Impacts of Trade Liberalization on the Development of Agricultural Sector and its Prospected Role in Development in Developing Countries

Abstract

This study constitutes an attempt to empirically evaluate, in a cross-country context, the respective roles of various theories of dynamic gains from trade liberalization in explaining observed positive impact of trade openness on development and agriculture sector and the prospected role of the agriculture sector in development. Development, in this study, is measured as compound indicators of the life expectancy, per capita income, child mortality, and primary school enrollment. The overall objective of the study is to investigate the impacts of trade liberalization on the development of developing countries and the role of the agricultural sector in the economic development. In order to give insights and provide policy guidelines that would enable its adaptation to meet the changing needs of the agricultural sectors in these countries.This involves the investigation of the impacts of trade liberalization (openness) on the main factors that affect the agricultural sector. This includes the exploration of the impacts of trade liberalization on agricultural trade, agricultural production, agricultural value added and agricultural growth measured as growth in agricultural value added. In addition to other economic development elements, such as, foreign XII direct investment, domestic investment rate, macroeconomic policy quality, size of the government, and black premium market.In this study, a system of simultaneous equations; aimed to identify the various effects of trade policy on development and agricultural sector elements, and the effects of these variables on the growth. For each equation in the system, the results of the estimation procedure are applied to three variants of the same model. These are the baseline model for this study, for the year 1980, 1990 and 1999. Each equation of the model represents the total sample of (74) countries belonging to middle income developing countries according to World Bank classification of the countries for the year 1998. A total of (32) exogenous variables and (11) endogenous variables (channel variables) that are consist the agricultural and economic development are used for the three time periods. For the baseline, only (30) exogenous variables were used, because of lack of data on import commodities and the import concentration for the year 1980. The total effects of the trade policy on economic and agricultural development elements and the agricultural growth and the impact of the agricultural growth on these elements are computed for the time period. The total effect of agricultural growth in development varies from (0.044)% in 1980 to (0.072)% in 1990, which reflects the impact of agricultural sector role in development level. The net effect varies from channel to channel and from year to year, both in sign and magnitudes The magnitudes of each channel variables varied from year to year, and within the same model. The total effect of these channel variables explain about (10) of total increase in development level for the year 1980 and only (4.1%) and (8.9%) for the years 1990 and 1999 respectively. that is there are more variables that influence the development level rather than trade policy.