU-Agrarpolitik werden einheitliche Boden- und Arbeitssubventionen verbunden mit einem weiteren Abbau des Außenschutzes untersucht. Diese würden zu wesentlich geringeren Verzerrungen auf den Produktmärkten und zu deutlichen Budgeteinsparungen gegenüber der derzeitigen Situation führen. Eine einheitliche Bodensubvention mit einer weitergehenden Liberalisierung wird auch als Politikoption für die EU-Osterweiterung analysiert. Der Handel mit Agrar- und Ernährungsgütern innerhalb einer erweiterten EU würde sich in einigen Szenarien verdoppeln. Durch Handelsgewinne und Transferzahlungen aus dem EU-Budget käme es in den Beitrittsländern zu einem Wohlfahrtsgewinn in Höhe von etwa zwei Prozent des Bruttosozialprodukts.

Die Bedeutung von ADI im Transformationsprozeß sollte nicht überschätzt werden. Die Modellrechnungen ergeben, daß der Zustrom von ADI seit 1992 zu einem zusätzlichen jährlichen Wachstum des Bruttosozialprodukts von unter einem Prozent in den mitteleuropäischen Ländern und in den Nachfolgestaaten der Sowjetunion geführt hat. Durch zusätzlichen Technologietransfer profitiert die Agrarwirtschaft nicht immer von ADI in der Nahrungsmittelverarbeitung. Grund hierfür sind zum Teil Einsparungen bei der Verwendung landwirtschaftlicher Rohprodukte. Schließlich zeigt die Analyse von ADI in der polnischen Zuckerindustrie, daß handelspolitische Eingriffe, wie z.B. Produktionsquoten, die lokalen Auswirkungen von ADI stark beeinflussen können. ADI sind nur dann deutlich wohlfahrtssteigernd, wenn sie auf relativ unverzerrten Märkten getätigt werden. Die verbesserte Wettbewerbssituation in der Zuckerindustrie würde zu teilweise deutlichen Gewinnen für die Zuckerrübenproduzenten führen.

Abstract

This dissertation consists of four essays covering various aspects of integration and transition on European agricultural and food markets. Further reform of the European Union's (EU) Common Agricultural Policy, a prospective Eastern enlargement, and the effects of foreign direct investment (FDI) in food industries of the transition countries are analyzed using partial as well as general equilibrium modeling approaches. The overall objective of the study is to quantify these processes separately as well as to demonstrate various interactions between them. The results should be useful for improving the political and economic environment in the European agricultural and food sector.

In the discussion about further reform of the Common Agricultural Policy, uniform payments on agricultural land and labor have been proposed in connection with further reductions of border protection. The analysis shows that these policy options would be much less distortionary on product markets and they would lead to significant reductions in budget expenditures compared to the present situation. Furthermore, a uniform payment on land together with further liberalization is also analyzed as a policy option for the EU Eastern enlargement. Trade in agricultural and food products in an enlarged EU would double in some scenarios. Gains from trade and transfer payments from the EU budget would add up to a welfare gain of about two percent of total gross domestic product in the new member countries.

The impact of FDI in the transition process should not be over-estimated. The model calculations show that total FDI inflows since 1992 induced additional economic growth of less than one percent per year in the Central European countries and the former Soviet Union. Additional transfers of new technologies into the food industry do not necessarily improve the situation in primary agriculture. The reason is partly input saving technical change which reduces the demand for agricultural raw products. Finally, the analysis of FDI in the Polish sugar industry reveals that trade policy interventions, like production quotas, have a strong influence on the local impact of FDI. Foreign investment is welfare improving to the local economy only if it occurs on more or less undistorted markets. Improved competition in the sugar industry would lead to considerable gains for local sugar beet producers.


