How Would Global Trade Liberalization Affect Rural and Regional Incomes in Australia?

Agricultural protection in rich countries, which had depressed Australian farm incomes via its impact on Australia’s terms of trade, has diminished over the past two decades. So too has agricultural export taxation in poor countries, which has had the opposite impact on those terms of trade. Meanwhile, however, import protection for developing country farmers has been steadily growing. To what extent are Australian farmers and rural regions still adversely affected by farm and non-farm price- and trade-distortive policies abroad? This paper draws on new estimates of the current extent of those domestic and foreign distortions first to model their net impact on Australia’s terms of trade (using the World Bank’s Linkage model of the global economy), and second to model the effects of that terms of trade impact on output and real incomes in rural vs urban and other regions and households within Australia as of 2004 (using Monash’s multi-regional TERM model of the Australian economy).