This article examines the nature of the relationships between agricultural trade reform and the incidence of absolute poverty in developing and transition economies. This paper discusses the nature of the links between multilateral agricultural trade reform and the incidence of absolute poverty in developing and transition countries.
A simplified schema
In the case of a large country, national trade policies can have a measurable effect on world markets (dotted arrow). In the meantime, a simple tracking of the immediate impact of agricultural trade reform on individual households provides a valuable starting point.
Agricultural trade reform and world market impacts
GE models require extensive data sets, and as a result there is typically a higher level of aggregation, both to keep the modeling task manageable and to focus on the effects that GE models can best illuminate. Changing the underlying assumptions of the model could shed light on the robustness of the results.
Price distortions and price transmission
And when the models are of a different character (e.g. the results of a PE model are compared to those of a GE model), differences in the results can clarify the insights that come from each modeling structure (e.g. the significance or otherwise of general equilibrium effects). To assess the effect that trade reforms will have on domestic markets, it is necessary to distinguish between political and non-political sources of price distortions.6 The OECD's Producer Support Evaluation (PSE) attempts to do just that.
Household level impacts
Similarly, off-farm income can be accommodated to demonstrate the relative effects of changes in relative crop prices (via production and consumption decisions) and in off-farm wages (via the on-farm versus off-farm labor decision). . . To more accurately simulate the effects of policy reform, it is necessary to parameterize the interactions of supply and demand in the economy.
Trade, growth and poverty
Regarding the links between poverty growth and reduction, it is important to note that in the poorest economies it is impossible to have the latter without the former. A variety of approaches can be used to quantify each of the specific impacts identified above.
Conclusions
However, information gaps remain, and research results have not always been communicated to policy makers in the most effective way. In many cases, there is still a need for more information about existing policies in the first place.
AGRICULTURAL TRADE REFORM & WORLD MARKET IMPACTS
In connection with the model scope, it is important to note that the model is in constant development. First, what is the relevance of the current classification of countries in the WTO in terms of their food security. The burden of the total food bill (measured by food imports as a percentage of total exports) fell on average for developing countries from almost 20% in the 1960s to around 6% in the 1990s (Figure 3).
This appears to be an example of the “developing countries” category: they appear to be spread across all levels of (in)food security, except for group 12, which ranks highest among the food security groups (Table 10). Various studies prior to the start of the Uruguay Round in the mid-1980s attempted to quantify the impact of agricultural protectionism in industrialized countries on developing countries. First, there is the question of who will be the users of SDT embedded in development or security food boxes.
Some developing countries have argued for expanding the use of SSG to include them as well. Some of the SDTs discussed in the previous sections have been cast in the form of lands and crops.
PRICE DISTORTIONS AND PRICE TRANSMISSION
These estimates help provide an understanding of the extent of agricultural market distortions and the costs of. This period was also characterized by strong macroeconomic shifts, which led to significant weakening of the exchange rates in the monitored countries. A comparison of the PSE levels in transition countries with the OECD average suggests that less support is provided to producers in transition economies.
The European Union is the main trader in the region and the main supplier partner for the monitored countries. In connection with currency developments, it may be the case that the policy-independent element of the price gap varies with variations in the exchange rate. A comparison of the statutory and effective tariffs reveals significant differences in both Russia and Romania.
DEFINITIONS OF THE OECD INDICATORS OF SUPPORT
CLASSIFICATION OF POLICY MEASURES INCLUDED IN THE OECD INDICATORS OF SUPPORT
ESTIMATES OF SUPPORT TO AGRICULTURE BY COUNTRY, 1991-2001
ESTIMATES OF SUPPORT TO AGRICULTURE BY COUNTRY, 1991-2001 (continued)
Introduction
The economics of market integration and price transmission has been the basis for several useful applications. For example, many studies have been undertaken in this context to test the hypothesis of the law of one price. A rapidly growing field of application is the study of internal market integration, popularized by Ravallion (1986) among others.
The focus of this paper is on global to domestic transmission of price changes in the context of quantifying the impact of global agricultural trade liberalization. Price transmission mechanisms or/and elasticity values are one of the key building blocks of these models, and play an important role.
