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Policy bias and agriculture: partial and general equilibrium measures

Author

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  • Bautista, Romeo M.
  • Robinson, Sherman
  • Tarp, Finn
  • Wobst, Peter

Abstract

The paper examines the impact of industrial protection, agricultural export taxes, and overvaluation of the exchange rate on the balance between the agricultural and non-agricultural sectors. A variety of agricultural terms-of-trade indices are constructed to measure the policy bias against agriculture in a general equilibrium framework that incorporates traded and non-traded goods. These general equilibrium measures are compared to earlier work in a partial equilibrium framework assuming perfect substitutability between domestic and traded goods. Starting from a stylized computable general equilibrium (CGE) model of Tanzania, we simulate a 25 percent tariff on non-agriculture and a 25 percent export tax on agriculture. We also consider the impact of changes in the equilibrium exchange rate. The results indicate that the partial equilibrium measures miss much of the action operating through indirect product and factor market linkages, while overstating the strength of the linkages between changes in the exchange rate and prices of traded goods on the agricultural terms of trade.

Suggested Citation

  • Bautista, Romeo M. & Robinson, Sherman & Tarp, Finn & Wobst, Peter, 1998. "Policy bias and agriculture: partial and general equilibrium measures," TMD Discussion Papers 97544, CGIAR, International Food Policy Research Institute (IFPRI).
    • Handle: RePEc:ags:iffp23:97544
    DOI: 10.22004/ag.econ.97544
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    References listed on IDEAS

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    1. Wobst, Peter, 1998. "A 1992 social accounting matrix (SAM) for Tanzania," TMD discussion papers 30, International Food Policy Research Institute (IFPRI).
    2. John Baffes, 1991. "Some Further Evidence on the Law of One Price: The Law of One Price Still Holds," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 73(4), pages 1264-1273.
    3. Jaime de Melo & Sherman Robinson, 2015. "Trade Policy And Resource Allocation In The Presence Of Product Differentiation," World Scientific Book Chapters, in: Modeling Developing Countries' Policies in General Equilibrium, chapter 16, pages 357-365, World Scientific Publishing Co. Pte. Ltd..
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    5. Jaime de MELO & Sherman ROBINSON, 2015. "Product Differentiation And The Treatment Of Foreign Trade In Computable General Equilibrium Models Of Small Economies," World Scientific Book Chapters, in: Modeling Developing Countries' Policies in General Equilibrium, chapter 2, pages 21-41, World Scientific Publishing Co. Pte. Ltd..
    6. Cavallo, Domingo & Mundlak, Yair, 1982. "Agriculture and economic growth in an open economy: the case of Argentina," Research reports 36, International Food Policy Research Institute (IFPRI).
    7. Bautista, Romeo M., 1987. "Production incentives in Philippine agriculture: effects of trade and exchange rate policies," Research reports 59, International Food Policy Research Institute (IFPRI).
    8. Everett B. Peterson & Thomas W. Hertel & James V. Stout, 1994. "A Critical Assessment of Supply-Demand Models of Agricultural Trade," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 76(4), pages 709-721.
    9. Devarajan, Shantayanan & Lewis, Jeffrey D & Robinson, Sherman, 1993. "External Shocks, Purchasing Power Parity, and the Equilibrium Real Exchange Rate," The World Bank Economic Review, World Bank, vol. 7(1), pages 45-63, January.
    10. Ceglowski, Janet, 1994. "The Law of One Price Revisited: New Evidence on the Behavior of International Prices," Economic Inquiry, Western Economic Association International, vol. 32(3), pages 407-418, July.
    11. Mundlak, Yair & Larson, Donald F, 1992. "On the Transmission of World Agricultural Prices," The World Bank Economic Review, World Bank, vol. 6(3), pages 399-422, September.
    12. Josling, Tim & Tangermann, Stefan, 1988. "Measuring Levels of Protection in Agriculture: A Survey of Approaches and Results," 1988 Conference, August 24-31, 1988, Buenos Aires, Argentina 183129, International Association of Agricultural Economists.
    13. Krueger, Anne O & Schiff, Maurice & Valdes, Alberto, 1988. "Agricultural Incentives in Developing Countries: Measuring the Effect of Sectoral and Economywide Policies," The World Bank Economic Review, World Bank, vol. 2(3), pages 255-271, September.
    14. Isard, Peter, 1977. "How Far Can We Push the "Law of One Price"?," American Economic Review, American Economic Association, vol. 67(5), pages 942-948, December.
    15. Romeo M. Bautista & Sherman Robinson & Finn Tarp & Peter Wobst, 2001. "Policy Bias and Agriculture: Partial and General Equilibrium Measures," Review of Development Economics, Wiley Blackwell, vol. 5(1), pages 89-104, February.
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    Cited by:

