This report reassesses the causal link between domestic agricultural policies and world price instability, using the case of the rice market. Specifically, the report develops a framework for analyzing the effects of domestic policies on international price stability, identifies the conditions required for government policies to destabilize world markets and econometrically examines whether these conditions apply to the trade behavior of seven major rice trading countries over the period 1960-87. This is done by comparing the estimated transmission and absorption effects with those implied under free trade, by incorporating several behavioral restrictions drawn from standard trade theory. Sensitivity analysis is then used to discern how robust the results are to changes in domestic and international price elasticities.
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Paper provided by Department of Agricultural Economics, Michigan State University in its series International Development Papers with number
13.