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Type: Journal article
Title: What is the appropriate counterfactual when estimating effects of multilateral trade policy reform?
Author: Anderson, K.
Jensen, H.
Nelgen, S.
Strutt, A.
Citation: Journal of Agricultural Economics, 2016; 67(3):764-778
Publisher: Wiley
Issue Date: 2016
ISSN: 0021-857X
Statement of
Kym Anderson, Hans Grinsted Jensen, Signe Nelgen and Anna Strutt
Abstract: Multilateral trade reforms, such as may eventually emerge from the WTO's Doha Development Agenda (DDA), tend to be phased in over a decade or so after agreement is reached. Given the DDA's slow progress, that implementation may not be completed before the end of the next decade. Ex-ante analysis of the DDA's possible effects thus requires first modelling the world economy to 2030 and, in that process, projecting what trade-related policies might be by then without a DDA. Typically, modellers assume the counterfactual policy regime to be a ‘business-as-usual’ projection assuming the status quo. Yet we know developing country governments tend to switch from taxing to assisting farmers in the course of economic development. This paper shows the difference made by including political economy-determined agricultural protection growth endogenously in the baseline projection. We reveal that difference by projecting the world economy to 2030 using the Global Trade Analysis Project (GTAP) model with those two alternative policy regimes and then simulating a move to global free trade (the maximum benefit from a multilateral trade reform) in each of those two cases. The welfare effects of removing the counterfactual price distortions in 2030 are shown to be much larger in the case where agricultural protection grows endogenously than in the case assuming no policy changes over the projection period. This suggests the traditional way of estimating effects of a multilateral agricultural trade agreement may considerably understate the potential welfare gains.
Keywords: Agricultural protection growth; gains from trade liberalisation; global economy-wide model projections; multilateral trade reform
Description: First published: 25 July 2016
Rights: © 2016 The Agricultural Economics Society
DOI: 10.1111/1477-9552.12181
Grant ID: ARC
Published version:
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