The Uruguay Round and Welfare in Some Distorted Agricultural Economies
James E. Anderson
There is widespread concern that the Uruguay Round may reduce the welfare of developing countries through its effect on world agricultural prices. Reduced agricultural price distortions among major supplying nations are predicted to increase basic food prices and decrease some important export prices such as those for coffee and cotton. It appears that raising food prices paid by food importers must be bad for them, while reducing world coffee and cotton prices appears bad for exporters of those products. Appearances may be deceiving, however, since theory shows that a distortion effect operates alongside the standard terms of trade effect. I report here distortion effects which are many times larger" than terms of trade effects in an analysis of the Uruguay Round's impact on 9 agricultural economies. I deploy a simple Computable General Equilibrium model. The 9 developing economies are distorted by domestic agricultural distortions in 15 markets, along with hundreds of 4 digit nonagricultural tariffs and quotas. In 3 of 9 countries, the distortion effect reverses the impact of the terms of trade effect. In 2 other countries the distortion effect raises a trivial terms of trade effect up to around 1% of national income.
There is widespread concern about the effect of the Uruguay Round policy changes on world agricultural prices and consequently upon the welfare of developing countries. Assessing welfare changes with the standard terms of trade effect calculation can be misleading for distorted economies, since the distortion effect operates in addition or in opposition to the terms of trade effect. This study reveals distortion effects which are many times larger than terms of trade effects in a study of the Uruguay Round's impact on 9 agricultural economies. In 3 of 9 cases, the distortion effect reverses the impact of the terms of trade effect. In 2 other cases the distortion effect raises a trivial terms of trade effect up to around 1% of national income.
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