New Economics Papers
on Agricultural Economics
Issue of 2009‒02‒14
twenty-two papers chosen by

  1. MACRO-MICRO FEEDBACK LINKS OF IRRIGATION WATER MANAGEMENT IN TURKEY By Cakmak, Erol H.; Dudu, Hasan; Saracoglu, Sirin; Diao, Xinshen; Roe, Terry; Tsur, Yacov
  2. The Impacts of Cash and In-Kind Transfers on Consumption and Labor Supply: Experimental Evidence from Rural Mexico By Skoufias, Emmanuel; Gonzalez-Cossio, Teresa
  3. Bottlenecks, Drought, and Oil Price Spikes: Impact on U.S. Ethanol and Agricultural Sectors By Tokgoz, Simla; Elobeid, Amani; Fabiosa, Jacinto F.; Hayes, Dermot J.; Babcock, Bruce A.; Yu, Tun-Hsiang (Edward); Dong, Fengxia; Hart, Chad E.
  4. Soil Properties and Soil Conservation Investments in Agricultural Production - a Case study of Kenya’s Central Highlands By Ekbom, Anders; Sterner, Thomas
  5. Is it Who You Ask or How You Ask? Findings of a Meta-Analysis on Genetically Modified Food Valuation Studies By Dannenberg, Astrid
  6. Contract Farming System: A Tool to Tranforming Rural Society in Sabah. By Mansur, Kasim; Tola, Mansur; Ationg, Romzi
  7. Ag Bankers -- Today and Tomorrow By Jolly, Robert W.; Gaul, Michael
  8. Dependency on the Ethanol Industry By Yonas G. Hamda; Jing Li
  9. Global Food Price Inflation: Implications for South Asia, Policy Reactions, and Future Challenges By Ahmed, Sadiq
  10. Determinants of Soil Capital By Ekbom, Anders
  11. Mass Media and Public Policy:Global Evidence from Agricultural Policies By Alessandro Olper; Johan F.M. Swinnen
  12. Sources of Welfare Disparities across and within Regions of Brazil: Evidence from the 2002-03 Household Budget Survey By Skoufias, Emmanuel; Katayama, Roy
  13. Is Fair Trade Honey Sweeter? An empirical analysis on the effect of affiliation on productivity By Leonardo Becchetti; Stefano Castriota
  14. Muddy Waters: Soil Erosion and Downstream Externalities By Ekbom, Anders; Brown, Gardner M.; Sterner, Thomas
  15. Joint Estimation of Risk Preferences and Technology: Flexible Utility or Futility? By Lence, Sergio H.
  16. Understanding consumer needs and preferences in new product development: the case of functional food innovations By Ellen H.M. Moors; Rogier Donders
  17. Distributional Implications of U.S. Ethanol Policy By Babcock, Bruce A.
  18. The Effect of Infrastructure Access and Quality on Non-Farm Enterprises in Rural Indonesia By John Gibson; Susan Olivia
  19. Using a Farmer's Beta for Improved Estimation of Expected Yields By Carriquiry, Miguel A.; Babcock, Bruce A.; Hart, Chad E.
  20. An Insurance Approach to Risk Management in the Ethanol Industry By Paulson, Nicholas; Babcock, Bruce A.; Hart, Chad E.; Hayes, Dermot J.
  21. The End of Peasantries? Rethinking the Role of Peasantries in a World-Historical View By Vanhaute, Eric
  22. Do Productivity Improvements Move Us Along the Environmental Kuznets Curve? By Karen Turner; Nick Hanley; Janine De Fence

  1. By: Cakmak, Erol H. (The World Bank); Dudu, Hasan (The World Bank); Saracoglu, Sirin (The World Bank); Diao, Xinshen (IFPRI); Roe, Terry (University of Minnesota); Tsur, Yacov (Hebrew University of Jerusalem)
    Abstract: Agricultural production is heavily dependent on water availability in Turkey, where half the crop production relies on irrigation. Irrigated agriculture consumes about 75 percent of total water used, which is about 30 percent of renewable water availability. This study analyzes the likely effects of increased competition for water resources and changes in the Turkish economy. The analysis uses an economy-wide Walrasian Computable General Equilibrium model with a detailed account of the agricultural sector. The study investigated the economy-wide effects of two external shocks, namely a permanent increase in the world prices of agricultural commodities and climate change, along with the impact of the domestic reallocation of water between agricultural and non-agricultural uses. It was also recognized that because of spatial heterogeneity of the climate, the simulated scenarios have differential impact on the agricultural production and hence on the allocation of factors of production including water. The greatest effects on major macroeconomic indicators occur in the climate change simulations. As a result of the transfer of water from rural to urban areas, overall production of all crops declines. Although production on rainfed land increases, production on irrigated land declines, most notably the production of maize and fruits. The decrease in agricultural production, coupled with the domestic price increase, is further reflected in net trade. Agricultural imports increase with a greater decline in agricultural exports.
