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This paper provides quantitative estimates of the impact of removing agricultural support (both tariffs and subsidies) in partial- and general-equilibrium frameworks. The results show that agricultural support in industrial countries is highly distortionary and tariffs have a larger distortionary impact than subsidies. Removal of agricultural support would likely raise the international prices of food, resulting in an increase in the cost of food for many net-food- importing countries, although the increase is generally small. The results also show that most of the benefits from removing agricultural support accrue to the countries that liberalize.
Notwithstanding the tariffication component of the Uruguay Round Agreement on Agriculture, import tariffs on farm products continue to provide an incomplete indication of the extent to which agricultural producer and consumer incentives are distorted in national markets. Especially in developing countries, non-agricultural policies indirectly impact agricultural and food markets. Empirical analysis aimed at monitoring distortions to agricultural incentives thus need to examine both agricultural and non-agricultural policy measures including import or export taxes, subsidies and quantitative restrictions, plus domestic taxes or subsidies on farm outputs or inputs and consumer subsidies for food staples. This paper addresses the practical methodological issues that need to be faced when attempting to undertake such a measurement task in developing countries. The approach is illustrated in two ways: by presenting estimates of nominal and relative rates of assistance to farmers in China for the period 1981 to 2005; and by summarizing estimates from an economy-wide computable general equilibrium model of the effects on agricultural versus non-agricultural markets of the project's measured distortions globally as of 2004.
Author : James E. Anderson Publisher : World Bank Publications Page : 37 pages File Size : 50,16 MB Release : 1993 Category : Comercio internacional ISBN :
In this paper we develop techniques for measuring the trade policy equivalent of domestic distortions, using a distance function approach. Our measure, the Trade Restrictiveness Index, is shown to equal the uniform tariff which is welfare-equivalent to a given pattern of domestic taxes and subsidies. We extend the Index to incorporate taxes on non-traded goods and factor markets and illustrate its operationality with an application to liberalization in Mexican agriculture. We conclude that our Index has considerable potential in empirical work and as an aid to trade negotiators.
This paper outlines the methodological issues associated with the task of measuring that actual delivered direct protection or taxation to individual agricultural industries, as well as the direct protection or anti-protection to non-agricultural sectors. It begins with a guide to what elements in principle could be measured. There are two key purposes of the distortion estimates being generated by this project are: 1) to provide a long annual time series of indicators showing the extent to which price incentives faced by farmers and food consumers have been distorted directly and indirectly by own-government policies in all major developing, transition and high-income countries, and hence for the world as a whole; and 2) to attribute the price distortion estimates for each farm product to specific border or domestic policy measures, so they can serve as inputs into various types of partial and general equilibrium economic models for estimating the effects of those various policies on such things as national and international agricultural markets, farm value added, income inequality, poverty, and national, regional and global welfare.
The purpose of this study is to measure the sensitivity of traded quantities and trade unit values to agricultural production shocks. We develop a general equilibrium model of trade in which production shocks in exporting countries affect both traded quantities and trade unit values. The model includes per-unit trade costs and develops a methodology to quantify their size exploiting the trade unit value data. Using bilateral trade flow data for a large sample of countries and agricultural commodities we find that the intensive margin of trade is relatively inelastic to production shocks, with a 1 percent increase in production leading to a 0.5 percent increase in exports. We also find that per-unit trade costs are large, comprising 15 to 20 percent of import unit values on average. Overall, our results suggest that there is room for improving trade as a mechanism for coping with food production volatility.
