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GTAP Resources: Resource Display

GTAP Resource #1311

"Price and Welfare Effects of Agricultural Liberalization with Imperfect Competition in Food Industries and Trade"
by Laborde, David and Jacques Le Cacheux


Abstract
Liberalization of the agricultural sector will prove critical to success or failure of the Doha negotiations. On the one hand, tariff and subsidies reduction will allow developing countries to specialize in the agricultural sector, following their comparative advantages. On the other hand, the fall in agricultural prices will improve the consumer welfare of the rich countries. Most of the studies about trade liberalization assume perfect competition in the food industry and we think that it is misleading. Farmers do not sell directly theirs produces to consumers. The role of the food processing industry, as an intermediary, must be taken into account and this sector may be the real winner of the trade liberalization. The purpose of this paper is to examine the consequences of an imperfect competition in the food processing market on the gains of trade liberalization
The framework of analysis is a general equilibrium model with a multi-region and multi-sector specification that follows the standard theoretical specifications of trade focused CGE models. The base year is 1997 and most of the data come from the database of the Global Trade Analysis Project (GTAP), version 5. Several comparative static analyses are carried out from this benchmark.
Nine regions are considered: MERCOSUR, EU, Central and Eastern European countries, NAFTA, Australia & New Zealand, Rest of American countries, Sub-Saharan Africa, Rest of the developed countries and Rest of the developing countries. All regions are fully endogenized and linked through trade. The desegregation for the agricultural and food processing goods is the maximum possible included in the GTAP v.5 database (21 produces are considered). There are four factors of production: skilled labor, unskilled labor, capital, land and natural resources. Whereas the sector of raw agricultural products and the manufacturing sectors products are perfectly competitive, we assume, alternately, perfect competition, monopolistic competition and Cournot competition for food processing sectors. Trade restrictions are measured as ad valorem tariff equivalents. Tariffs, exports and production subsidies introduce price distortions. Factor markets equilibrate through the interaction of demand, supply (exogenous) and prices.
We simulate several trade liberalization scenarios. Following a multilateral perspective, we study partial and full market access for all sectors. Moreover, a simulation is run in order to estimate the consequences of the announcement of the European Commission (December 2002) to cut by half its different restrictions to trade (tariffs, production and export subsidies) from the year 2006.
Our main results underline the fact that imperfect competition in food processing sectors weakens the case of trade liberalization. As the fall in consumer prices is low, the consumer welfare and the agricultural production of developing countries do not rise in the same proportion as under perfect competition. Most of the gains of agricultural liberalization are captured by the food processing industry.


Resource Details (Export Citation) GTAP Keywords
Category: GTAP Application
2003 Conference Paper
Status: Published
By/In: Presented at the 6th Annual Conference on Global Economic Analysis, The Hague, The Netherlands
Date: 2003
Version:
Created: Laborde, D. (5/14/2003)
Updated: Bacou, M. (9/27/2003)
Visits: 1,693
No keywords have been specified.


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