Romeo M. Bautista

Policy Bias and Agriculture: Partial and General Equilibrium Measures

The paper examines the impact of industrial protection, agricultural export taxes, and overvaluation of the exchange rate on the balance between the agricultural and nonagricultural sectors. Various agricultural terms-of-trade indices are constructed to measure the policy bias against agriculture in a computable general equilibrium (CGE) framework and compare the results with earlier partial equilibrium measures. Our results indicate that the partial equilibrium measures miss much of the action operating through indirect product and factor market linkages, while overstating the strength of the linkages between changes in the exchange rate and prices of traded goods on the agricultural terms of trade.

Effects of Increasing Agricultural Productivity in a Multisectoral Model for the Philippines

This paper investigates empirically the economy-wide effects of agricultural productivity increases in the Philippines, reporting the results of a quantitative analysis based on a general equilibrium framework. A multisectoral, price endogenous model of the Philippine economy is employed, emphasizing not only agriculture but also other production sectors with which it closely interacts, as well as the distinction between rural and urban households in their income generation and consumption patterns. Among other findings, the differential effects on the real income of rural households vis-a-vis urban households arising from increased productivity in the various components of the agricultural production sector are striking. The resulting improvements in the trade balance and national income, among other macroeconomic variables, are also relatively significant. Moreover, there are significant differences in the economy-wide effects among the four sectors of food and agriculture distinguished in the study. Particularly interesting is the highly favorable impact of rising productivity in the food processing sector on agricultural crop production and rural income, a linkage effect that has not received much attention in the development literature.

Sources of EC horticultural import growth from developing countries

A decomposition analysis of horticultural trade flows is carried out to identify the main sources of change in EC horticultural imports from different LDC regions. Sources of change are associated with each regions international competitiveness, the relative openness of the EC market, the degree of trade preference enjoyed by the region, and the EC global import growth. The main contribution to the LDC export growth of fruit and vegetables to EC between 1975-79 and 1985-89 is found to be attributable to the global import growth effect. However, it has been significantly counteracted by the negative effect of a declining share of non-EC suppliers as a group. Marked interregional differences in changes in regional preferences show a lack of a strong correlation between LDC export performance and the existence of preferential trade agreements with EC. While the potential for LDC export growth to EC is clear, the results seem to indicate that in general EC protection policies have adversely affected import growth from LDCs. Various factors influencing LDC export performance in horticultural products arc discussed. Apart from EC protection policies and changes in trade preferences, domestic supply factors arc of significance in explaining export growth, including a liberal trading environment, but also specific policies to promote exports of horticultural products. While non-price competition weakens the discriminatory effect of preferential tariffs, there is a pressing need for developing countries to adapt to the demands of the European distribution system relating to quality, grades, and regularity of supplies.

Trade and agricultural development in the 1980s and the challenges for the 1990s: Asia

Asian developing countries have had varying experiences in trade and agricultural development in the 1980s, attributable in part to their differing stages of economic development and structural characteristics. Other important influences relate to the external economic environment and the policy choices made by their governments not only during the period but also in the preceding decade. The achievements of Asian developing countries under the adverse external conditions of the 1980s are discussed in terms of their macroeconomic and agricultural growth, the commodity structure of agricultural growth, their food production and trade, the expansion and diversification of their agricultural exports, and the policy and nonpolicy factors affecting them. Special attention is given to the role of policy reforms implemented in China and the South Asian countries, following similar policy developments in Northeast and Southeast Asia in the 1960s and 1970s, toward greater openness in their trade regime and increased private-sector participation in the economy. These reforms have contributed to the observed acceleration in GOP, agricultural, and export growth in the 1980s. However, macroeconomic imbalances have emerged that threaten the sustainability of economic liberalization in those countries. The major challenges for the 1990s also differ among the Asian developing countries. In the industrially advanced Northeast economies of Taiwan and South Korea, the primary need is to ease the transition of the remaining rural population as farm incomes continue to fall and workers move to industrial and service activities. This challenge has to be addressed in the context of growing external pressure to further open their domestic market for agricultural imports. Among the Southeast and South Asian countries, there is a need to reduce the existing policy biases against agriculture, particularly against export crop production. Moreover, China and the South Asian countries face the additional challenges of continuing to deregulate their trade regime and internal markets, and of promoting macroeconomic stability. Despite the external trend recently toward regionalism, Asian developing countries generally seem committed to an open trading system, on which in fact their past impressive economic performance has been predicated. An important challenge for them in the 1990s is to play an active role in arresting and reversing any protectionist tendencies arising from the formation of regional trading blocs and to support multilateral initiatives such as the Uruguay Round that promote global trade liberalization.

