Agricultural price policy, employment, and migration in a diversified rural economy: A village-town CGE analysis from Mexico

This paper employs micro economywide modeling techniques (Taylor and Adelman) to explore the impacts of recent agricultural policy reforms on production, incomes, and migration in a village-town economy of Mexico. Our model incorporates a series of agricultural household models into a local general-equilibrium framework for (a) a rural municipio or county seat, and (b) the surrounding villages that, together with the town, make up the municipio. The town and village models are then linked together spatially, through trade. This makes it possible to capture both the direct and indirect impacts of policy changes in the villages and town, where transaction costs may differ, as well as to trace the transmission of effects between the two. We estimated the model using original survey data, gathered in conjunction with El Colegio de Mexico's PRECESAM (Program for the Study of Economic Change and Sustainability in Mexican Agriculture). In this paper, we use the village-town model to explore the implications of resource mobility across farm and nonfarm activities and alternative model closure rules in shaping agricultural policy impacts.