Working Paper: CEPR ID: DP624
Authors: Santiago Levy; Sweder van Wijnbergen
Abstract: At what speed should Mexican agriculture be incorporated into the North American Free Trade Agreement (FTA)? What policies should characterize the transition? We use Mexican agriculture as a case study to analyse the transition problems that arise in most major economic reforms. In particular, European Community (EC) farmers can expect similar problems if the Common Agricultural Policy (CAP) is dismantled and/or Eastern Europe gains unrestricted access to the EC's farm product markets. We focus on the implications for policy design of the absence of efficient capital markets, on the welfare costs of reforming only gradually, on incentive problems created by trade adjustment policies and on the redistributive aspects of policy reform in the presence of realistic limits on available intervention instruments. Our key point is that adjustment should focus on increasing the value of the assets owned by the groups affected, and not on direct income transfers or programmes targeting output or other characteristics controlled by the beneficiaries. We target adjustment on what people have, as opposed to what people do.
Keywords: economic reform; transition problems; Mexico-US FTA
JEL Codes: F13; F15; O17
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| immediate liberalization of maize prices (P22) | significant efficiency gains (D61) |
| significant efficiency gains (D61) | additional consumption (E20) |
| immediate liberalization of maize prices (P22) | adverse effects on rural wages and land values (R11) |
| immediate liberalization of maize prices (P22) | value of rainfed land drops (Q15) |
| gradual liberalization (P39) | lower efficiency gains (D61) |
| gradual liberalization (P39) | mitigates adverse welfare impacts (D69) |
| gradual liberalization (P39) | time to implement productivity-enhancing programs (O49) |
| gradual liberalization (P39) | solves time-consistency problems (D15) |
| design of adjustment programs (F32) | focus on increasing productivity of assets (G31) |
| design of adjustment programs (F32) | address incentive problems (M52) |