    Keywords: Computable General Equilibrium; Feedback links; Irrigation Water; Turkey
    JEL: C68 O13 Q15 Q18
    Date: 2008–11–01
  2. By: Skoufias, Emmanuel (The World Bank); Gonzalez-Cossio, Teresa (The World Bank)
    Abstract: The authors use the unique experimental design of the Food Support Program (Programa Apoyo Alimentario) to analyze in-kind and cash transfers in the poor rural areas of southern states of Mexico. They compare the impacts of monthly in-kind and cash transfers of equivalent value (mean share 11.5 percent of pre-program consumption) on household welfare as measured by food and total consumption, adult labor supply, and poverty. The results show that approximately two years later the transfer has a large and positive impact on total and food consumption. There are no differences in the size of the effect of transfer in cash versus transfers in-kind on consumption. The transfer, irrespective of type, does not affect overall participation in labor market activities but induces beneficiary households to switch their labor allocation from agricultural to nonagricultural activities. The analysis finds that the program leads to a significant reduction in poverty. Overall, the findings suggest that the Food Support Program intervention is able to relax the binding liquidity constraints faced by poor agricultural households, and thus increases both equity and efficiency.
    Keywords: Adult Work Incentives; Cash Transfers; Consumption; Difference-in-Differences; In-Kind Transfers; Mexico; Poverty Measures; PAL; Randomized design.
    JEL: C21 J22 O12
    Date: 2008–11–01
  3. By: Tokgoz, Simla; Elobeid, Amani; Fabiosa, Jacinto F.; Hayes, Dermot J.; Babcock, Bruce A.; Yu, Tun-Hsiang (Edward); Dong, Fengxia; Hart, Chad E.
    Abstract: Projections of U.S. ethanol production and its impacts on planted acreage, crop prices, livestock production and prices, trade, and retail food costs are presented under the assumption that current tax credits and trade policies are maintained. The projections were made using a multi-product, multi-country deterministic partial equilibrium model. The impacts of higher oil prices, a drought combined with an ethanol mandate, and removal of land from the Conservation Reserve Program (CRP) relative to baseline projections are also presented. The results indicate that expanded U.S. ethanol production will cause long-run crop prices to increase. In response to higher feed costs, livestock farmgate prices will increase enough to cover the feed cost increases. Retail meat, egg, and dairy prices will also increase. If oil prices are permanently $10-per-barrel higher than assumed in the baseline projections, U.S. ethanol will expand significantly. The magnitude of the expansion will depend on the future makeup of the U.S. automobile fleet. If sufficient demand for E-85 from flex-fuel vehicles is available, corn-based ethanol production is projected to increase to about 29 billion gallons per year with the higher oil prices. The direct effect of higher feed costs is that U.S. food prices would increase by a minimum 1.1% over baseline levels.
    Keywords: biofuels, corn acreage, crop prices, ethanol production, food prices
    Date: 2008–05–15
  4. By: Ekbom, Anders (Department of Economics, School of Business, Economics and Law, Göteborg University); Sterner, Thomas (Department of Economics, School of Business, Economics and Law, Göteborg University)
    Abstract: This paper integrates traditional economic variables, soil properties and variables on soil conservation technologies in order to estimate agricultural output among small-scale farmers in Kenya’s central highlands. The study has methodological, empirical as well as policy results. The key methodological result is that integrating traditional economics and soil science is highly worthwhile in this area of research. Omitting measures of soil capital can cause omitted variables bias since farmers’ choice of inputs depend both on the quality and status of the soil capital and on other economic conditions such as availability and cost of labour, fertilizers, manure and other inputs. The study shows that: (i) models which include soil capital and soil conservation technologies yield a considerably lower output elasticity of farm-yard manure; (ii) mean output elasticities of key soil nutrients like nitrogen (N) and potassium (K) are positive and relatively large; (iii) counter to our expectations, the mean output elasticity of phosphorus (P) is negative; (iv) soil conservation technologies like green manure and terraces are positively associated with output and yield relatively large output elasticities. The central policy conclusion is that while fertilizers are generally beneficial, their application is a complex art and more is not necessarily better. The limited local market supply of fertilizers, combined with the different output effects of N, P and K, point at the importance of improving the performance of input markets and strengthening agricultural extension. Further, given the policy debate on the impact and usefulness of government subsidies to soil conservation, our results suggest that soil conservation investments contribute to increase farmers’ output. Consequently, government support to appropriate soil conservation investments arrests soil erosion, prevents downstream externalities and assists farmers’ efforts to increase food production and food security.<p>
    Keywords: micro analysis of farm firms; resource management
    JEL: Q12 Q20
    Date: 2009–01–27
  5. By: Dannenberg, Astrid
    Abstract: This paper presents a meta-analysis of 46 primary studies reporting a total of 108 genetically modified food valuation estimates. The analysis shows that elicitation methods and formats used in the primary studies affect valuation estimates much more than do sample characteristics. Moreover, consumer aversion to genetically modified food seems to have increased over time. Previous findings are confirmed that consumer valuation strongly depends on the type of food product and varies among regions.
