Working Paper: CEPR ID: DP7971
Authors: Kym Anderson; Johanna L. Croser
Abstract: Agricultural markets in OECD countries have long been highly distorted by government policies. Traditional weighted average aggregates of the price distortions involved, such as producer and consumer support estimates (PSEs and CSEs), can be poor indicators of the trade restrictiveness and economic welfare losses associated with them, especially if a country?s support estimates vary a lot across the product range. Certainly estimates of trade and welfare effects of price supports can be obtained from sectoral or economywide models using price elasticity estimates, but the results can be contentious if there is no consensus on what model specification and elasticity parameters to use. This paper shows that, if there is a willingness to accept simple assumptions about elasticities, it is possible to generate indicators of the welfare and trade restrictiveness of agricultural policies using no more than the price and quantity data needed to generate PSEs and CSEs. These new indexes thus provide an attractive supplement to the current policy monitoring regime developed by the OECD Secretariat.
Keywords: agricultural price and trade policies; distorted incentives; trade restrictiveness index
JEL Codes: F13; F14; Q17; Q18
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Agricultural policies in OECD countries (Q18) | Significant distortions in trade and welfare (F14) |
| Government support measures (H81) | Inflate prices (E31) |
| Equal price elasticities across commodities (D11) | Simplification of calculations for TRI and WRI (C29) |
| Price distortions (D43) | TRI and WRI derived (C29) |
| TRI and WRI (R13) | Better indication of trade and welfare losses than traditional measures (F69) |
| Welfare Reduction Index (WRI) (I38) | Captures disproportionately higher welfare costs (H53) |
| Higher levels of price distortion (P22) | More sensitive measure of welfare loss than TRI (D69) |
| Agricultural price distortions (Q11) | Impact on trade volume and national welfare (F69) |