AGRICULTURE, TRADE, AND POVERTY IN SYRIA 163


market demand is directed toward the imports of commodities the demand for which is not satisfied by domestic production and toward the domestic output of nonimported commodities. Demand prices are adjusted for commodity taxes and subsidies. The derived demand for imported commodities is met through international supplies that are infinitely elastic at given world prices. The import prices paid because of domestic demand also include import tariffs (at fixed ad valorem rates). Similarly, the derived demand for domestic output is met by domestic suppliers. Flexible prices balance between the demand for and the supply of domestically marketed domestic output. Finally, several macroeconomic constraints are introduced in the model. First, the small country assumption holds; the Syrian economy is unable to change world prices, so its imports and exports prices are exogenous. Capital transfers are exogenous as well, and therefore the trade balance is fixed so as to achieve the balance-of-payments equilibrium.


The SAM used here is based on the input-output table built by Chemingui and Fetini (2006) to assess the effect of phasing out subsidies on energy prod- ucts. This input-output table is converted to a SAM using additional information on income formation and transfers among different institutions. The activity structure of the SAM has been updated for this study by adding new sectors and commodities (wheat and wheat derivatives) and by aggregating others (mainly energy products). The specification of the agricultural sectors has also been rendered consistent with the need for meaningful mapping between input- output sectors and household expenditure items so as to be able to measure the effects of subsidy reforms on household welfare. The specification of the input-output structure has been based on detailed microeconomic data at the sectoral level but also at the enterprise level in some cases. Substitution elasticity between domestic and imported products is set at 2.2. The elasticity of transformation between products intended for the domestic market and products for exports is 5.0. Trade elasticities come from the empirical literature devoted to CGE models. They are not specific to Syria. See, for instance, Burniaux, Nicoletti, and Oliveira-Martins (1992); Konan and Maskus (1997); or the more recent Gallaway, McDaniel, and Rivera (2000). Devarajan, Go, and Li (1999) econometrically estimated substitutions elastici- ties for Syria and obtained results close to 0.1 for both Armington and CET elasticities. These elasticities are not distinguished by product, which explains their low levels to a large extent. Nor are they statistically significant. Substitution elasticities in the production function are the following: 0.5 between intermediate consumption and value added, 1.0 between aggregate capital and labor, 0.0 between the physical capital and land, and 0.4 between various types of labor.


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