The political economy of international agricultural protection

Virender Gautam

ISU General Staff Papers from Iowa State University, Department of Economics

Abstract: The purpose of this study has been to investigate some prominent determinants of agricultural protection across industrialized and developing countries. The hypotheses tested are that consumers' food security concerns and producers' pressure group characteristics play an eminent role in the determination of political market equilibrium in the agricultural sector. The methodology employed provides an integrated development of theoretical and empirical analysis;The comparative static results of the theoretical models are tested using the ordinary least squares, generalized least squares, pooled cross-section time-series, and Probit and Logit estimation techniques. The analysis includes data from 30 industrialized and developing countries for the period 1982-87. The protection levels are measured using the producer and consumer subsidy equivalents. The political welfare function was able to explain up to 82 percent of the variation in the protection levels across countries;The pair-wise non-nested J tests and nested tests have been used to analyze the superiority/complementarity of the SWG and CHG approaches in the PEAP literature. On the basis of the results it can be inferred that the variables from both consumer and producer models have significant effect on the level of protection awarded to wheat farmers and neither can be ignored. Both significantly explain protection but none alone is sufficient. Therefore, a significant implication of the results is that the two approaches are complementary although these have been treated as separate in the PEAP literature;In order to ascertain the effects of the explanatory variables on the probability that the protection levels will be positive, the Probit estimation procedure is used. The Craigg-Uhler R[superscript]2 values obtained were as high as 0.73. The results suggest that the probability of positive protection levels is highly sensitive to the changes in the Engel coefficients, the gross national product, income elasticity of demand for wheat, factor ratio and the lagged world prices;Overall, this study represents a first systematic and comprehensive attempt at explaining international agricultural protection across countries within a well-integrated theoretical and empirical framework. The results of the hypothesis testing corroborate the public support argument of government intervention in the presence of risk and uncertainty.

Date: 1993-01-01
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