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Abstract
Beginning in the mid-1980s New Zealand underwent a comprehensive set of
economic reforms, which were notable for their breadth and sequencing. The impacts of
policy changes on the real exchange rate (RER) and resulting changes in the agricultural
sector and related processing industries were the central issues in evaluating the benefits and
the costs of the reforms. In this paper, a counter factual analysis was developed to analyze
what would have been the supply response of agricultural industries if the sectoral order,
sequence and timing of trade liberalization policies had been different from what actually
occurred. In addition, the impact of "early" trade liberalization and a deferred capital market
liberalization was also examined. Five structural equations explaining the real exchange rate
for exportables (RERx), the agricultural capital stock, the supply of primary and processed
agriculture and the total demand for exportable industries were estimated using an error
correction model. Dynamic simulations were performed which involved three policy
scenarious. The results indicated that both the sequence of trade and capital market
liberalization and the sectoral sequence and timing of the liberalization policies were
important in terms of increasing the agricultural supply response in the post-reform period.