Abstract
The effects of policy interventions on price incentives and resource use in wheat and dairying are analyzed for the Ecuadorian Sierra from 1970 to 1983, a period of rapid economic growth induced by a boom in petroleum revenues. Exchange rate and trade policies combined with subsidized transport services and farm credit, to substantially tax wheat producers while milk producers received significant subsidies. Consequently self-sufficiency in wheat production fell from about 50% in 1970 to near zero in 1983, while imports of dairy products remained very low throughout this period of rapidly expanding demand for both bread and livestock products. Measures of comparative advantage are constructed to show that these price distortions have led to substantial inefficiency in resource use due to thewidening gap between private and social profitability for wheat and for dairying.
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