    Keywords: meta-analysis, consumer preferences, genetically modified food
    JEL: Q18 Q51 Q55
    Date: 2008
  6. By: Mansur, Kasim; Tola, Mansur; Ationg, Romzi
    Abstract: Recent decades have seen major change in agricultural technologies as a consequence to various programs for an agricultural development in rural areas of Sabah. Villagers in Sabah have always been receptive to new agricultural technologies that promises to improve their standard of living and as a reflection from the promotion of new agricultural technologies, many peoples in rural areas in Sabah now working with a mix of traditional and modern technologies. Along with the adoption of modern technologies, there has been a rapid transformation to cash economy among rural areas in Sabah (Marten, 1990). However, most villagers in Sabah are still produce almost entirely for home consumption, although the other economic activity of rural peoples in Sabah is small-enterprises as well as “kedai kampung” or rural shop that is registered under the local registration authority. This means, meeting basic household food needs is still the priority of most farmers in Sabah. Most also produced as much as surplus as possible to meet cash needs generated by expanding public education, rural electrification, modern communication (e.g. Radio and Television), and modern transport. It confirmed that most rural societies in Sabah still run their subsistence agricultural economy as compared to cash economy, which generally in farm activities, men do the major task and the women do the very minor task. Alongside with the fact that in this post-modern world most rural society in Sabah involved in agricultural economy, rural population especially among youth has declined. This means that human force for agricultural sector is declined as well. Rural population in Sabah was declining due to migration of younger-age groups. Outward migration among them was caused by the economic purposes such as to find non-agricultural financial resources (work in government sector either in the white or blue collar works). As according to Bryden (2000) villagers often migrated because the trend in agricultural income that is reported as lower than income from other economic activities. Some of them were migrated to the urban areas when they employed as the non-government professional executive level and further their education. Some other (female) moved to follow husband. In short, they were migrated because of work-related reason and to get social fulfillment in the form of further education, social amenities and the family reason. This phenomenon in the future, out migration of youth will leave the youngsters and old folks to maintain the village and at the end, population of rural areas in Sabah will be increasingly independent. Village-base economy especially agricultural production will suffer when the active youth have left for the town. In the other hand, rural poverty profile that is currently high will be increased. Hence, commercialization of agricultural sectors in rural areas assumed as the best resolution to improve villager’s standard of living that is bring about transformation of rural agrarian society from the traditional society to modern agrarian society through contract farming system.
    Keywords: Contract Farming System; Rural Society
    JEL: Q10
    Date: 2009–02–09
  7. By: Jolly, Robert W.; Gaul, Michael
    Abstract: A survey of 401 Iowa bank executives was conducted in October 2008. We received 106 valid responses. The survey requested information on expected loan growth and staffing levels for agricultural credit professionals over the next decade. In addition respondents reported the desired training and experience and expected compensation of new hires. Bank executives expect agricultural loans to grow over the next decade but at a slower rate than total loans. A gain in agricultural loan officer employment is expected net of retirements. Bank executives reported that soft skills such as problem solving ability and communication were more important for new agricultural loan officers than formal training in agriculture or business. Expected compensation levels and growth for new hires tend to lag those in competing industries.
