THE ECONOMIC-IMPACT OF A SUBSIDY ON MEXICAN GRAINS AND FORESTRY - A CGE ANALYSIS

This study first examines the economy-wide im pacts of the ''Pro-Campo '' grains subsidy program. It then analyzes the effects of extending t his program to forestry as a means of curbing further deforestation. T o accomplish these objectives, we employ a computable general equilibr ium (CGE) model of the Mexican economy. Our findings show that (1) the subsidies lead to a transfer of resources from the refining, natural gas, services, and financial services sectors into the various agricul tural, manufacturing, and mining sectors; (2) All consumption sectors except the food and the alcohol and tobacco sectors decrease as a resu lt of subsidies; (3) The lower income groups experience an increase in their income at the expense of the upper income groups when governmen t revenue and expenditure are held constant. Such results suggest that extension of ''Pro-Campo'' benefits to the forestry sector should hav e the desired im pact of keeping land and capital resources in forestr y. Our results, however, only pertain to commercial species and do not include the off-side damages which may occur to useful noncommercial species.