Conceptualising the mechanism of price transmission
The change in domestic price, in absolute terms, is Rs120 (20% tariff on USD 10 increase in world price times the exchange rate) in the import case and Rs80 in the export case. The transmission is complete or perfect in an absolute sense, because the full amount of the increase in the world price is passed on to the corporate level (that in practice the transmission is unlikely to be complete even in an absolute sense is discussed below). The elasticity values are invariant to the magnitude of the change in the world price – for example, a 20% increase in the world price gives the same elasticity – nor to the assumed exchange rate, as long as these remain constant.
This would be wrong because, as mentioned above, the true value of the elasticity, for complete transfer, is less than unity in the import case and greater than unity in the export case. For example, with an elasticity of 0.1, there is virtually no impact on production and trade from a hypothetical 10% rise in the world price of wheat, say after global trade liberalization. An example of the impact of a 10% increase in the world price of wheat for alternative values of price transfer elasticity.
Review of selected studies on price transmission
In particular, if the world market trend is towards lower international food prices, incomplete transmission in the long run implies growth in protection (or reduction in effective taxation) of the food sector. In the pre-1994 version of the WFM, domestic prices and world prices were linked by constant elasticity specification (Equation 7) for all modeled countries. This specification was used for 57 countries assumed to implement trade liberalization (e.g. tariff reduction), while (7) applied to the rest of the 89 countries in the model.
Regarding the properties of specification (8), note first of all that this is an expression of the price transmission process and that there is no explicit transmission elasticity - the elasticity is "implicit" in the H[SUHVVLRQ7KHSULFHZHGJHWKH expression) was mainly intended to reflect transport costs – therefore the values used were negative for exporters and positive for importers. The constant transmission elasticity values used in WFM are mostly on the lower side. In the case of the transmission elasticities resulting from the linear expression (8), these values are on the whole somewhat higher than the previously used constant elasticity values in the WFM.
Price transmission to Asian cereal markets in the 1990s
Returning to the Asian grain markets, space limitations do not permit a detailed account of the policies of the 1990s. Therefore, the conclusion of relatively low transmission should generally apply to a majority of developing countries. But this is a long way to go given the current state of price data availability for many developing countries.
A Synthesis of Country Case Studies', in Agriculture, Trade and Food Security: Issues and Options in WTO Negotiations from the Perspective of Developing Countries, Volume II, Country Case Studies, FAO, Rome. Quantifying 'Appropriate' WTO-bound Tariff Levels for Basic Food Products in the Context of the Development Box Proposals, Working Paper, Commodity and Trade Division, FAO, Rome. A review of estimates of the impact of the Uruguay Round on agricultural prices and incomes”, Food Policy, Vol.
AN OVERVIEW OF THE ECONOMETRIC TECHNIQUE FOR QUANTIFYING PRICE TRANSMISSION
- Freer trade, greater price transmission, and the enhanced importance of world price distortions
- What do we know about price distortions in developed and developing countries?
- Price instability and the persistence of low prices
- But what is the practical relevance of enhanced price transmission to the determination of real domestic prices? - Price decomposition
- What evidence do we have that the elimination of distortions in developing countries – which enhances the degree of price transmission – has exacerbated the vulnerability of producers?
- Policy implications – the context of WTO commitments
In the next section, we first discuss the evidence on the effects of government policies on world prices, followed by a discussion of the nature of world price instability and persistent price shocks during the trend. In connection with the political debate in many developing countries, reference is often made to the billions of dollars given to agriculture in developed countries. The evidence indicates that the direction of the effects of intervention differs between developed and developing countries.
This is an empirical question based on the nature of the data available and the econometric subtleties required to provide flexibility for the analysis. Here and for the remainder of the section, the signature of the error term (c,t,l) is implied. The commodity regressions do a good job of explaining most of the variation in the nation's producer prices.
HOUSEHOLD LEVEL IMPACTS
Our results suggest that trade liberalization reduces national poverty in six of the seven developing countries studied. Finally, a number of the poor in many of the focus economies are heavily dependent on agriculture for their earnings. To this must also be added considerations of the impact of trade liberalization outside of agriculture.
To date, there is a major gap in multi-regional analysis of trade policy and poverty.2 Such studies are very difficult to conduct due to the country-specific nature of household surveys. This obviously underestimates the importance of agriculture in the poverty picture, as many of the poorest wage worker households work in agriculture, as do many of the diversified households. In contrast, in Indonesia, a third of poor households specialize in agricultural income (presumably reflecting returns from small landholdings and family labor).