Distributional and economy-wide effects of post-conflict policy in Colombia

Abstract

As part of the 2016 peace accord in Columbia, agricultural policies were proposed for rural regions most affected by an armed conflict that had gone on for decades. We evaluated the effects of these policies with particular attention to their economy-wide and distributional effects. We used 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 considered were an increase in total factorial productivity because of infrastructure construction and greater technical assistance and employment subsidies intended to promote the substitution of illicit crops. We found that value added, demand for labor, and factor incomes increased in the areas most affected by the conflict while the opposite occurred in the other areas. Moreover, total rural income increased as long as the financing mechanism did not involve an increase in the taxation of rural incomes. In general, distributional effects were strongly conditional on the financing mechanism adopted by the government.