Evaluating the Effect of Domestic Support on International Trade: A Mercantilist Trade Restrictiveness Approach

Kirsten Boysen-Urban, Martina Brockmeier and Hans Grinsted Jensen

No 332615, Conference papers from Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project

Abstract: Recent years have witnessed an ongoing debate regarding trade-distorting effects of domestic support provided to agricultural producers. High-income economies, such as the European Union (EU), initiated several reforms of their agricultural policies to decrease such distortions. New instruments, such as the Single Farm Payment (SFP) of the EU, which are supposedly decoupled from production, are also controversial because the extent to which these decoupled payments stimulate production through other coupling channels remain unclear. This study aims to assess, first, how trade-restrictive agricultural domestic support for international trade is and second, whether the introduction of decoupled support decreases the magnitude of this effect. Analyses of multilateral trade liberalization are commonly conducted using Computable General Equilibrium (CGE) models. Methodologies to analyze the effects of market access policies and their restrictiveness to trade are sophisticated and well established, whereas the detailed representation of different and country-specific domestic support payments, and in particular decoupled payments, is still in the early stages of development. In addition, literature on the development of an index that measures the restrictiveness, and hence the distortions, of domestic support and its application remain scarce. This paper utilizes the standard GTAP framework as starting point. It is based on the version 8.2 GTAP database, which incorporates domestic support in form of price wedges taken from the most recent OECD’s PSE table. We apply an elaborate updating procedure to extend the GTAP modeling framework to capture more detailed domestic support payments, particularly distinguishing different payment categories and types according to their effect on farm-level output decisions. Then we disentangle the domestic support payments to match the OECD’s PSE data with the WTO box classification scheme and integrate this information into the ...

Keywords: International; Relations/Trade (search for similar items in EconPapers)
Date: 2015
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