    Keywords: agricultural loan officer, employment, compensation, training, survey
    Date: 2009–02–06
  8. By: Yonas G. Hamda; Jing Li (South Dakota State University)
    Abstract: The year 2008 will long be remembered as a year when corn based ethanol has seen tremendous change. The Energy Independence and Security Act, which passed in late 2007, gave a huge boost to the industry as it mandated an increase in biofuel production and use. In 2008, the industry witnessed record high prices on corn and crude oil. Ultimately, a big ethanol and distiller’s grain company--Vera Sun Energy-- filed for Chapter 11 bankruptcy leaving farmers with contracts wondering what will happen next. South Dakota is a major corn growing and ethanol producing state and this article assesses the relative magnitude of corn based ethanol on the local economy in terms of distribution of ethanol plants and corn disappearance ratios.
    Keywords: ethanol, south dakota, farm policy
    JEL: Q18 Q13
    Date: 2008–12
  9. By: Ahmed, Sadiq (The World Bank)
    Abstract: The surge in global commodity prices of the past few years has presented a tremendous development challenge for South Asian countries. The large loss of income from the terms of trade shock has worsened macroeconomic balances, fueled rapid inflation, and hurt growth. Although commodity prices have come down recently, the benefits are being clouded by the emergence of a severe global financial crisis. The adverse consequences of the food price hike for the poor are large; the global financial crisis could further worsen the situation due to falling economic opportunities and government revenues. South Asian countries need to accelerate reforms to avoid facing a serious downturn in economic activity, investment, exports, and income. Governments in South Asia have responded by stabilizing domestic food prices through a number of short-term measures, tightened monetary policy to reduce inflation, and increased spending on a range of safety net programs for the poor. Some of the policies employed, such as export bans, are not consistent with the long-term welfare of the country or the region. Safety net interventions need to be made consistent with a longer-term poverty reduction strategy and fiscal sustainability. Most importantly, policy attention now needs to shift toward efforts to increase farm productivity, improve rural infrastructure, and lower the vulnerability of the poor.
    Keywords: adverse consequences; adverse effect; Adverse Effects; Agricultural Productivity; Agriculture; average price; average prices; average productivity; basic needs; binding constraint; buffer stocks
    Date: 2008–12–01
  10. By: Ekbom, Anders (Department of Economics, School of Business, Economics and Law, Göteborg University)
    Abstract: This paper combines knowledge from soil science and economics to estimate economic determinants of soil capital. Explaining soil capital facilitates a better understanding of constraints and opportunities for increased agricultural production and reduced land degradation. The study builds on an unusually rich data set that combines data on soil capital (represented by chemical and physical properties) and economic data on household characteristics, labour supply, crop allocation and conservation investments. The study yields both methodological and policy-relevant results. On methodology, the analysis shows that soil capital is heterogeneous with soil properties widely distributed across the farms. Likewise, farmers’ investment decisions and soil management vary widely across farms. Hence simplifications of soil capital, which are common in the economics literature, may have limited validity. On the other hand, soil science research limited to soils’ biological, physical and chemical characteristics fail to recognize that soil is capital owned and managed by farmers. They thus run the risk of omitting important socio-economic determinants of soil capital. They also exclude the possibility to explain some of the dynamics that are determined by its stock character. On policy, the study shows that farmers’ soil conservation investments, allocation of labour, manure and fertilizer input, and crop choice indeed do determine variation in farmers’ soil capital. Particularly strong positive effects on key soil nutrients (N,P,K) are observed for certain conservation technologies. Extension advice shows unexpectedly no significant effects on soil capital. The wide distribution of soil properties across farms reinforces the need to (i) tailor technical extension advice to the specific circumstances in each farm, and (ii) enhance the integration of farmers’ knowledge and experiences, expert judgment and scientific soil analysis at the farm level.<p>
    Keywords: soil fertility; soil productivity; resource management
    JEL: Q12 Q20
    Date: 2009–01–28
  11. By: Alessandro Olper; Johan F.M. Swinnen
    Abstract: Mass media plays a crucial role in information distribution and thus in the political market and public policy making. Theory predicts that information provided by mass media reflects the media’s incentives to provide news to different types of groups in society, and affects these groups’ influence in policy-making. We use data on agricultural policy from 60 countries, spanning a wide range of development stages and media markets, to test these predictions. We find that, in line with theoretical predictions, public support to agriculture is strongly affected by the structure of the mass media. In particular, a greater role of the private mass media in society is associated with policies which benefit the majority more: it reduces taxation of agriculture in poor countries and reduces subsidization of agriculture in rich countries, ceteris paribus. The evidence is also consistent with the hypothesis that increased competition in commercial media reduces transfers to special interest groups and contributes to more efficient public policies.
