Browsing by Subject "Computable General Equilibrium Model"

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Non-agricultural activities and household time use in Ethiopia : a computable general equilibrium model analysis
(2018) Mosa, Abdulaziz Abdulsemed; Grethe, Harald
Large shares of rural households engage, next to agricultural activities, in non-agricultural activities in most regions of Ethiopia. Non-agricultural activity is indispensable to reduce rural poverty and income inequality and contributes to livelihoods. The sector is crucially relevant for those who lack alternatives especially for women and landless rural households. However, the constraints of non-agricultural activities are not well studied and documented in Ethiopia. Few attempts have been made to identify the impediments to non-agricultural activities based on household surveys with limited coverage that are hardly representative of the whole country. Furthermore, to secure the potential benefits gained from the development of non-agricultural activities, it is essential to recognize and reduce the barriers confronted by the sector. To the author’s best knowledge, the potential economy-wide benefits drawn by reducing the impediments of non-agricultural activities are barely been studied and recognized. In other words, the potential effects of different policy instruments for facilitating non-agricultural activities are unexplored by the empirical literature on Ethiopia. Against this background, this study uses a comprehensive and country representative household survey to identify the constraints of non-agricultural activities in Ethiopia. Furthermore, two policy options for promoting rural non-agricultural activities are examined and discussed: First, the non-agricultural labor supply is stimulated by freeing labor time from labor-intensive home activities such as collecting water and firewood and second, the effect of improved access to road transport infrastructure for enhancing non-agricultural activities and its economy-wide outcomes are analyzed. The study reveals that major constraints of non-agricultural activities are limited access to finance, lack of market opportunities, limited education/training and poor access to roads, transport and communication. Rural households participate in non-agricultural activities due to a lack of access to agricultural land, low/volatile earnings, to look for a means to invest in agriculture and social/economic independence. The major non-agricultural activities are services (such as carpentry and transport), trade (wholesale and retail trade) and manufacturing (such as grain milling and brewing). The study also investigates the impact of water fetching and firewood collection on non-agricultural activities in Ethiopia. Since the sources of water and firewood are not easily accessible, households spend long hours per day for collecting water and firewood. For instance, rural households on average spend 0.64 hours per day for fetching water and 0.58 hours per day for firewood collection. The finding of this study reveals that water fetching and firewood collection adversely affect the adoption of non-agricultural activities in Ethiopia. Specifically, households that spend more labor hours for collecting water and firewood are less likely to engage in non-agricultural activities. The current study analyzes and discusses the effect of two alternative policy interventions for promoting non-agricultural activities in Ethiopia. The first policy option is facilitating the non- agricultural labor supply by freeing labor from water fetching and firewood collection. Improved access to drinking water infrastructure and energy efficient technology (for example, improved cooking stoves) significantly reduces the time spent on water fetching and firewood collection. The freed labor from water fetching and firewood collection is partly reallocated to marketed activities such as agricultural and non-agricultural activities or partly reallocated to leisure. Labor reallocated to market activities has economy-wide implications. This study examines the scenario of a 50% increase in the total factor productivity (TFP) of water fetching and firewood collection activities because of improved access to water infrastructure and energy efficient technology. Domestic and international sources of finance are used for funding water infrastructure and energy technology The simulation results show that improved access to water and energy efficient technology ensures reallocation of labor across different economic sectors. Since a large percentage of water fetchers and firewood collectors are agricultural laborers, agriculture absorbs a larger share of the released labor relative to other sectors (such as industry and services). Accordingly, the labor released from water fetching and firewood collection stimulates agricultural and non-agricultural production. Better access to drinking water and improved energy technology also enhances household welfare. Households that allocate a relatively large proportion of labor to water fetching and firewood collection gain relatively more welfare. Macroeconomic indicators such as GDP, total domestic production, absorption and imports are also positively affected due to improved access to water and energy efficient technology. The second policy option analyzed in this study is the role of improved access to road transport infrastructure for enhancing non-agricultural activities. Better access to road infrastructure reduces trade and transport margins and enhances efficiency of activities that produce trade and transport services. This study explores the policy scenarios of a 1.8% to 2.1% reduction of trade and transport margins and a 1.1% increase in the total factor productivity (TFP) of activities that produce trade and transport services. The cost of funding road infrastructure is obtained from domestic and international sources.The simulation results indicate that improved access to road transport infrastructure reduces consumer prices of marketed commodities and enhances domestic production in agricultural and non-agricultural sectors. The simulations also exhibit welfare improvement among rural and urban households and facilitate economic growth. Therefore, improved access to road transport infrastructure is important for the development of non-agricultural activities. In general, improved access to the road transport network, drinking water supply and energy saving technologies should be recognized as a fundamental component for facilitating rural non-agricultural activities in Ethiopia. This study has revealed that policy interventions targeted towards promoting non-agricultural activities lead to considerable economy-wide positive outcomes and stimulate the entire economic activities in the country.