A synthesis of agricultural trade economics
In: Handbook of Agricultural Economics
Government intervention in agricultural sectors in both developed and developing countries has resulted in huge distortions in international markets. We describe the types of policies used in the agricultural sector and summarize quantitative measures that suggest their importance. Agricultural trade economists have tried to measure these distortions, to explain their causes, and to recommend policy reform. The discipline has been primarily empirical, relying chiefly on econometric and synthetic models and to a lesser extent on historical analysis and case studies.A review of attempts to measure trade elasticities, exchange rate effects, and market power illustrates the empirical questions that agricultural trade economists have studied and their results. A summary of empirical political economy models shows how these have been used to explain the types and the levels of government intervention. We then use U.S. grain trade policy in the 1970s and 1980s to illustrate in more detail the kinds of policies that agricultural economists have studied, and their assessments of these policies.In a theoretical section we outline several important ideas that underpin the empirical work in the discipline: the theory of comparative advantage, the theory of the second best, and the Principle of Targeting. We review the theory of trade policy for a country large enough to alter its terms of trade, and assess its relevance to agricultural trade. We also discuss the extent to which uncertainty and missing insurance markets might justify trade policy. In a concluding section we comment on the contribution that agricultural economists have made to trade reform and the manner in which changes in markets are likely to cause a change in the focus of the discipline.
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