    Keywords: Mass Media; Media Structure; Information; Agricultural Protection; Political Economy
    JEL: D72 D83 Q18
    Date: 2009
  12. By: Skoufias, Emmanuel (The World Bank); Katayama, Roy (The World Bank)
    Abstract: Brazil's inequalities in welfare and poverty across and within regions can be accounted for by differences in household attributes and returns to those attributes. This paper uses Oaxaca-Blinder decompositions at the mean as well as at different quantiles of welfare distributions on regionally representative household survey data (2002-03 Household Budget Survey). The analysis finds that household attributes account for most of the welfare differences between urban and rural areas within regions. However, comparing the lagging Northeast region with the leading Southeast region, differences in returns to attributes account for a large part of the welfare disparities, in particular in metropolitan areas, supporting the presence of agglomeration effects in booming areas.
    Keywords: Brazil; Leading and Lagging Regions; Welfare; Poverty; Oaxaca-Blinder decompositions
    JEL: I31 O15 O18 R10 R23 R58
    Date: 2009–02–02
  13. By: Leonardo Becchetti (University of Rome Tor Vergata); Stefano Castriota (University of Trento)
    Abstract: We evaluate the impact of affiliation to Fair Trade on a sample of Chilean honey producers. Evidence from standard regressions and propensity score matching shows that affiliated farmers have higher productivity (income from honey per worked hour) than the control sample. We show that the productivity effect is partially explained by the superior capacity of affiliated workers to exploit economies of scale. Additional results on the effects of affiliation on training, cooperation and advances on payments suggest that affiliation contributed both to, and independently from, the economies of scale effect.
    Keywords: Fair Trade, economies of scale, productivity.
    JEL: D63 D64 O18 O19 O22
    Date: 2008
  14. By: Ekbom, Anders (Department of Economics, School of Business, Economics and Law, Göteborg University); Brown, Gardner M. (Department of Economics, School of Business, Economics and Law, Göteborg University); Sterner, Thomas (Department of Economics, School of Business, Economics and Law, Göteborg University)
    Abstract: Soil erosion and fertilizer run-off cause serious flow externalities in downstream environments through-out the world. Social costs include e.g. loss of health, life and production due to pollution and eutrophication of freshwater resources, reduced life of hydro-power plants, increased turbidity, and degradation of coral reefs and marine resources. The key optimal control models on soil capital management omit downstream externalities and assume that the individual farmer and society share the same objective function. In the presence of externalities, there is a discrepancy. In this paper the social planner aims at maximizing the profits from agriculture subject to a soil dynamics-constraint and external damage costs caused by downstream contamination from soil and fertilizer leakage. These effects are not considered by the farmer. Comparative statics analysis shows that factors which promote a low discount rate (tenure security, access to credits, crop insurance etc.) will reduce soil erosion and nutrient leakage and promote accumulation of soil capital. Socially optimal subsidies for soil conservation not only will build-up soil capital and increase on-site crop production, but will also reduce nutrient leakage and soil loss. A charge on fertilizer would reduce fertilizer use and thus reduce the water pollution caused by leakage of inorganic nutrients. Based on our model results, combined with an extended discussion on policy instruments, we conclude that the government should try to provide incentives, not necessarily to stop soil loss per se (since the farmers will look after their own capital) but to avoid contamination of downstream environments, where the resource users have few opportunities to negotiate with the upstream farmers, who may even be unaware of the problems they cause.<p>
    Keywords: optimal control theory; micro analysis of farm firms; resource management; soil erosion
    JEL: C61 Q12 Q20
    Date: 2009–01–27
  15. By: Lence, Sergio H.
    Abstract: A thought experiment is designed to investigate whether the structure of risk aversion (i.e., the changes in absolute or relative risk aversion associated with changes in wealth) can be estimated with reasonable precision from agricultural production data. Findings strongly suggest that typical production data are unlikely to allow identification of the structure of risk aversion. A flexible utility parameterization is found to slightly worsen technology parameter estimates. Results also indicate that even under a restricted utility specification, utility parameter estimates are biased. Further, their quality is much worse when shocks are not large or samples are small.
