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AGRICULTURE, TRADE, AND POVERTY IN TUNISIA 133


ate in the Tunisian case because there is considerable unemployment among all wage-worker categories. Compared to the modeling of nonwage workers, the only change is that the economywide wage variable is fixed (or exogenized), while the supply variable is flexed (or endogenized). Each activity is free to hire any desired quantity of workers at the fixed activity-specific wage (which, implicitly, is indexed to the model numéraire). Income from labor and physical capital accrues to households using fixed shares derived from the SAM once the micromodule is fully integrated, as do all rents created by specific capital factors (natural resources and land). Total household demand is derived by maximizing the utility function sub- ject to the constraints of the available income and consumer price vector. Household utility is a positive function of the consumption of the various products and savings; the income elasticity for each product is set to unity. Government demand and investment demand are disaggregated into sectoral demands once the total value is determined according to fixed coefficient functions.


The model assumes imperfect substitution among goods originating in dif- ferent geographical areas. Import demand results from a constant elasticity of substitution function aggregating domestic and imported goods. Export supply is symmetrically modeled as a constant elasticity of transformation function. Producers decide to allocate their output to domestic or foreign mar- kets in response to relative prices. At the second stage, importers (exporters) choose the optimal demand (supply) across regions as a function of relative import (export) prices and the degree of substitution across regions. The substitution elasticity between domestic and imported products is set at 2.2, while it is set at 5.0 among imported products according to origin. The elas- ticity of transformation between products intended for the domestic market and products for export is 5.0, while it is set at 8.0 among the different des- tinations for export products.6


Finally, several macroeconomic constraints are introduced into this model. First, the small country assumption holds. Tunisia is unable to change world prices; thus, its import and export prices are exogenous. Capital transfers are exogenous as well, implying that the trade balance is fixed so as to achieve balance of payments equilibrium. Second, the model imposes a fixed real government deficit and fixed real public expenditures. Public receipts thus


6 In the absence of the trade elasticities estimated for Tunisia, we use trade elasticities from the empirical literature devoted to CGE models. For example, see Burniaux, Nicoletti, and Oliveira-Martins (1992); Konan and Maskus (1997); or, more recently, Gallaway, McDaniel, and Rivera (2000).


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