Employment and Enterprise Policy Analysis Discussion Papers: Economy-Wide Models for Analyzing Policy Reform

摘要

The paper considers the applicability of Computable General Equilibrium Models (CGEMs) for the Employment and Enterprise Policy Analysis (EEPA) project. It contends that the role of small and medium sized enterprises (SMEs), in the process of industrial development, needs to be understood in the context of government policies which affect the key factor prices: the interest rate, the wage rate, and the exchange rate. Policies which alter these prices are likely to influence market structure and the distribution of manufacturing activity across firms of differing size. The promotion of SMEs in an economy where factor prices are 'wrong' may not lead to a sustainable improvement of total factor productivity in the manufacturing sector. The paper asks whether CGEMs are the best way to explain the consequences of policy reforms in the factor markets. Where the formal and informal sectors are sharply distinguished, it argues that CGEMs can improve the understanding of the consequences of policies whose effects are to differentiate between small and large firms.