Renuka Mahadevan, Ph.D., School of Economics, The University of Queensland, Brisbane, 4072, Australia
It is the objective of this paper to use a set of varied scenarios related to the Economic Partnership Agreement (EPA) and the loss of European Union (EU) sugar preferences (in the form of partial and full price liberalisation) in combination with the recently committed EU development aid, to examine the impact on Fiji using a dynamic computable general equilibrium (CGE) model. Unlike partial equilibrium models, CGE models incorporates all relevant sectors into a single model and allows the analysis of the direct and indirect effects on other sectors in relation to a policy change or shock.
The contribution of this paper to the existing literature is three-fold. First, Fiji makes a good test case for the study of sugar preference erosion as it is the recipient of the second largest EU sugar quota allocation and given the high level of heterogeneity within the African Caribbean and Pacific (ACP) region, a single country analysis has more to offer by unmasking impacts on a wide range of macroeconomic variables as well as the effect on key sectors of the economy. More generally, it has been argued that the impacts of liberalisation vary for developing and developed countries within a particular region. Thus, results can be expected to be different for Fiji which is a lower middle income economy.
The second contribution is that, unlike previous studies, we consider concrete information on the EU price cuts and development aid to the ACP to allow more precise and realistic policy environments to be analysed. The third contribution is in the analysis of scenarios combining development aid with the loss of sugar preferences and the EPA. This could not be done in the single region CGE analysis of ACP undertaken by previous studies. It is hoped that this paper motivates similar analysis for other countries for comparison and to facilitate a better understanding of the different adjustments costs faced by both developed and developing countries not just within the ACP region but elsewhere as well.
Preliminary results show that without aid, the loss of sugar preferences has devastating impact on real output, exports, rural employment and other macroeconomic indicators. Without aid, the EPAs scenarios lead to some growth in real output but depress rural employment and non-sugar agricultural exports. Although improvements are observed across the scenarios with aid, it is argued that aid would be more effective if it directly addresses the supply-side constraints in Fiji instead of focusing on the sugar sector.