International Trade Policies Affecting Agricultural Incentives in Developing Countries

For decades, earnings from farming in many developing countries have been depressed by a pro-urban bias in own-country policies, as well as by governments of richer countries favoring their farmers with import barriers and subsidies. Both sets of policies reduce national and global economic welfare and inhibit economic growth. In particular, they add to inequality and poverty in developing countries, since three-quarters of the world's billion poorest people depend directly or indirectly on farming for their livelihood. During the past two decades, however, numerous developing country governments have reduced their sectoral and trade policy distortions, while some high-income countries also have begun reforming their protectionist farm policies. This chapter surveys the changing extent of policy distortions to prices faced by developing country farmers. After outlining the basic measurement theory, the chapter provides a brief history of policies of advanced and developing economies and then surveys empirical studies that document the changing extent of price distortions over the past half century. It reviews the economic effects of policy reforms since the early 1980s and of interventions remaining in the early part of the present century, according to global economy wide modeling results. The chapter concludes by pointing to the scope and prospects for further pro-poor policy reform at home and abroad.