Economists have long been interested in measuring the extent, effects and causes of agricultural price and trade policies. The topic has drawn attention because agricultural trade between countries has almost never been free, and yet it is widely accepted that trade policy distortions affect the incentives of producers and consumers and cause a redistribution of resource use in the economy. Traditional aggregations of agricultural price and trade distortions can be poor guides to the economic effects of agricultural price and trade policies. Measures without theoretical foundation - such as simple- or trade-weighted average price distortions - may introduce biases in analysis. Recent decades have seen improvements in aggregation theory in the form of scalar index numbers of the trade- and welfare-reducing effects of price and trade policies. Despite the new theory, however, analysts have continued to use less satisfactory measures in practice. This thesis calculates partial-equilibrium versions of trade restrictiveness indices from the Anderson-Neary family of indices for agricultural policy distortions in 75 developed and developing countries over a period 1960 to 2007. The data for the empirical work are from the recently released World Bank Distortions to Agricultural Incentives database. The thesis calculates indices at the country level for the sample countries. Two partial-equilibrium indices are calculated - a Trade Reduction Index (TRI) and a Welfare Reduction Index (WRI). The TRI (WRI) is the uniform trade tax that yields the same loss in trade volume (welfare) as the structure of disaggregated distortions. The results of the country-level estimates show that standard weighted averages of price distortions understate the extent of global distortion from agricultural policies. One manuscript of the thesis focuses in particular on the trade restrictiveness of agricultural policy in Sub-Sahara Africa, and finds that weighted averages greatly understate the extent of regional distortion from agricultural policy by netting out offsetting distortions in exportable and import-competing sectors. The thesis also calculates indices of agricultural policy distortions for individual commodity markets. Whereas all previous work within the trade restrictiveness indices literature has focused on constructing index numbers of distortions from the perspective of a single country, this thesis proposes taking a global view instead for individual commodity markets. Indices are estimated for 28 key agricultural commodities. Generally, the indices are well above weighted-averages of price distortions. The most distorted global markets are the milk, sugar and rice markets. The thesis also employs the Anderson-Neary framework to consider the trade- and welfare-reducing effect of individual policy instruments. The aim of the work is to determine the relative contributions of different policy instruments to reductions in global trade and welfare over time and across countries. The most significant result empirically is the importance of export taxes pre-1990s and their substantial contribution to the fall in global trade- and welfare-restrictiveness of agricultural policy over the past two decades. Finally, the thesis examines the extent to which the Protection for Sale Model (PFS) of Grossman and Helpman (1994) holds for agricultural sectors at different stages of development. The test uses a new methodology proposed by Imai, Katayama and Krishna (2008). The Distortions to Agricultural Incentives dataset is used for the analysis. The PFS model is estimated in a cross-country setting, which allows for examination of the role of different government institutional factors in PFS framework.
My dissertation evaluates the general equilibrium effects of agricultural market structures by examining how market power and capacity constraints of downstream intermediaries shape the economy-wide impacts of agricultural program interventions. I construct an integrated general equilibrium model of agricultural market structure and calibrate the model using original household-level survey- and industry-data from the Tanzanian cotton industry to estimate the direct and spillover effects of technological improvements in cotton production when the downstream cotton ginners have market power in purchasing cotton from farmers. Chapter 2 of my dissertation reviews the three strands of economic literature into which this work fits and contributes: demand-side constraints in agricultural markets, in particular, limited capacities and imperfect competition among downstream intermediaries, welfare distribution of downstream market structure in agriculture, and general equilibrium effects of policy interventions in local economies. In Chapter 3, I develop the integrated general equilibrium model of market structure by explicitly allowing for intermediary market power and their capacity constraints, and capturing local-economy general equilibrium effects. Chapter 4 presents the original household-level data from the Western Cotton Growing Area of Tanzanian and the ginners’ industry-level data, and explores the existing coalitions of cotton ginners, their contractual agreements with cotton farmers, spatial and temporal dimensions of cotton purchase, and the costs of producing lint. In Chapter 5, I discuss the empirical strategy of econometric estimations of inputs needed to parameterize the integrated model. Using ginners’ cost data on processing inputs, I non-parametrically estimate their market power to be 0.28 in cotton purchase, which is akin to a scenario as if the ginners are playing a three-four firm Cournot game. Chapter 6 presents the direct and indirect (spillover) effects of ginners’ market power, and estimates the income and production impacts of higher cotton productivity experiment with imperfectly competitive ginners and compares that to the synthetic case of perfect competition. I find that the total real income of the Western Cotton Growing Area reduces by 3.1 percent due to ginners’ market power with heterogeneous welfare impacts for the different cotton and non-cotton producing households. The income (inflation-adjusted) gains in the entire local economy are reduced from 5.9 to 2.4 percent due to ginners’ market power upon the 25 percent cotton productivity increase. The direct income increases of technology improvement for the cotton producers are reduced by 2.2 to 5.6 percentage points, and the indirect income increases for the non-cotton producing households are reduced by 0.5 to 0.8 percentage points. The methodology presented in my dissertation applies to both developed and developing country agricultural settings. The findings from this dissertation have important implications for agricultural program evaluations to consider the negative effects of market power and to assess the impacts through a local economy angle. Evaluations based on a partial equilibrium analysis typically overlook the agricultural spillovers. I also highlight the importance of intermediary capacities in agriculture in determining the welfare of upstream farmers and their local economy. When intermediaries operate at their maximum processing capacities, direct welfare gains and income spillovers of technological improvements in agricultural production are unambiguously negative for the farmers, and all the benefits of innovation are transmitted to the intermediaries. A realistic analysis of policies aimed at raising welfare in rural economies must consider effects of market power and downstream capacity constraints. Taking these effects into account opens up new policy considerations and opportunities, including the benefits of laws limiting or proscribing anticompetitive behavior to prevent formation of mergers and coalitions downstream from farms. Introducing interventions to ensure a more elastic demand for farm products when intermediaries are capacity constrained could complement other welfare-enhancing programs that governments undertake in potent and dynamic – yet easily overlooked – ways.