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Policy Dilemmas in India - The Impact of Changes in Agricultural Prices on Rural and Urban Poverty

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Author Info

  • Sandra Polaski

    (Indira Gandhi Institute of Development Research)

  • Manoj Panda
  • A. Ganesh-Kumar
  • Scott McDonald
  • Sherman Robinson

Abstract

Trade policy reforms which lead to changes in world prices of agricultural commodities or domestic policies aimed at affecting agricultural prices are often seen as causing a policy dilemma : a fall in agricultural prices benefits poor urban consumers but hurts poor rural producers, while a rise yields the converse. Poor countries have argued that they need to be able to use import protection and/or price support policies to protect themselves against volatility in world agricultural prices in order to dampen these effects. In this paper, we explore this dilemma in a CGE model of India that uses a new social accounting matrix (SAM) developed at the Indira Ghandi Institute of Development Research (IGIDR) in Mumbai. The SAM includes extensive disaggregation of agricultural activities, commodity markets, labor markets, and rural and urban households. This SAM includes 115 commodities, 48 labor types and 352 types of households, (classified by social group, income class, region, and urban/rural). The CGE model based on this SAM can be used to explore the linkages between changes in world prices of agriculture and the incomes of poor rural and urban households, capturing rural-urban linkages in both commodity and factor markets. The results indicate that the inclusion of linkages between rural and urban labor markets is necessary to fully explore, and potentially eliminate, the dilemma. A fall in agricultural prices hurts agricultural producers, lowers wages and/or employment of rural labor, and in some cases spills over into urban labor markets, depressing wages and incomes of poor urban households as well. In these cases both rural and urban poverty increases. The paper explores the strength of these commodity and factor market linkages, and the potential spillover effects of policies affecting agricultural prices.

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Bibliographic Info

Paper provided by East Asian Bureau of Economic Research in its series Trade Working Papers with number 22409.

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Date of creation: Jan 2008
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Handle: RePEc:eab:tradew:22409

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Related research

Keywords: Doha negotiations; India trade policy; World prices; Labour Market; CGE model;

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Cited by:
  1. Gilbert, John & Banik, Nilanjan, 2010. "Socioeconomic Impacts of Cross-Border Transport Infrastructure Development in South Asia," ADBI Working Papers, Asian Development Bank Institute 211, Asian Development Bank Institute.
  2. John Gilbert, 2008. "Agricultural trade reform and poverty in the Asia-Pacific region: a survey and some new results," Asia-Pacific Development Journal, United Nations Economic and Social Commission for Asia and the Pacific (ESCAP), United Nations Economic and Social Commission for Asia and the Pacific (ESCAP), vol. 15(1), pages 1-34, June.
  3. John Gilbert, 2011. "Trade reforms under Doha and income distribution in South Asia," STUDIES IN TRADE AND INVESTMENT, United Nations Economic and Social Commission for Asia and the Pacific (ESCAP), in: Trade-led growth: A sound strategy for Asia, chapter 12 United Nations Economic and Social Commission for Asia and the Pacific (ESCAP).

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