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Foodgrain price stabilisation in an open economy: A CGE analysis of variable trade levies for India

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  • Servaas Storm

Abstract

Within the present multilateral trading system, the developing countries are obliged to gradually open up their agricultural sector to world markets. As a result of this, the effectiveness of conventional instruments of food price stabilisation will be greatly reduced. How then is food price stability to be maintained in a liberalised open economy? This article presents a general-equilibrium evaluation of using variable trade levies on agricultural trade to stabilise foodgrain prices in response to exogenous shocks. This is done for the Indian economy with the help of a multi-period computable general equilibrium (CGE) model, focused on agriculture and income distribution. The model is used to analyse the sensitivity of the economy's growth, income distribution and food security to external and internal shocks under varying degrees of trade openness. The results show that both shocks are distributionally regressive and, with external shocks, become more so, the more open the economy is. WTO-consistent variable levies on agricultural trade are found effective in stabilising prices, checking real wage erosion and containing regressive distributional effects.

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  • Servaas Storm, 1999. "Foodgrain price stabilisation in an open economy: A CGE analysis of variable trade levies for India," Journal of Development Studies, Taylor & Francis Journals, vol. 36(2), pages 136-159.
    • Handle: RePEc:taf:jdevst:v:36:y:1999:i:2:p:136-159
    DOI: 10.1080/00220389908422624
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    Cited by:

    1. Marta Marson & Donatella Saccone & Elena Vallino, 2023. "Total trade, cereals trade and undernourishment: new empirical evidence for developing countries," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 159(2), pages 299-332, May.
    2. Servaas Storm & J. Mohan Rao, 2002. "Agricultural Globalization in Developing Countries: Rules, Rationales and Results," Working Papers wp71, Political Economy Research Institute, University of Massachusetts at Amherst.
    3. Emerta A. Aragie & Jean Balié, 2024. "The effect of price support policies under productivity shocks: evidence from an economywide model," International Economics and Economic Policy, Springer, vol. 21(1), pages 1-26, February.
    4. Dawe, David, 2001. "How far down the path to free trade? The importance of rice price stabilization in developing Asia," Food Policy, Elsevier, vol. 26(2), pages 163-175, April.
    5. Madanmohan Ghosh & John Whalley, 2002. "Are Price Controls Necessarily Bad? The Case of Vietnam," University of Western Ontario, Departmental Research Report Series 20021, University of Western Ontario, Department of Economics.
    6. Liao, Mei & Yang, Weiwei & Liu, Huizheng, 2010. "Benchmarking the Synergistic Effect of China-ASEAN Seaport," Conference papers 331973, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.

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