    Keywords: expected utility, joint estimation, production analysis, risk attitudes, risk preferences
    JEL: C1 D2 D8 Q1
    Date: 2009–02–03
  16. By: Ellen H.M. Moors; Rogier Donders
    Abstract: As the majority of new products fail it is important to focus on the needs and preferences of the consumers in new product development. Consumers are increasingly recognised as important co-developers of innovations, often developing new functions for technologies, solving unforeseen problems and demanding innovative solutions. The central research question of the paper is: How to understand consumer needs and preferences in the context of new product development in order to improve the success of emerging innovations, such as functional foods. Important variables appear to be domestication, trust and distance, intermediate agents, user representations and the consumer- and product specific characteristics. Using survey and focus group data, we find that consumers need and prefer easy-to-use new products, transparent and accessible information supply by the producer, independent control of efficacy and safety, and introduction of a quality symbol for functional foods. Intermediate agents are not important in information diffusion. Producers should concentrate on consumers with specific needs, like athletes, women, obese persons, and stressed people. This will support developing products in line with the needs and mode of living of the users.
    Keywords: consumer needs, preferences, new product development, functional foods
    Date: 2009–02
  17. By: Babcock, Bruce A.
    Date: 2008–05–15
  18. By: John Gibson (University of Waikato); Susan Olivia (University of California, Davis)
    Abstract: There is growing interest in the rural non-farm sector in developing countries as a contributor to economic growth, employment generation, livelihood diversification and poverty reduction. Access to infrastructure is identified in some studies as a factor that affects non-farm rural employment and income but less attention has been paid to the constraints imposed by poor quality infrastructure. In this paper we use data from 4000 households in rural Indonesia to show that the quality of two key types of infrastructure – roads and electricity – affects both employment in and income from non-farm enterprises. It appears that there would be gains from development strategies that improve both the access to and the quality of rural infrastructure.
    Keywords: infrastructure; non-farm rural economy; Indonesia
    JEL: H54 O17
    Date: 2008–12–31
  19. By: Carriquiry, Miguel A.; Babcock, Bruce A.; Hart, Chad E.
    Date: 2008–05–15
  20. By: Paulson, Nicholas; Babcock, Bruce A.; Hart, Chad E.; Hayes, Dermot J.
    Date: 2008–05–15
  21. By: Vanhaute, Eric
    Abstract: This tentative essay tries to understand today's concerns about the decay of the peasantries and the loss of food security on a massive scale within a long-term and global perspective. Guiding questions are: How to handle the local scale of the peasant with the global scale of societal transformations? How to define peasantries? How is the fate of peasantries linked to economic development and social inequality? What can new research on the success and decline of peasantries learn us? Understanding the old and new 'agrarian questions' calls for new historical knowledge of the role of peasantries within capitalist transformations. The existing knowledge is all to often deformed by a twofold myopia, the English Road to capitalist agriculture, and the European Experience of the dissolution of the peasantries within the industrial and post-industrial economies. Laying down the old premisses of westernized development reveals a different picture of a highly productive family based agriculture, promoting local and regional income and survival systems, and internalizing costs of production and reproduction, contrary to the dominant and ultimatelly dead end tendency within historical capitalism.
    Keywords: Peasantries; depeasantization
    JEL: N50 N0
    Date: 2008
  22. By: Karen Turner (Department of Economics, University of Strathclyde); Nick Hanley (Department of Economics, University of Stirling); Janine De Fence (Department of Economics, University of Strathclyde)
    Abstract: The Environmental Kuznets Curve (EKC) hypothesis focuses on the argument that rising prosperity will eventually be accompanied by falling pollution levels as a result of one or more of three factors: (1) structural change in the economy; (2) demand for environmental quality increasing at a more-than-proportional rate; (3) technological progress. Here, we focus on the third of these. In particular, energy efficiency is commonly regarded as a key element of climate policy in terms of achieving reductions in economy-wide CO2 emissions over time. However, a growing literature suggests that improvements in energy efficiency will lead to rebound (or backfire) effects that partially (or wholly) offset energy savings from efficiency improvements. Where efficiency improvements are aimed at the production side of the economy, the net impact of increased efficiency in any input to production will depend on the combination and relative strength of substitution, output/competitiveness, composition and income effects that occur in response to changes in effective and actual factor prices, as well as on the structure of the economy in question, including which sectors are targeted with the efficiency improvement. In this paper we consider whether increasing labour productivity will have a more beneficial, or more predictable, impact on CO2/GDP ratios than improvements in energy efficiency. We do this by using CGE models of the Scottish regional and UK national economies to analyse the impacts of a simple 5% exogenous (and costless) increase in energy or labour augmenting technological progress.
    Keywords: Scomputable general equilibrium models; technical progress; energy efficiency; labour productivity; environmental kuznets curve
    JEL: D57 D58 R15 Q41 Q43
    Date: 2009–01

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