The trade restrictiveness index : an application to Mexican agriculture

Agricultural markets in Mexico, as elsewhere, are distorted by domestic subsidies as well as international trade policies. To measure domestic distortions in agriculture and compare them internationally, analysts have used"producer subsidy equivalent"(a production-share weighted average of producer subsidies) and"consumer subsidy equivalent"indices, as well as the familiar trade-weighted averages of tariffs and tariff equivalents of quotas. All these indices lack a theoretical foundation, as is well-known. Moreover, in the absence of a connection between the three partial indices of consumption, production, and trade distortion, inferences about the trade restrictiveness of all three policies are illegitimate. This paper allies a new concept, the trade restrictiveness index (TRI), to the evaluation of Mexican agricultural reform from 1985 to 1989. It demonstrates the feasibility of the new method and its theoretical and practical advantages over standard techniques, while at the same time providing an assessment of a particularly significant reform episode.