Despite reforms over the past quarter-century, world agricultural markets remain highly distorted by government policies. Traditional indicators of those price distortions such as the nominal rate of assistance and consumer tax equivalent provide measures of the degree of intervention, but they can be misleading as indicators of the true effects of those policies. By drawing on recent theoretical literature that provides indicators of the trade-and welfarereducing effects of price and trade policies, this paper develops more-satisfactory indexes for capturing distortions to agricultural incentives. It then exploits the Agricultural Distortion database recently compiled by the World Bank to generate estimates of them for both developing and high-income countries over the past half century, based on a sample of 75 countries that together account for all but one-tenth of the world's population, GDP and agricultural production. While they are still only partial equilibrium measures, they provide a much better approximation of the true trade and welfare effects of sectoral policies without needing a formal model of global markets or even price elasticity estimates.
The Policy Research Working Paper Series disseminates the findings of work in progress to encourage the exchange of ideas about development issues. An objective of the series is to get the findings out quickly, even if the presentations are less than fully polished. The papers carry the names of the authors and should be cited accordingly. The findings, interpretations, and conclusions expressed in this paper are entirely those of the authors. They do not necessarily represent the views of the International Bank for Reconstruction and Development/World Bank and its affiliated organizations, or those of the Executive Directors of the World Bank or the governments they represent.
Trade negotiators and policy advisors are keen to know the relative contributions of different farm policy instruments to international trade and economic welfare. Nominal rates of assistance or producer support estimates are incomplete indicators, especially when (as in many developing countries) some commodities are taxed and others are subsidized, in which case positive contributions can offset negative contributions. This paper develops and estimates a new set of more-satisfactory partial equilibrium indicators of the relative contribution of different farm policy instruments to reductions in agricultural trade and welfare. It does so by drawing on the trade restrictiveness index literature and a recently compiled database on distortions to agricultural prices for 75 developing and high-income countries over the period 1960 to 2004. Results confirm earlier findings that border taxes are the dominant instrument affecting global trade and welfare, but they also suggest declines in export taxes contributed nearly as much as cuts in import protection to the trade and welfare effects of agricultural policy reforms since the 1980s.
Despite reforms over the past quarter-century, world agricultural markets remain highly distorted by government policies. Traditional indicators of those price distortions such as the nominal rate of assistance and consumer tax equivalent provide measures of the degree of intervention, but they can be misleading as indicators of the true effects of those policies. By drawing on recent theoretical literature that provides indicators of the trade-and welfare-reducing effects of price and trade policies, this paper develops more-satisfactory indexes for capturing distortions to agricultural incentives. It then exploits the Agricultural Distortion database recently compiled by the World Bank to generate estimates of them for both developing and high-income countries over the past half century, based on a sample of 75 countries that together account for all but one-tenth of the world's population, GDP and agricultural production. While they are still only partial equilibrium measures, they provide a much better approximation of the true trade and welfare effects of sectoral policies without needing a formal model of global markets or even price elasticity estimates. While those various indicators of dispersion are useful, it would also be helpful to have a single indicator to capture the overall welfare or trade effect of each country's regime of agricultural price distortions in place at any time. To that end, a theoretical literature has developed in recent years. This literature seeks to overcome aggregation problems across different intervention measures and across the product range by using a theoretically sound aggregation procedure that answers precise questions regarding the welfare and trade distortions imposed by each country's price and trade policies. The literature has developed The methodology outlined in Anderson et al. (2008) provides a number of ways to indicate the extent of distortions within the agricultural sector of a country (as distinct from between agriculture and other sectors, for which the relative rate of assistance indicator is used). They include the unweighted or weighted mean NRA of covered products, the standard deviation of covered product NRAs, the weighted mean NRA for exportable versus import-competing covered products, and the trade bias index defined as [(1+NRAag x /100)/(1+NRAag m /100) -1]where NRAag x and NRAag m are the weighted average percentage NRAs for the exportable and import-competing parts, respectively, of the agricultural sectors' covered plus noncovered products. The reason for reporting the latter indicators of dispersion in addition to the means -apart from them being informative in their own right -is that theory suggests the national economic welfare cost of government policy distortions to incentives in terms of resource misallocation tends to be greater the greater the degree of substitution in production (Lloyd 1974). In the case of agriculture which involves the use of farm land that is sectorspecific but very transferable among farm activities, the greate...
The authors are all at the University of Adelaide in Australia except Jara, who is a Ph D student at the Catholic University of Chile in Santiago. This is a product of a research project on Distortions to Agricultural Incentives, under the leadership of Kym Anderson of the World Bank's Development Research Group. The authors are grateful for helpful comments from workshop participants and for funding from World Bank Trust Funds provided by the governments of Japan, the Netherlands (BNPP) and the United Kingdom (DfID). This Working Paper series is designed to promptly disseminate the findings of work in progress for comment before they are finalized. The views expressed are the authors' alone and not necessarily those of the World Bank and its Executive Directors, nor the countries they represent, nor of the institutions providing funds for this research project.
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