General Equilibrium Measures of Agricultural Policy Bias in Fifteen Developing Countries

A comparative analysis of 15 developing countries shows that, during the 1990s, indirect taxes, tariffs, and exchange rates significantly discriminated against agriculture in only one country (Malawi), was largely neutral in five (Argentina, Brazil, Costa Rica, Indonesia, and Zimbabwe), provided a moderate subsidy to agriculture in four (Mexico, Tanzania, Venezuela, and Zambia), and strongly favored agriculture in five (Egypt, Korea, Morocco, Mozambique, and Tunisia). In contrast to earlier partial equilibrium results, our general equilibrium analysis indicates that exchange rate changes can lead to anything between strongly increasing and strongly decreasing relative agriculture/non-agriculture incentives, depending on relative trade shares and relative tradability of agricultural and non-agricultural commodities. Country-specific circumstances greatly affect the relative impact of trade policies on agriculture and the rest of the economy in a general equilibrium setting. Earlier partial equilibrium measures of policy bias could not adequately incorporate country heterogeneity and are therefore likely to have overstated the bias. In any case, from the empirical results with our sample of countries, we conclude that any incentive bias against agriculture in the 1980s had mostly disappeared by the 1990s.