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Inhaltsverzeichnis

TitelseiteIntegration and Transition on European Agricultural and Food Markets: Policy Reform, European Union Enlargement, and Foreign Direct Investment - Four Essays in Applied Partial and General Equilibrium Modeling -
Widmung
Danksagung
1 General Introduction and Overview
1.1. Statement of the Issues
1.2. Structure of the Study
1.3. Main Findings
1.4. Implications for Further Research
1.5. References
2 Applied General Equilibrium Modeling and the Global Trade Analysis Project
2.1. An Introduction to Applied General Equilibrium Modeling
2.1.1. The Basic Structure of an Applied General Euqilibrium Model
2.1.2. Procedure of a Typical Model Application
2.1.3. Critical Issues in Applied General Equilibrium Modeling
2.2. Theory and Structure of the Global Trade Analysis Project Model
2.2.1. A Graphical Overview
2.2.2.Model Variables, Coefficients and Parameters
2.2.3.Model Equations
2.2.4. Summary Indicators and Results
2.3.The Global Trade Analysis Project Database
2.4. Recent Extensions to the Standard Applied General Equilibrium Model
2.5. References
Appendix A-2.1 The Global Trade Analysis Project Model Code
3 New Directions in the Common Agricultural Policy: Effects of Land and Labor Subsidies in a General Equilibrium Model
3.1. Introduction
3.2. The Situation after the 1992 Common Agricultural Policy Reform
3.3. The Discussion about a "Reform of the Reform"
3.4. Theoretical Effects of Factor Subsidies
3.5. Implementation of Policy Scenarios in the Applied General Equilibrium Model
3.6. Selected Model Results
3.7. Discussion and Further Implications
3.8. References
Appendix A-3.1 Derivation of the Theoretical Effects of an Input Subsidy
Appendix A-3.2 GEMPACK Command Files for Policy Scenarios
4 Implications of a European Union Eastern Enlargement under a New Common Agricultural Policy
4.1. Introduction
4.2. Policy Scenarios for a European Union Enlargement
4.3.Implementation of the Scenarios
4.4. Simulation Results
4.5. Summary and Outlook
4.6. References
Appendix A-4.1 GEMPACK Command Files for Policy Scenarios
5 Foreign Direct Investment Impact in Transition Countries: A General Equlibrium Analysis Focussing on Agriculture and the Food Industry
5.1. Introduction
5.2. Theoretical Effects of Foreign Direct Investment in Host Countries
5.3. Recent Developments of Foreign Direct Investment Flows into Transition Economies
5.4. Implementation of Foreign Direct Investment in the Modeling Framework
5.5. Simulation Results
5.6. Conclusions
5.7. References
Appendix A-5.1 Detailed Data on Foreign Direct Investment Flows into Transition Economies
Appendix A-5.2 GEMPACK Command Files for Scenarios
Appendix A-5.3 Selected Model Results for the High-shock Scenarios
6 Foreign Direct Investment in the Polish Sugar Industry: Do Trade Policies and Imperfect Competition Matter?
6.1. Introduction
6.2. The Polish Sugar Industry
6.3. A Theoretical Model of Foreign Direct Investment
6.4. Structure and Calibration of the Empirical Model
6.5. Policy Scenarios and Selected Results
6.6. Conclusions
6.7. References
Appendix A-6.1 Derivation of the Lerner Index for the Case of an Oligopsony
Appendix A-6.2 Further Model Results with Initial Parameters
Appendix A-6.3 Sensitivity Analysis with Modified Parameters
Abkürzungsverzeichnis List of Abbreviations
Selbständigkeitserklärung

