Distributional and Economy-Wide Effects of Post-Conflict Policy in Colombia

Abstract

The aim of this paper is to evaluate the effects of agricultural policies that, as part of the peace accord in Colombia, have been proposed for the rural regions most affected by the armed conflict. Specifically, we are interested in their economy-wife and distributional effects. To that end, we use a newly built 2014 social accounting matrix for Colombia to calibrate an extended version of the well-known PEP 1-1 computable general equilibrium model. The policies we consider comprise an increase in total factorial productivity due to greater technical assistance and infrastructure construction, and production and employment subsidies in order to promote the substitution of illicit crops. It is found that value added, demand for labor, and factor incomes increase in the areas most affected by the conflict, while the opposite occurs in the other areas. Moreover, total rural income increases as long as the financing mechanism does not consider an increase in the taxation of rural incomes. In fact, we found that the distributional effects are strongly conditional on the financing mechanism that the government adopts.