Abstract
AbstractTrade negotiators and policy advisors are keen to know the relative contributions of different farm policy instruments to international trade and economic welfare. Nominal rates of assistance or producer support estimates are incomplete indicators, especially when (as in many developing countries) some commodities are taxed and others are subsidized, in which case positive contributions can offset negative contributions. This paper develops and estimates a new set of more-satisfactory partial equilibrium indicators of the relative contribution of different farm policy instruments to reductions in agricultural trade and welfare. It does so by drawing on the trade restrictiveness index literature and a recently compiled database on distortions to agricultural prices for 75 developing and high-income countries over the period 1960 to 2004. Results confirm earlier findings that border taxes are the dominant instrument affecting global trade and welfare, but they also suggest declines in export taxes contributed nearly as much as cuts in import protection to the trade and welfare effects of agricultural policy reforms since the 1980s.
Highlights
The relative contribution of different policy instruments to reductions in trade and welfare are of interest to (a) trade negotiators as a way of prioritizing their negotiating efforts, and (b) agricultural policy analysts as a way of pointing to the inefficiencies in governments’ choices of policy measures
Scalar index numbers developed from the Anderson and Neary (2005) family of trade restrictiveness indexes are estimated for different policy instruments and compared so as to show their relative contributions
Simplifying assumptions to estimate the indices In Equation (11) it is shown that the weights for the instrument trade reduction index (ITRI) and instrument welfare reduction index (IWRI) can be written as functions of, among other things, the domestic price elasticities at either the protected trade situation or the free trade situation
Summary
Contributed Paper for the 54th Annual Conference of the Australian Agricultural and Resource Economics Society, Adelaide, 9-12 February 2010. This is a product of a World Bank research project on Distortions to Agricultural Incentives (see www.worldbank.org/agdistortions). The views expressed are the authors’ alone and not necessarily those of the World Bank and its Executive Directors, nor the countries they represent, nor of the institutions providing the project research funds
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