Tabellenverzeichnis

Table 2.1: Sectors and regions in the GTAP database, version 3.
Table 3.1: Scenarios for a further development of the Common Agricultural Policy
Table 3.2: Model implementation of the scenarios
Table 3.3: Changes in output in the EU under various policy scenarios, in percent
Table 3.4: Changes in world market prices under various policy scenarios, in percent
Table 3.5: Welfare changes (Equivalent Variation in million 1992 ECU) under various policy scenarios
Table 3.6: Changes in land use in the EU under various policy scenarios, in percent
Table 3.7: Changes in labor use in the EU under various policy scenarios, in percent
Table 3.8: Changes in factor prices in the EU under various policy scenarios, in percent
Table 3.9: Budget effects of various policy scenarios in the EU, in Mill. 1992 ECU
Table 4.1: Possible scenarios for an EU integration of the CEC-7 in 2005
Table 4.2: Model regions and sectors
Table 4.3: Macroeconomic forecasts between 1992 and 2005 (in percent)
Table 4.4: Model implementation of the scenarios
Table 4.5: Protection levels in EU-15 and CEC-7 in 1996 and 2005 (after partial liberalization of the CAP in EU-15; in percent)a,b
Table 4.6: Forecasts for output growth between 1995 and 2005 (in percent)
Table 4.7: Changes in world market prices between 1995 and 2005 under various policy scenarios (in percent)
Table 4.8: Changes in bilateral trade flows after EU enlargement in 2005 under the slow growth scenarios (in percent)
Table 4.9: Changes in output in CEC-7 after EU integration in 2005 (in percent)
Table 4.10: Changes in demand for land and labor in CEC-7 after EU integration in 2005 (in percent)
Table 4.11: Changes in domestic output prices and factor prices in CEC-7 after EU integration in 2005 (in percent)
Table 4.12: Welfare changes due to an EU enlargement in 2005 under various policy scenarios (Equivalent Variation in million 1992 ECU)
Table 4.13: Budget effects of an EU enlargement in 2005 under various policy scenarios (in Mill. 1992 ECU)
Table 5.1: Country distribution and per-capita FDI in various countries
Table 5.2: The share of foreign companies in the Hungary economy (percentage shares in 1993)
Table 5.3: Description of FDI experiments
Table 5.4: Capital and TFPa shocks implemented in the model (percent increase; high-shock scenarios in brackets)
Table 5.5: Changes in output due to FDI between 1992 and 1996 in the low-shock scenarios ( in percent)
Table 5.6: Changes in exports and imports due to FDI between 1992 and 1996 in the low-shock scenarios (in percent)
Table 5.7: Changes in average factor prices due to FDI between 1992 and 1996 in the low-shock scenarios (in percent)a
Table 5.8: Changes in labor use due to FDI between 1992 and 1996 in the low-shock scenarios (in percent)
Table A-5.1.1: Cumulative FDI inflows into European transition economies by year (Mill. US$)
Table A-5.1.2: Sector distribution of FDI in transition economies (July 1996)
Table A-5.3.1: Changes in output and total GDP due to FDI between 1992 and 1996 in the high-shock scenarios (in percent)
Table A-5.3.2: Changes in average factor prices due to FDI between 1992 and 1996 in the high-shock scenarios (in percent)
Table A-5.3.3: Changes in labor use due to FDI between 1992 and 1996 in the high-shock scenarios (in percent)
Table 6.1: Sugar production and consumption in Poland in recent yearsa
Table 6.2: Key indicators for sugar processing in Poland and Germany (1994/95)
Table 6.3: Initial data on the Polish sugar industry in 1996
Table 6.4: Price and quantity effects of FDI in the Polish sugar industry under various policy scenariosa (FDI share = 0.1; no competition effects; Lerner index = 0.125)
Table 6.5: Welfare effects of FDI in the Polish sugar industry under various policy scenarios, in million US$ (FDI share = 0.1; no competition effects; Lerner index = 0.125)
Table A-6.2.1: Price and quantity effects of FDI in the Polish sugar industry under various policy scenariosa (FDI share = 0.1; positive competition effects; Lerner index = 0.0625)
Table A-6.2.2: Welfare effects of FDI in the Polish sugar industry under various policy scenarios in million US$ (FDI share = 0.1; positive competition effects; Lerner index = 0.0625)
Table A-6.2.3: Price and quantity effects of FDI in the Polish sugar industry under various policy scenariosa (FDI share = 0.5; no competition effects; Lerner index = 0.125)
Table A-6.2.4: Welfare effects of FDI in the Polish sugar industry under various policy scenarios in million US$ (FDI share = 0.5; no competition effects; Lerner index = 0.125)
Table A-6.2.5: Price and quantity effects of FDI in the Polish sugar industry under various policy scenariosa (FDI share = 0.5; positive competition effects; Lerner index = 0.0625)
Table A-6.2.6: Welfare effects of FDI in the Polish sugar industry under various policy scenarios in million US$ (FDI share = 0.5; positive competition effects; Lerner index = 0.0625)
Table A-6.3.1: Data for model calibration in the sensitivity analysis
Table A-6.3.2: Price and quantity effects of FDI in the Polish sugar industry under various policy scenarios (Sensitivity analysis)a (FDI share = 0.1; no competition effects; Lerner index = 0.25)
Table A-6.3.3: Welfare effects of FDI in the Polish sugar industry under various policy scenarios in million US$ (Sensitivity analysis) (FDI share = 0.1; no competition effects; Lerner index = 0.25)
Table A-6.3.4: Price and quantity effects of FDI in the Polish sugar industry under various policy scenarios (Sensitivity analysis)a (FDI share = 0.1; positive competition effects; Lerner index = 0.125)
Table A-6.3.5: Welfare effects of FDI in the Polish sugar industry under various policy scenarios in million US$ (Sensitivity analysis) (FDI share = 0.1; positive competition effects; Lerner index = 0.125)
Table A-6.3.6: Price and quantity effects of FDI in the Polish sugar industry under various policy scenarios (Sensitivity analysis)a (FDI share = 0.5; no competition effects; Lerner index = 0.25)
Table A-6.3.7: Welfare effects of FDI in the Polish sugar industry under various policy scenarios in million US$ (Sensitivity analysis) (FDI share = 0.5; no competition effects; Lerner index = 0.25)
Table A-6.3.8: Price and quantity effects of FDI in the Polish sugar industry under various policy scenarios (Sensitivity analysis)a (FDI share = 0.5; positive competition effects; Lerner index = 0.125)
Table A-6.3.9: Welfare effects of FDI in the Polish sugar industry under various policy scenarios in million US$ (Sensitivity analysis) (FDI share = 0.5; positive competition effects; Lerner index = 0.125)

