Agricultural Protection in Developing Countries
Countries often have a Jekyll-Hyde relationship with their agricultural sector â€“ policymakers both tax and subsidize agriculture. In the early stages of a country's development, policy makers exploit agriculture through export taxes and overvalued exchange rates. In contrast, agricultural policy in advanced industrial countries has strongly protected domestic producers by means of trade restrictions, direct price or income supports, and public investment. This paper explores why farmers are taxed in poor countries and subsidized in rich countries. Using the economic theory of contests to come to an understanding of the incentives for agricultural protectionism, we first sketch a framework for an excludable and rivalrous rent. We then apply this framework to agricultural protectionism in developing countries.
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