Poverty and Welfare Effects of Technical Change: A General Equilibrium Analysis for Philippine Agriculture

This study examines the impact that technical change in the agricultural sector of a developing country has on poverty alleviation and aggregate welfare. A small general equilibrium model of a price-taking economy is used to simulate several stylized forms of technical progress. Their effects are traced through changes in factor and commodity prices to the real expenditures of household groups classified both by their sources of income and by their patterns of consumption. For a given poverty line, we identify changes in the prevalence and nature of poverty using several different measures. Changes in aggregate economic welfare are evaluated using alternative sets of welfare weights. We show how the economic components of an observed change in poverty can be isolated to expose the significance of intersectoral linkages and the economic roles of changes in relative commodity and factor prices. In concluding, we draw out some of the implications of our methodology for policy formulation. * Research funding from the Australian Centre for International Agricultural Research. Project No.8838, 1s gratefull y acknowledged. The authors wish to thank Ms Z ita Albacea ror her excellent research assistance. ** The authors arc respecti vel y, Assistant Professor, Department of Agricultuml Economics, University of Wi consin, Madison, and John Crawford Professor of Agricultutal Econom1cs, Austmlian Nauonal Uni' ersity.