Development strategies, foreign trade regimes, and agricultural incentives in Asia

The developing countries (LDCs) of Asia are a highly diverse group, encompassing a wide range of cultures, political and social structures, and economic organizations. Given the subject of this paper, our interest here is in the experiences of nonsocialist Asian economies in which agriculture has been a dominant sector (specifically, accounting for at least 25% of GDP and 50% of total employment in the early 1970s). Even within this group, comprised of nine LDCs in East and South Asia, significant differences in per capita income and in economic growth performance are shown (Table 1). A large majority of the population in these countries, especially the lowerincome countries, still live in rural areas, where agriculture and related production activities represent the principal means of livelihood, and in which productivity per person is typically the lowest in the economy. It seems inconceivable that sustained expansion of the national economy can be achieved without raising agricultural productivity and rural income. Yet experience in the past four decades suggests that the development strategies and policies adopted by many Asian LDC governments have paid insufficient attention to agricultural development as a means to promote overall economic growth. Section II of this paper provides a stylized description of the evolution and major economic consequences of LDC development strategies, indicating also how some Asian developing countries have deviated from the general pattern and what the less hospitable external environment in prospect would imply for the choice of development strategy. The effects on agricultural production incentives, both direct and indirect (the latter through the induced real exchange rate changes), are then examined more closely for the nine Asian LDCs in Section III, drawing on empirical

Foreign Borrowing as Dutch Disease: A Quantitative Analysis for the Philippines

This Paper investigates the economy-wide effects of increased foreign borrowing in the empirical context of the Philippines, using a multi-sectoral, general equilibrium model. The focus of the analysis is on the comparative static repercussions of the domestic spending of externally borrowed funds and on the resource allocation effects of the appreciation of the Philippine peso induced by the expanded supply of foreign exchange. The results of model simulation indicate, among other findings, a relatively small impact on national income, with rural income increasing by much less than urban income. [430]

Modeling the price competitiveness of Indonesian crops

Abstract In this article, we examine quantitatively the determinants of relative domestic prices of four major nonrice crops in Indonesia using an analytical framework that distinguishes between the effects of domestic policies and external factors. A decomposition analysis is undertaken on the changes in price competitiveness of each crop between subperiods during 1970–1994, involving the following components: (a) changes in the foreign price; (b) changes in the real exchange rate; and (c) changes in sectoral protection. To disentangle the effects of domestic policies, a real exchange rate equation is econometrically estimated for Indonesia in which the main explanatory variables are the external terms of trade, trade policy, current account balance (assumed dependent on macroeconomic policies), and the nominal exchange rate (a short-run influence).

Domestic Terms of Trade and Agricultural Growth in Developing Countries

Writing twenty years ago, Raj Krishna (1967) made a distinction between negative agricultural price policy, in which ‘the terms of trade of agriculture are deliberately depressed’, and positive price policy ‘which attempts to improve or at least maintain the terms of trade of agriculture’. He also observed that ‘a negative agricultural price policy … has been a common feature of policy in the early phases of development in capitalist as well as socialist countries’, but that there were emerging signs of ‘a reluctant turn to a positive agricultural price policy’ as developing country planners saw agricultural output failing to grow at a rate necessary to achieve the desired growth of the national economy.