Abbildungsverzeichnis

Figure 2.1: Simple pure exchange general equilibrium model
Figure 2.2: Excess demand curves for a simple general equilibrium model
Figure 2.3: Example of a stylized social accounting matrix
Figure 2.4: Flow-chart for a typical AGE model application
Figure 2.5: Value flows in an open economy model without government intervention
Figure 2.6: Distribution of sales to regional markets
Figure 2.7: The production technology tree in the GTAP model
Figure 3.1: Price and quantity effects of an input subsidy for factor a on output and factor markets
Figure 3.2: Production structure in the GTAP model
Figure 3.3: Changes in trade balance in the EU under various policy scenarios, in Mill. 1992 ECU
Figure 4.1: Changes in trade balance in EU-15 until 2005 prior to enlargement (in Mill. 1992 ECU)
Figure 4.2: Changes in trade balance in CEC-7 after EU integration in 2005 under the slow growth scenarios (in Mill. 1992 ECU)
Figure 5.1: Cumulative FDI inflows into CEEC (1992-1996)
Figure 5.2: Sector distribution of FDI in transition countries (1996)
Figure 5.3: Expansion of GDP due to FDI between 1992 and 1996 in the low-shock scenarios
Figure 6.1: FDI without quantitative restrictions
Figure 6.2: FDI with an output quota
Figure 6.3: Linking output and input markets
Figure 6.4: Sequence of decisions by foreign investor and local government
Figure 6.5: Total domestic welfare effects of FDI with and without changes in competition (FDI share = 0.1)
Figure 6.6: Changes in sugar beet producer surplus due to FDI with and without competition effects (FDI share = 0.1)
Figure 6.7: Total domestic welfare effects of FDI under high and low-risk scenarios, with positive competition effects
Figure 6.8: Changes in producer surplus of local sugar processors due to FDI under high and low-risk scenarios, with positive competition effects
Figure 6.9: Producer surplus of foreign sugar processors from FDI under high and low-risk scenarios, with positive competition effects
Figure 6.10: Optimal tax rate under high and low-risk scenarios, with positive competition effects

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