A computable general equilibrium analysis of agricultural development reforms: National and regional perspective

Abstract

Agriculture plays a pivotal role in the economy of both the Republic of Uzbekistan and the region Khorezm, as substantiated by a contribution of 25% of GDP and 40% of regional income. Since the agrarian sector is the engine of rural development and welfare, the impact of various agricultural policy scenarios on macroeconomic interrelationships and private and governmental earnings was examined using a computable general equilibrium (CGE) model developed for the national and the regional level. A total of seven scenarios include the current set-up as well as alternative cumulative and non-cumulative scenarios. Considering the substantial contribution of the agricultural sector to the GDP and regional income and the dominance of cotton production in the agricultural sector of Uzbekistan, non-cumulative scenarios include a partial liberalization of cotton market and an upgrade of the total factor productivities of livestock and main crop production sectors. The national and regional databases included production, final demand, and input-output relations for 20 sectors of the economy, of which seven belonged to the agrarian sector. The establishment of the CGE model for the economies of both the region and the country permitted the comparison of policies on both levels. The model findings suggest, among other findings, that the scenario of the liberalization of the present cotton production policy would not necessarily have an immediate and substantial impact on national and regional income. However, this policy change would substantially decrease government (state budget) revenues on the regional scale while significantly benefiting the private sector due to the enormous reliance of the regional economy, particularly government earnings, on cotton and cotton-related industry sectors. The scenario of increased livestock productivity would yield a higher positive impact on national and regional income than cotton market liberalization and upgrading crop production efficiency. In spite of its negative impact on private revenues at the national scale, it would not only bear much room for increasing private incomes of the rural population, but also would allow a wider implementation of advanced water saving technologies, in particular in remote rural areas, and promote more crop biodiversity, at regional scale. In terms of government earnings, a livestock productivity increase is estimated to have higher impact than a crop-production efficiency increase on the national scale. However, on the regional level, it is the latter option that would produce higher governmental (state budget) earnings. It is argued that the effectiveness of regional development strategies in Uzbekistan would be enhanced by accounting for regional characteristics and the comparative advantages of each region, instead of a blanket approach to all regions in a uniform nationwide program.