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GTAP Resource #1489

"Policy reform in agriculture and the environment: Linkages in the crops sector "
by Tsigas, Marinos


Abstract
In many OECD countries, a wide range of economic policies affects crop sectors. Thus, multilateral trade liberalization and reduction in support in food and agriculture may have significant impacts on crop production. Policy reform impacts may include changes in natural and environmental resources through changes in the location and scale of crop production as well as in the composition of inputs. This work analyses environmental impacts of multilateral food and agriculture policy reform on crops using various environmental and economic indicators.

Utpal Vasavada and Wesley Nimon reviewed the empirical literature
regarding environmental impacts of trade liberalization in agriculture and
they found that the overall impact may depend on several and offsetting
effects and that coordination of trade and environmental policies may promote a more sustainable pattern of natural resource use. Marinos Tsigas, Denise Gray and Thomas Hertel (2002) extended the GTAP framework to model linkages between trade and environment. The authors found that freer trade in the Americas may lead to changes in production patterns and to more pollution in some regions. The authors also found that if environmental resources are priced correctly and environmental regulations are enforced, freer trade will lead to less pollution.

This paper focuses on the environmental impacts of multilateral policy
reform in food and agriculture. The GTAP framework is used to quantify
impacts on trade, production and input use for crop sectors and their
environmental implications. Information from environmental databases
supplements the GTAP analysis to assess impacts on pesticide use, nitrogen
uptake and off load, and greenhouse gas emissions. This analysis does not
consider the alleviating influence of existing environmental policies and
regulations.

We assess the environmental impacts of two hypothetical multilateral food
and agriculture policy reform scenarios. First, we simulate an extension of the Uruguay Round Agreement on Agriculture. Second, we simulate the elimination of all food and agriculture policy measures. In each scenario, liberalization is limited to food and agriculture.

GTAP assumptions regarding agricultural production are relaxed and the
production functions are specified as two-level constant-elasticity-of-
substitution functions (Kazuo Sato, 1967). It is assumed that in one
subprocess, capital (or machinery) is a factor to substitute for labor; in
the other subprocess, agri-chemicals (i.e., fertilizer and pesticides) is
a factor to substitute for land (Yujiro Hayami and Vernon Ruttan, 1970;
Yoav Kislev and Willis Peterson, 1982).

The trade implications of multilateral policy liberalization in food and
agriculture are sensitive to the trade elasticities assumed. To examine
the robustness of the environmental implications, simulations are performed with two alternative sets of trade elasticities: the standard GTAP elasticities and more recent trade elasticities from the work of David Hummels (1999).

References

Hayami, Y. and V.W. Ruttan (1970), “Factor Prices and Technical Change in Agricultural Development: The United States and Japan, 1880-1960,” The
Journal of Political Economy, 78(5):1115-1141, Sept.-Oct.

Hummels, D., (1999), Towards a Geography of Trade Costs, GTAP Working
Paper No. 17, Center for Global Trade Analysis, Purdue University, West
Lafayette, Indiana.

Kislev, Y. and W. Peterson (1982), “Prices, Technology, and Farm Size,”The Journal of Political Economy, 90(3):578-595, June.

K., Sato (1967), “A Two-Level Constant-Elasticity-of-Substitution
Production Function,” The Review of Economic Studies, 34(2):201-218,
April.

Tsigas, M., D. Gray, and T. W. Hertel (2002), “How to Assess the
Environmental Impacts of Trade Liberalization,” selected paper, Fifth
Annual Conference on Global Economic Analysis, National Tsing Hua University, Taipei, 5-7 June.

Vasavada, U. and W. Nimon, “Environmental Effects of Further Trade Liberalization in Agriculture,” Economic Research Service, U.S. Department of Agriculture, found at
http://www.ers.usda.gov/briefing/wto/PDF/environmentandtradeliberalization
.pdf, retrieved 30 June, 2003.


Resource Details (Export Citation) GTAP Keywords
Category: 2004 Conference Paper
Status: Published
By/In: Presented at the 7th Annual Conference on Global Economic Analysis, Washington DC, USA
Date: 2004
Version:
Created: Tsigas, M. (4/30/2004)
Updated: Ahmed, S. (9/13/2004)
Visits: 5,605
No keywords have been specified.


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