    1. Jensen, Henning Tarp & Robinson, Sherman & Tarp, Finn, 2002. "General equilibrium measures of agricultural policy bias in fifteen developing countries," TMD discussion papers 105, International Food Policy Research Institute (IFPRI).
    2. James Cassing, 2007. "Distortions to Agricultural Incentives in Egypt," Working Paper 313, Department of Economics, University of Pittsburgh, revised Jul 2008.
    3. Henning Tarp Jensen & Sherman Robinson & Finn Tarp, 2010. "Measuring Agricultural Policy Bias: General Equilibrium Analysis of Fifteen Developing Countries," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 92(4), pages 1136-1148.
    4. Alexandre Gohin & GianCarlo Moschini, 2006. "Evaluating the Market and Welfare Impacts of Agricultural Policies in Developed Countries: Comparison of Partial and General Equilibrium Measures," Review of Agricultural Economics, Agricultural and Applied Economics Association, vol. 28(2), pages 195-211.
    5. Thilo Glebe & Uwe Latacz-Lohmann, 2007. "Agricultural multifunctionality and trade liberalisation," Cahiers d'Economie et Sociologie Rurales, INRA Department of Economics, vol. 82, pages 57-73.
    6. Thilo Glebe & Uwe Latacz-Lohmann, 2007. "Agricultural multifunctionality and trade liberalisation," Post-Print hal-01201147, HAL.
    7. Tarp, Finn & Jensen, Henning Tarp & Arndt, Channing & Robinson, Sherman & Herlberg, Rasmus, 2002. "Facing the Development Challenge in Mozambique: An Economywide perspective," Research Reports 16541, CGIAR, International Food Policy Research Institute (IFPRI).
    8. Cassing, James & Nassar, Saad & Siam, Gamal & Moussa, Hoda, 2007. "Distortions to Agricultural Incentives in Egypt," Agricultural Distortions Working Paper Series 48511, World Bank.
    9. Kym Anderson & Will Martin & Dominique van der Mensbrugghe, 2006. "Distortions to World Trade: Impacts on Agricultural Markets and Farm Incomes," Review of Agricultural Economics, Agricultural and Applied Economics Association, vol. 28(2), pages 168-194.
    10. Diaz-Bonilla, Eugenio & Thomas, Marcelle & Robinson, Sherman, 2002. "On Boxes, Contents And Users: Food Security And The Wto Negotiations," TMD Discussion Papers 16266, CGIAR, International Food Policy Research Institute (IFPRI).
    11. Díaz-Bonilla, Eugenio & Ron, Juan Francisco, 2010. "Food Security, Price Volatility and Trade: Some Reflections for Developing Countries," Price Volatility and Beyond 320195, International Centre for Trade and Sustainable Development (ICTSD).
    12. Ijambo, Bertha Deshimona, 2017. "An econometric analysis of spatial market integration and price formation in the Namibian sheep industry," Research Theses 334744, Collaborative Masters Program in Agricultural and Applied Economics.
    13. Oskam, A.J. & Komen, M.H.C. & Wobst, P. & Yalew, A., 2004. "Trade policies and development of less-favoured areas: evidence from the literature," Food Policy, Elsevier, vol. 29(4), pages 445-466, August.
    14. Kym Anderson & Ernesto Valenzuela, 2007. "Do Global Trade Distortions Still Harm Developing Country Farmers?," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 143(1), pages 108-139, April.
    15. Anderson, Kym & Valenzuela, Ernesto & van der Mensbrugghe, Dominique, 2009. "Welfare and Poverty Effects of Global Agricultural and Trade Policies Using the Linkage Model," Agricultural Distortions Working Paper Series 52785, World Bank.
    16. Glebe, Thilo & Latacz-Lohmann, Uwe, 2007. "Agricultural multifunctionality and trade liberalisation," Cahiers d'Economie et de Sociologie Rurales (CESR), Institut National de la Recherche Agronomique (INRA), vol. 82.
    17. Romeo M. Bautista & Sherman Robinson & Finn Tarp & Peter Wobst, 2001. "Policy Bias and Agriculture: Partial and General Equilibrium Measures," Review of Development Economics, Wiley Blackwell, vol. 5(1), pages 89-104, February.
    18. Díaz-Bonilla, Eugenio & Robinson, Sherman & Thomas, Marcelle, 2002. "On boxes, contents, and users: food security and the WTO negotiations," TMD discussion papers 82, International Food Policy Research Institute (IFPRI).
    19. Bittencourt, Maurício Vaz Lobo, 2003. "Does The Stolper-Samuelson Theorem Hold With Less Trade Distortion?: A Computable General Equilibrium," 2003 Annual meeting, July 27-30, Montreal, Canada 22173, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    20. Philip Abbott & Ce Wu & Finn Tarp, 2014. "Transmission of World Prices to the Vietnamese Economy," Journal of Economic Integration, Center for Economic Integration, Sejong University, vol. 29, pages 624-656.

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    JEL classification:

    • C68 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computable General Equilibrium Models
    • O25 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Industrial Policy
    • Q1 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture

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