Working Paper: CEPR ID: DP789
Authors: Kym Anderson
Abstract: In seeking to explain why poor countries tend to choose policies that tax agriculture relative to manufacturing while rich countries do the opposite, archetypical parameters for a poor agrarian economy and a rich industrial one are inserted in a computable general equilibrium model to simulate the medium-term effects on income distribution of policies that distort the relative prices of tradables. The model includes a non-tradables sector and intermediate inputs, realistic features that ensure even greater skewness in the distributional effects of protection than simpler models suggest. The magnitude of the results helps explain the tendency for countries to change gradually from taxing to subsidizing agriculture relative to manufacturing as their economies develop. The paper draws out the implications of the analysis for agricultural and trade policy reform in the 1990s.
Keywords: political economy; agricultural protection; industrial protection; lobbying
JEL Codes: F13
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| 10% rise in the relative price of industrial products in a poor country (F61) | reduces real farm incomes by 2% (Q12) |
| 10% rise in the relative price of industrial products in a poor country (F61) | raises industrial capitalists' incomes by 45% (D33) |
| 10% rise in the relative price of farm products in a rich country (Q11) | increases farmers' real incomes by 23% (Q12) |
| 10% rise in the relative price of farm products in a rich country (Q11) | reduces industrial capitalists' incomes by 3% (D33) |
| changes in consumption patterns (D12) | contribute to differences in income distribution effects (E25) |
| employment distribution (J68) | contribute to differences in income distribution effects (E25) |
| use of intermediate inputs in agriculture (Q12) | contribute to differences in income distribution effects (E25) |